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. 16 [X]
and
REGISTRATION STATEMENT (No. 811-6454)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 16 [X]
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 28, 1997 pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) on ( ) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed
post-effective amendment.
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 March 1, 1997.
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
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Fund at a Glance;
Who May Want to Invest
3 a .............................. Financial Highlights
b .............................. *
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Fund at a Glance; Investment
Principles and Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment
Principles and Risks
5 a .............................. Charter
b i............................. Cover Page; The Fund at a Glance;
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............................ *
..
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell
Shares; Transaction Details;
Exchange Restrictions
iii.......................... Charter
b ............................. Charter
c .............................. Transaction Details;
Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How
to Buy Shares; How to Sell Shares;
Investor Services
f, g .............................. Dividends, Capital Gains, 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
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trust
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR; Portfolio Transactions
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trust
i ............................ Contracts with FMR Affiliates
17 a - d ............................ Portfolio Transactions
e ............................ *
18 a ............................ Description of the Trust
b ............................ *
19 a ............................ Additional Purchase and Redemption
Information
b ............................ Additional Purchase and Redemption
Information; Valuation
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ *
b ............................ Performance
23 ............................ Financial Statements for the fiscal
period ended December 31, 1996 are
incorporated herein by reference.
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
each fund's most recent financial reports and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated February 2 8 ,
1997. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is available along with other related materials on the SEC's
Internet Web site (http://www.sec.gov). The SAI is incorporated herein by
reference (legally forms a part of the prospectus). For a free copy of
either document, call Fidelity at 1-800-544-8888.
Investments in the money market 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.
Each money market fund may invest a significant percentage of its assets in
the securities of a single issuer and therefore may be riskier than other
types of money market funds.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, Federal
Reserve Board or any other agency, and are subject to investment risks,
including the possible loss of principal amount invested.
FIDELITY
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
(fund number 420, trading symbol FMIXX)
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
(fund number 419, trading symbol FOMXX)
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
(fund number 081, trading symbol FMHTX)
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
(fund number 082, trading symbol FIMIX)
FIDELITY OHIO MUNICIPAL INCOME FUND
(fund number 088, trading symbol FOHFX)
PROSPECTUS
F EBRUARY 28, 1997 (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-0297
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. (FMR Texas), a
subsidiary of FMR, chooses investments 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.
SIZE: As of December 31, 1996, the fund had over $ 260 million in
assets.
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.
SIZE: As of December 31, 1996, the fund had over $ 327 million in
assets.
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Michigan residents.
STRATEGY: Invests normally in investment grade municipal securities whose
interest is free from federal income tax and Michigan income tax.
SIZE: As of December 31, 1996, the fund had over $ 455 million in
assets.
MINNESOTA MUNICIPAL INCOME
GOAL: High current tax-free income for Minnesota residents.
STRATEGY: Invests normally in investment grade municipal securities whose
interest is free from federal income tax and Minnesota personal income tax.
SIZE: As of December 31, 1996, the fund had over $ 294 million in
assets.
OHIO MUNICIPAL INCOME
GOAL: High current tax-free income for Ohio residents.
STRATEGY: Invests normally in investment grade municipal securities whose
interest is free from federal income tax and Ohio individual income tax.
SIZE: As of December 31, 1996, the fund had over $ 381 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 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
shares of the bond funds, 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 SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Ohio
Municipal Money Market and
Michigan Municipal Money
Market are in the MONEY
MARKET category, and
Minnesota Municipal Income,
Michigan Municipal Income,
and Ohio Municipal Income
are in the INCOME category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy or
sell shares of a fund. In addition, you may be charged an annual account
maintenance fee if your account balance falls below $2,500. See
"Transaction Details," page , for an explanation of how and when these
charges apply.
Maximum sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions None
Exchange fee None
Annual account maintenance fee $12.0
(for accounts under $2,500) 0
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 following figures on page are based on historical expenses, and
are calculated as a percentage of average net assets. Each fund has entered
into arrangements with its custodian and transfer agent whereby interest
earned on uninvested cash balances is used to reduce custodian and transfer
agent expenses. Including these reductions, the total operating expenses
presented in the table would have been . 62% for Michigan Municipal
Money Market and .59 % for Ohio Municipal Money Market.
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)
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as described on page 6. For
every $1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
MICHIGAN MONEY MARKET
Operating expenses Example
Management fee .40 % After 1 year $ 6
12b-1 fee None After 3 $ 20
years
Other expenses .21 % After 5 $ 34
years
Total fund operating expenses .61 % After 10 $ 76
years
OHIO MONEY MARKET
Operating expenses Example
Management fee .40 % After 1 year $ 6
12b-1 fee None After 3 $ 19
years
Other expenses .20 % After 5 $ 33
years
Total fund operating expenses .60 % After 10 $ 75
years
MICHIGAN MUNICIPAL INCOME
Operating expenses Example
s
Management fee .40 % After 1 year $ 6
12b-1 fee None After 3 $ 19
years
Other expenses .19 % After 5 $ 33
years
Total fund operating expenses .59 % After 10 $ 74
years
MINNESOTA MUNICIPAL INCOME
Operating expenses Example
Management fee .40 % After 1 year $ 6
12b-1 fee None After 3 $ 19
years
Other expenses .20 % After 5 $ 33
years
Total fund operating expenses .60 % After 10 $ 75
years
OHIO MUNICIPAL INCOME
Operating expenses Example
Management fee .40 % After 1 year $ 6
12b-1 fee None After 3 $ 19
years
Other expenses .19 % After 5 $ 33
years
Total fund operating expenses .59 % After 10 $ 74
years
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow contain annual
information which has been audited by Coopers & Lybrand L.L.P.,
independent accountants. The funds' financial highlights, financial
statements, and report of the auditor are included in each fund's Annual
Report, and are incorporated by reference into (are legally a part of) the
funds' SAI. Contact Fidelity for a free copy of an Annual Report or the
SAI.
MICHIGAN MUNICIPAL MONEY MARKET
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1.Selected Per-Share Data
and Ratios
2.Years ended 1996 1995 1994 1993 1992 1991 1990B
December 31
3.Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
value,
beginning of
period
4.Income from .030 .033 .024 .020 .026 .044 .055
Investment
Operations
Net interest
income
5.Less (.030) (.033) (.024) (.020) (.026) (.044) (.055)
Distributions
From net
interest income
6.Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
value, end
of period
7.Total returnC 3.00% 3.38 2.44 1.98 2.66% 4.46% 5.66%
% % %
8.Net assets, $ 260,592 $ 231,25 $ 221,73 $ 175,19 $ 160,817 $ 175,150 $ 169,397
end of period 9 5 0
(000 omitted)
9.Ratio of .62% .63 .61 .62 .49% .21% .22%
expenses to % % % D D A,D
average net
assets
10.Ratio of .61% .63 .61 .62 .49% .21% .22%
expenses to E % % % A
average net
assets after
expense
reductions
11.Ratio of net 2.96% 3.32 2.45 1.96 2.64% 4.38% 5.78%
interest income % % % A
to average net
assets
</TABLE>
A ANNUALIZED
B JANUARY 12, 1990 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1990.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
OHIO MUNICIPAL MONEY MARKET
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12.Selected Per-Share
Data and Ratios
13.Years ended 1996 1995 1994 1993 1992 1991 1990 1989B
December 31
14.Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
value, beginning
of period
15.Income from .030 .034 .025 .021 .028 .044 .058 .021
Investment
Operations
Net interest
income
16.Less (.030) (.034) (.025) (.021) (.028) (.044) (.058) (.021)
Distributions
From net interest
income
17.Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
value, end
of period
18.Total
returnC 3.08% 3.48% 2.50% 2.09% 2.81% 4.50% 5.90% 2.15%
19.Net
assets, end $ 327,5 $ 296,2 $ 301,6 $ 262,3 $ 270,2 $ 247,8 $ 213,6 $ 57,748
of period (000 93 20 91 71 48 85 58
omitted)
20.Ratio of .60% .61% .57% .59% .58%D .47%D .23%D .00%D
expenses to
average net
assets
21.Ratio of .59%E .61% .57% .59% .58% .47% .23% .00%
expenses to
average net
assets after
expense
reductions
22.Ratio of
net 3.03% 3.42% 2.48% 2.07% 2.78% 4.41% 5.77% 6.37%A
interest income to
average net
assets
</TABLE>
A ANNUALIZED
B FOR THE PERIOD AUGUST 29, 1989 (COMMENCEMENT OF SALE OF SHARES) TO
DECEMBER 31, 1989
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
MICHIGAN MUNICIPAL INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23.Selected Per-Share
Data and Ratios
24.Years ended 1996 1995 1994 1993B 1992 1991 1990 1989 1988 1987
December 31
25.Net asset $11.5 $ 10.5 $ 12.3 $ 11.7 $ 11.4 $ 10.8 $ 11.1 $ 10.7 $ 10.2 $ 11.3
value,
beginning 60 80 40 10 10 90 00 90 50 80
of period
26.Income from .630D .611 .687 .709 .733 .745 .758 .759 .754 .774
Investment
Operations
Net interest
income
27. Net realized(.258) .980 (1.590 .870 .320 .520 (.210) .310 .540 (1.090
and ) )
unrealized gain
(loss)
28. Total from .372 1.591 (.903) 1.579 1.053 1.265 .548 1.069 1.294 (.316)
investment
operations
29.Less (.630) (.611) (.687) (.709) (.733) (.745) (.758) (.759) (.754) (.774)
Distributions
From net
interest
income
30. In excess of(.002) -- -- -- -- -- -- -- -- --
net interest E
income
31. From net -- -- (.080) (.240) (.020) -- -- -- -- (.040)
realized gain
32. In excess of-- -- (.090) -- -- -- -- -- -- --
net
realized gain
33. Total (.632) (.611) (.857) (.949) (.753) (.745) (.758) (.759) (.754) (.814)
distributions
34.Net asset $ 11.3 $ 11.5 $ 10.5 $ 12.3 $ 11.7 $ 11.4 $ 10.8 $ 11.1 $ 10.7 $ 10.2
value, end 00 60 80 40 10 10 90 00 90 50
of period
35.Total returnA3.38% 15.41 (7.50) 13.83 9.54% 12.04 5.15 10.21 13.01 (2.81)
% % % % % % % %
36.Net assets, $ 456 $ 492 $ 434 $ 563 $ 464 $ 379 $ 279 $ 234 $ 171 $ 128
end of period (In
millions)
37.Ratio of .59% .59% .57% .59% .61% .62% .64% .69% .75% .72%C
expenses to
average net
assets
38.Ratio of net 5.52% 5.49% 6.04% 5.79% 6.36% 6.73% 6.98 6.92% 7.12 7.25%
interest income % %
to average net
assets
39.Portfolio 29% 29% 18% 33% 15% 12% 18% 19% 24% 44%
turnover rate
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B 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.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
D NET INTEREST INCOME PER SHARE REFLECTS A PAYMENT OF APPROXIMATELY $.049
RECEIVED FROM AN ISSUER THAT IS IN BANKRUPTCY.
E THE AMOUNT SHOWN REFLECTS CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
MINNESOTA MUNICIPAL INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40.Selected Per-Share Data
and Ratios
41.Years ended 1996 1995 1994 1993B 1992 1991 1990 1989 1988 1987
December 31
42.Net asset $11.10 $ 10.1 $ 11.5 $ 10.8 $ 10.7 $ 10.5 $ 10.5 $ 10.3 $ 9.82 $ 10.9
value, 0 30 20 50 30 50 20 10 0 90
beginning of
period
43.Income from .562 .613 .633 .647 .674 .690 .699 .711 .711 .722
Investment
Operations
Net interest
income
44. Net
realized (.160) .972 (1.31 .670 .120 .180 .030 .210 .490 (1.14
and 0) 0)
unrealized gain
(loss)
45. Total from .402 1.585 (.677) 1.317 .794 .870 .729 .921 1.201 (.418)
investment
operations
46.Less (.562) (.613) (.633) (.647) (.674) (.690) (.699) (.711) (.711) (.722)
Distributions
From net
interest
income
47. From net -- -- (.060) -- -- -- -- -- -- (.030)
realized gain
48. In excess
of -- (.002) (.020) -- -- -- -- -- -- --
net
realized gain
49. Total .(562) (.615) (.713) (.647) (.674) (.690) (.699) (.711) (.711) (.752)
distributions
50.Net asset $10.9 $ 11.10 $ 10.1 $ 11.5 $ 10.8 $ 10.7 $ 10.5 $ 10.5 $ 10.3 $ 9.82
value, end
40 0 30 20 50 30 50 20 10 0
of period
51.Total
returnA 3.78% 16.00 (6.01) 12.42 7.63 8.50 7.22 9.24 12.61 (3.83)
% % % % % % % % %
52.Net assets, $ 294 $ 315 $ 277 $ 342 $ 281 $ 222 $ 167 $ 131 $ 100 $ 79
end of period
(In
millions)
53.Ratio of .60% .57% .59% .61% .67% .72% .76% .80% .82% .79%
expenses to C
average net
assets after
expense
reductions
54.Ratio of net5.15% 5.69% 5.97 5.73 6.25 6.47 6.72 6.84 7.06 7.04
interest income % % % % % % % %
to average net
assets
55.Portfolio 17% 49% 26% 37% 12% 14% 29% 25% 31% 63%
turnover rate
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISC
LOSURE, 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.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
OHIO MUNICIPAL INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
56.Selected
Per-Share Data 57. 58. 59. 60. 61. 62. 63. 64.
and Ratios
65.Years ended 1996 1995 1994 1993C 1992 1991 1990 1989 1988 1987
December 31
66.Net asset $ 11.5 $ 10.5 $ 12.0 $ 11.5 $ 11.3 $ 10.8 $ 10.7 $ 10.5 $ 9.97 $ 10.9
value, 90 20 20 50 20 40 90 00 0 70
beginning of
period
67.Income from .560 .618 .657 .693 .718 .719 .726 .725 .722 .740
Investment
Operations
Net interest
income
68. Net
realized (.090) 1.070 (1.310 .720 .230 .480 .050 .290 .530 (1.000
and ) )
unrealized gain
(loss)
69. Total from .470 1.688 (.653) 1.413 .948 1.199 .776 1.015 1.252 (.260)
investment
operations
70.Less (.560) (.618) (.657) (.693) (.718) (.719) (.726) (.725) (.722) (.740)
Distributions
From net
interest
income
71. From net (.070) -- (.190) (.250) -- -- -- -- -- --
realized
gain
72. Total (.630) (.618) (.847) (.943) (.718) (.719) (.726) (.725) (.722) (.740)
distributions
73.Net asset $ 11.4 $ 11.5 $ 10.5 $ 12.0 $ 11.5 $ 11.3 $ 10.8 $ 10.7 $ 10.5 $ 9.97
value, end
30 90 20 20 50 20 40 90 00 0
of period
74.Total
return A 4.23 16.39 (5.55) 12.56 8.66 11.45 7.50 9.99 12.93 (2.38)
% % % % % % % % % %
75.Net assets, $ 382 $ 404 $ 350 $ 458 $ 385 $ 328 $ 242 $ 201 $ 153 $ 117
end of period
(In millions)
76.Ratio of .59% .58% .57% .57% .61% .64% .66% .71% .73% .79%B
expenses to
average net
assets
77.Ratio of net4.93 5.52 5.88% 5.67 6.31 6.53 6.82 6.79 7.08 7.09%
interest income% % % % % % % %
to average net
assets
78.Portfolio 43% 48% 22% 41% 20% 11% 12% 22% 23% 36%
turnover rate
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
C 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.
Each fund's fiscal year runs from January 1 through December 31. The
following table shows each fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average for the bond funds and a measure of inflation
for the money market funds . Data for the comparative indexes for the
bond funds is available only from June 30, 1993 to the present. The charts
on page present calendar year performance for each bond fund.
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 RETURNS
Average Annual Total Cumulative Total Returns
Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal periods Past 1 Past 5 Past 10 Past 1 Past 5 Past 10
ended year years Years/Lif year years Years/Lif
December 31, e e
1996 of Fund of Fund
Michigan 3.00 2.69 3.37 3.00 14.20 26.05
Municipal % % %A % % %A
Money Market
Ohio Municipal 3.08 2.79 3.60 3.08 14.75 29.72
% % %B % % %B
Money Market
Consumer 3.32 2.84 3.68 3.32 15.01 43.53
Price % % % % % %
Index
Michigan 3.38 6.59 6.97 3.38 37.60 96.24
Municipal % % % % % %
Income
Lehman Bros. 4.47 n/a n/a 4.47 n/a n/a
MI Muni. Bond % %
Index
Lipper MI 3.17 6.78 6.99 3.17 38.84 96.64
Muni. Debt % % % % %
Funds Avg.
Minnesota 3.78 6.48 6.54 3.78 36.90 88.41
Municipal % % % % % %
Income
Lehman Bros. 4.17 n/a n/a 4.17 n/a n/a
MN Enh. Muni. % %
Bond Index
Lipper MN 3.11 6.51 6.67 3.11 37.09 90.83
Muni. Debt % % % % % %
Funds Avg.
Ohio Municipal 4.23 6.98 7.37 4.23 40.15 103.59
% % % % % %
Income
Lehman Bros. 4.60 n/a n/a 4.60 n/a n/a
OH 4+ Yr. % %
Muni. Bond
Index
Lipper OH 3.35 6.83 6.97 3.35 39.16 96.39
Muni. Debt % % % % % %
Funds Avg.
</TABLE>
A FROM COMMENCEMENT OF OPERATIONS (JANUARY 12, 1990)
B FROM COMMENCEMENT OF OPERATIONS (AUGUST 29, 1989)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given period,
assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time. An
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as
actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond funds
are calculated according to a standard that is required for all stock and
bond funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders.
LEHMAN BROTHERS MICHIGAN MUNICIPAL BOND INDEX is a total return performance
benchmark for Michigan investment-grade municipal bonds with maturities of
at least one year.
LEHMAN BROTHERS MINNESOTA ENHANCED MUNICIPAL BOND INDEX is a total return
performance benchmark for Minnesota investment-grade municipal bonds with
maturities of at least one year.
LEHMAN BROTHERS OHIO 4 PLUS YEAR MUNICIPAL BOND INDEX is a total return
performance benchmark for Ohio investment-grade municipal bonds with
maturities of at least four years.
Unlike the fund's returns, the total returns of the comparative index do
not include the effect of any brokerage commissions, transaction fees, or
other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper Michigan Municipal Debt Funds
Average for Michigan Municipal Income, Lipper Minnesota Municipal Debt
Funds Average for Minnesota Municipal Income, and Lipper Ohio Municipal
Debt Funds Average for Ohio Municipal Income, which currently reflect the
performance of over 49 , 44 , and 56 mutual funds with
similar investment objectives, respectively. These averages, published by
Lipper Analytical Services, Inc., exclude the effect of sales charges.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
MICHIGAN INCOME -2.81% 13.01% 10.21% 5.15% 12.04% 9.54% 13.83%
- -7.50% 15.
41% 3.38%
Lipper MI Muni Debt Funds Avg. -2.58% 12.39% 9.80% 5.59% 11.56% 9.03%
12.40% -5.
87% 16.89% 3.17 %
Consumer Price Index 4.43% 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54%
3.32
%
Percentage (%)
Row: 1, Col: 1, Value: -2.81
Row: 2, Col: 1, Value: 13.01
Row: 3, Col: 1, Value: 10.21
Row: 4, Col: 1, Value: 5.149999999999999
Row: 5, Col: 1, Value: 12.04
Row: 6, Col: 1, Value: 9.539999999999999
Row: 7, Col: 1, Value: 13.83
Row: 8, Col: 1, Value: -7.5
Row: 9, Col: 1, Value: 15.41
Row: 10, Col: 1, Value: 3.38
(LARGE SOLID BOX) Michigan
Municipal
Income
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
MINNESOTA INCOME -3.83% 12.61% 9.24% 7.22% 8.50% 7.63% 12.42% -6.01%
16.00%
3.78%
Lipper MN Muni Debt Funds Avg. -1.80% 11.15% 9.59% 6.51% 10.10% 8.17%
11.92%
- -5.99% 15.39% 3.11 %
Consumer Price Index 4.43% 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54%
3.32
%
Percentage (%)
Row: 1, Col: 1, Value: -3.83
Row: 2, Col: 1, Value: 12.61
Row: 3, Col: 1, Value: 9.239999999999998
Row: 4, Col: 1, Value: 7.22
Row: 5, Col: 1, Value: 8.5
Row: 6, Col: 1, Value: 7.63
Row: 7, Col: 1, Value: 12.42
Row: 8, Col: 1, Value: -6.01
Row: 9, Col: 1, Value: 16.0
Row: 10, Col: 1, Value: 3.78
(LARGE SOLID BOX) Minnesota
Municipal
Income
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
OHIO INCOME -2.38% 12.93% 9.99% 7.50% 11.45% 8.66% 12.56% -5.55% 16.39
% 4.23%
Lipper OH Muni Debt Funds Avg. -2.10% 12.15% 9.62% 6.43% 11.41% 8.85%
12.26%
- -6.14% 16.81% 3.35 %
Consumer Price Index 4.43% 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54%
3.32
%
Percentage (%)
Row: 1, Col: 1, Value: -2.38
Row: 2, Col: 1, Value: 12.93
Row: 3, Col: 1, Value: 9.99
Row: 4, Col: 1, Value: 7.5
Row: 5, Col: 1, Value: 11.45
Row: 6, Col: 1, Value: 8.66
Row: 7, Col: 1, Value: 12.56
Row: 8, Col: 1, Value: -5.55
Row: 9, Col: 1, Value: 16.39
Row: 10, Col: 1, Value: 4.23
(LARGE SOLID BOX) Ohio
Municipal
Income
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. Ohio Municipal Income, Michigan
Municipal Income, and Minnesota Municipal Income are currently
non-diversified funds of Fidelity Municipal Trust. Michigan Municipal Money
Market and Ohio Municipal Money Market are currently non-diversified funds
of Fidelity Municipal Trust II. Both trusts are open-end management
investment companies. Fidelity Municipal Trust was organized as a Maryland
corporation on November 22, 1976, and reorganized as a Massachusetts
business trust on June 22, 1984. Fidelity Municipal Trust II was organized
as a Delaware business trust on June 20, 1991. There is a remote
possibility that one fund might become liable for a misstatement in the
prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review the funds' performance. The 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 funds
you are entitled to one vote for each share you own. For shareholders of
the bond funds the number of votes you are entitled to is based upon the
dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FMR Texas, located in Irving, Texas, has primary
responsibility for providing investment management services for the money
market funds.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds in
the world.
(solid bullet) Number of Fidelity mutual
funds: over 225
(solid bullet) Assets in Fidelity mutual
funds: over $ 432 billion
(solid bullet) Number of shareholder
accounts: over 29 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 270
(checkmark)
David Murphy is vice president and manager of Michigan Municipal Income,
which he has managed since May 1996. He also manages several other Fidelity
funds, Mr. Murphy joined Fidelity in 1989.
Jonathan Short is manager of Minnesota Municipal Income, which he has
managed since October 1995. He also manages several other bond funds. Mr.
Short joined Fidelity in 1990 as a municipal bond analyst.
Steven Harvey is manager of Ohio Municipal Income, which he has managed
since July 1994. He also manages several other bond funds. Mr. Harvey
joined Fidelity in 1986 as a senior bond analyst.
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 Servi ce Company, Inc. (FSC ) performs
certain transfer agent servicing functions for each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members of
the Edward C. Johnson 3d family are the predominant owners of a class of
shares of common stock representing approximately 49% of the voting power
of FMR Corp. Under the Investment Company Act of 1940 (the 1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for each fund. UMB is located at 1010 Grand Avenue,
Kansas City, Missouri.
A broker-dealer may use a portion of the commissions paid by a fund to
reduce custodian or transfer agent fees for that fund. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to carry out
a fund's transactions, provided that the fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
EACH FUND'S INVESTMENT
APPROACH
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will change
daily based on changes in interest rates and market conditions. Money
market funds follow industry-standard guidelines on the quality, maturity,
and diversification of their investments, which are designed to help
maintain a stable $1.00 share price. Of course, there is no guarantee that
a money market fund will be able to maintain a stable $1.00 share price. It
is possible that a major change in interest rates or a default on a fund's
investments could cause its share price (and the value of your investment)
to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn income
at current money market rates. In managing money market funds, FMR stresses
preservation of capital, liquidity, and income. The fund will purchase only
high-quality securities that FMR believes present minimal credit risks and
will observe maturity restrictions on securities it buys.
MICHIGAN MUNICIPAL MONEY MARKET and OHIO MUNICIPAL MONEY MARKET seek to
earn high current income that is free from federal income tax, its state
income tax, and other taxes in Michigan and Ohio, while maintaining a
stable $1.00 share price by investing in high-quality, short-term municipal
money market securities of all types.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types and
maturities of the securities a bond fund purchases and the credit quality
of their issuers will impact a bond fund's reaction to these events.
INTEREST RATE RISK. In general, bond prices rise when interest rates fall
and fall when interest rates rise. Longer-term bonds are usually more
sensitive to interest rate changes. In other words, the longer the maturity
of a bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or in
the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to changes in
long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of its
issuer. Changes in the financial condition of an issuer, changes in general
economic condit ions, and changes in specific economic conditions
that affect a particular type of issuer can impact the credit quality of an
issuer. Lower quality bonds generally tend to be more sensitive to these
changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity that
issued them and/or other revenue streams. Municipal security values may be
significantly affected by political changes, as well as, uncertainties in
the municipal market related to taxation or the rights of municipal
securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond includes
both income and price gains or losses. In selecting investments for a bond
fund, FMR considers a bond's expected income together with its potential
for price gains or losses. While income is the most important component of
bond returns over time, a bond fund's emphasis on income does not mean the
fund invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
FMR focuses on assembling a portfolio of income-producing bonds that it
believes will provide the best balance between risk and return within the
range of eligible investments for the fund. FMR's evaluation of a potential
investment includes an analysis of the credit quality of the issuer, its
structural features, its current price compared to FMR's estimate of its
long-term value, and any short-term trading opportunities resulting from
market inefficiencies.
In structuring a bond fund, FMR allocates assets among different market
sectors (for example, general obligation bonds of a state or bonds
financing a specific project) and different maturities based on its view of
the relative value of each sector or maturity. The performance of the fund
will depend on how successful FMR is in pursuing this approach.
MICHIGAN MUNICIPAL INCOME, MINNESOTA MUNICIPAL INCOME, AND OHIO MUNICIPAL
INCOME seek high current income that is free from federal income tax ,
its state income tax, and other taxes in Michigan, Minnesota, and Ohio
by investing in investment-grade municipal securities under normal
conditions.
Although each fund does not maintain an average maturity within a specified
range, FMR seeks to manage each fund so that it generally reacts to changes
in interest rates similarly to municipal bonds with maturities between
eight and 18 years.
EACH FUND normally invests in municipal securities. FMR normally
invests each fund's assets so that at least 80% of each fund's income
distributions are free from state and federal income tax. In addition, FMR
may invest all of each fund's assets in municipal securities issued to
finance private activities. The interest from these securities is a tax
preference item for purposes of the federal alternative minimum tax.
Each fund's performance is affected by the economic and political
conditions within the states of Michigan , Minnesota, and Ohio.
Michigan's economy is dominated by automobile-related industries, which
tend to be especially vulnerable to economic downturns. Also, historically
the state's unemployment rate has been higher than average, although this
was not the case in 1994, 1995 , or as of November 30, 1996.
Minnesota maintains a strong agricultural base accompanied by growth in
the service and manufacturing sectors; mining is less of a factor than in
prior years. Ohio's economy, like that of other industrially developed
states, tends to be more cyclical and vulnerable to economic downturns than
the economies of some other states and the United States as a whole.
The funds differ primarily with respect to the level of income provided and
the stability of their share price. The money market funds seek to provide
income while maintaining a stable share price. The bond funds seek to
provide a higher level of income by investing in a broader range of
securities. As a result, the bond fund s do not seek to maintain a
stable share price . F or the fiscal year ended December 31, 1996, the
dollar-weighted average maturity for Michigan Municipal Income,
Minnesota Municipal Income, and Ohio Municipal Income was 14.6, 14.4 and
12.9 years, respectively . In addition, since the money market funds
concentrate their investments in Ohio and Michigan municipal securities
respectively, an investment in the money market funds may be riskier than
an investment in other types of money market funds.
FMR may use various techniques to hedge a portion of the bond fund's risks,
but there is no guarantee that these strategies will work as intended. When
you sell your shares of the bond fund, they may be worth more or less than
what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations and the bond funds do not expect to invest in state taxable
obligations. However, during periods when FMR believes that state tax-free
obligations that meet fund standards are not available, each bond fund may
invest 20% of its assets in obligations whose interest payments are only
federally tax-exempt. Each fund also reserves the right to invest without
limitation in short-term instruments, to hold a substantial amount of
uninvested cash, or to invest more than normally permitted in federally
taxable obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each fund's investments are contained in a fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Fund holdings and recent investment strategies are detailed in each fund's
financial reports, which are sent to shareholders twice a year. For a free
SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer generally pays the investor a
fixed, variable, or floating rate of interest, and must repay the amount
borrowed at maturity. Some debt securities, such as zero coup on
bonds, do not pay current interest, but are sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of credit quality. In general, bond prices rise
when interest rates fall, and fall when interest rates rise. Longer-term
bonds and zero coupon bonds are generally more sensitive to interest rate
changes.
In addition, bond prices are also affected by the credit quality of
the issuer. Investment-grade debt securities are medium- and high-quality
securities. Some, however, may possess speculative characteristi cs,
and may be more sensitive to economic changes and to changes in the
financial condition of issuers.
RESTRICTIONS: The bond funds normally invest in investment-grade
securities, but reserve the right to invest up to 5% of their assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service (Moody's), Standard & Poor's
(S&P), Duff & Phelps Credit Rating Co., or Fitch Investor Services, L.P.,
or is unrated but judged to be of equivalent quality by FMR. Each
fund may not invest in securities judged by FMR to be of equivalent quality
to those rated lower than B by Moody's or S&P.
MONEY MARKET SECURITIES are high-quality, short-term 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.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state s of Michigan, Minnesota, and Ohio or their counties,
municipalities, authorities, or other subdivisions. The ability of issuers
to repay their debt can be affected by many factors that impact the
economic vitality of either the state or a region within the state.
Other state municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will be affected
by the strength of the U.S. dollar, interest rates, the price stability of
oil imports, and the continued existence of favorable tax incentives.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be fully or partially backed by the local government, or by the credit
of a private issuer or the current or anticipated revenues from specific
projects or assets. Because many municipal securities are issued to finance
similar types of projects, especially those relating to education, health
care, housing, transportation, and utilities, the municipal markets can be
affected by conditions in those sectors . In addition, all municipal
securities may be affected by uncertainties regarding their tax status,
legislative changes, or rights of municipal securities holders. A municipal
security may be owned directly or through a participation interest.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of credit
and liquidity enhancement, including letters of credit, guarantees, puts
and demand features, and insurance, provided by foreign or domestic
entities such as banks and other financial institutions. These arrangements
expose a fund to the credit risk of the entity providing the credit or
liquidity support. Changes in the credit quality of the provider could
affect the value of the security and a fund's share price. In addition, in
the case of foreign providers of credit or liquidity support, extensive
public information about the provider may not be available, and unfavorable
political, economic, or governmental developments could affect its ability
to honor its commitment.
ASSET-BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by a municipal issuer.
The value of these securities depends on many factors, including changes in
interest rates, the availability of information concerning the pool and its
structure, prepayment expectations, the credit quality of the underlying
assets, the market's perception of the servicer of the pool, and any credit
enhancement provided.
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, often making the security's market
value more volatile.
MUNICIPAL LEASE OBLIGATIONS are used by municipal issuers to acquire land,
equipment, or facilities. If the issuer stops making payments or transfers
its obligations to a private entity, the obligation could lose value or
become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. In exchange for this benefit, a fund may accept a
lower interest rate. The credit quality of the investment may be affected
by the credit worthiness of the put provider. Demand features and standby
commitments are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The economic viability
of a project or changes in tax incentives could affect the price of these
securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with a
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading practices
in which payment and delivery for the security take place at a later date
than is customary for that type of security. The price of the security
could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR or
its affiliates, whose goal is to seek a high level of current income exempt
from federal income tax while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
RESTRICTION: The bond funds do not currently intend to invest in a money
market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
changes in the market value of a single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified.
Generally, to meet federal tax requirements at the close of each quarter,
each fund does not invest more than 25% of its total assets in any
one issuer and, with respect to 50% of total assets, does not invest more
than 5% of its total assets in any issuer. These limitations do not apply
to U.S. G overnment securities or to the securities of other
investment companies. Each fund may invest more than 25% of its
total assets in tax-free securities that finance similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If 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.
MICHIGAN MUNICIPAL MONEY MARKET seeks as high a level of current income,
exempt from federal income tax and Michigan personal income tax, as is
consistent with the preservation of capital.
The fund will normally invest so that at least 80% of its income
distributions are exempt from federal and state income tax.
OHIO MUNICIPAL MONEY MARKET seeks as high a level of current income, exempt
from federal income tax and from Ohio personal income tax, as is consistent
with the preservation of capital.
The fund will normally invest so that at least 80% of its income
distributions are exempt from federal and state income tax.
MICHIGAN MUNICIPAL INCOME seeks a high level of current income exempt from
federal income tax and Michigan personal income tax by investing primarily
in investment-grade municipal bonds. The fund also seeks income exempt from
certain business or corporate taxes.
The fund will normally invest so that at least 80% of its income is exempt
from federal and state income taxes. During periods when FMR believes that
state tax-free obligations that meet the fund's standards are not
available, the fund may invest up to 20% of its assets in obligations whose
interest payments are only federally tax-exempt.
The fund may invest up to one-third of its assets in bonds judged by FMR to
be of equivalent quality to those rated lower than BBB or Baa but not lower
than B.
MINNESOTA MUNICIPAL INCOME seeks a high level of current income exempt from
federal income tax and Minnesota personal income tax by investing primarily
in investment-grade municipal bonds.
The fund will normally invest so that at least 80% of its income is exempt
from federal and state income taxes. During periods when FMR believes that
state tax-free obligations that meet the fund's standards are not
available, the fund may invest up to 20% of its assets in obligations whose
interest payments are only federally tax-exempt.
The fund may invest up to one-third of its assets in bonds judged by FMR to
be of equivalent quality to those rated lower than BBB or Baa but not lower
than B.
OHIO MUNICIPAL INCOME seeks a high level of current income exempt from
federal income tax and Ohio personal income tax by investing primarily in
investment-grade municipal bonds. The fund also seeks income exempt from
certain business or corporate taxes.
The fund will normally invest so that at least 80% of its income is exempt
from federal and state income taxes. During periods when FMR believes that
state tax-free obligations that meet the fund's standards are not
available, the fund may invest up to 20% of its assets in obligations whose
interest payments are only federally tax-exempt.
The fund may invest up to one-third of its assets in bonds judged by FMR to
be of equivalent quality to those rated lower than BBB or Baa but not lower
than B.
Each fund may borrow only for temporary or emergency purposes, but not in
an amount exceeding 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 funds. Each fund also
pays OTHER EXPENSES, which are explained on the following pages.
FMR may, from time to time, agree to reimburse the funds for management
fees and other expenses above a specified limit. FMR retains the ability to
be repaid by a fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee is
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets under management increase.
For December 1996, the group fee rate was . 1425 %. Each fund's
individual fund fee rate is .25%. The total management fee rates for
the fiscal year ended December 31, 1996 are presented in the
following table.
MANAGEMENT FEES
Michigan Municipal .40
Money Market %
Ohio Municipal Money .40
Market %
Michigan Municipal .40
Income %
Minnesota Municipal .40
Income %
Ohio Municipal Income .40
%
FMR Texas is Michigan Municipal Money M arket 's and Ohio
Municipal Money M arket's sub-adviser and has primary responsibility
for managing their investments. FMR is responsible for providing other
management services. FMR pays FMR Texas 50% of its management fee (before
expense reimbursements) for FMR Texas's services. FMR paid FMR Texas fees
equal to .40% of Michigan Municipal Money Market's and .40% of Ohio
Municipal Money Market's average net assets for the fiscal year ended
December 31, 1996.
OTHER EXPENSES
While the management fee is a significant component of the funds' annual
operating costs, the funds have other expenses as well.
FSC performs many transaction and accounting functions. These services
include processing shareholder transactions, valuing each fund's
investments, and handling securities loans. In the fiscal year ended
December 31, 1996, FSC received fees equal to the following percentage of
each funds average net assets.
Michigan Municipal .20
Money Market %
Ohio Municipal Money .18
Market %
Michigan Municipal .17
Income %
Minnesota Municipal .17
Income %
Ohio Municipal Income .17
%
The funds also pay other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in
FMR's total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will
pay a lower rate as FMR's
assets under management
increase.
(checkmark)
Each fund has adopted a Distribution and Service Plan. 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.
The table below shows each bond funds portfolio turnover rate for fiscal
year ended December 31, 1996. FMR considers these effects when evaluating
the anticipated benefits of short-term investing.
PORTFOLIO TURNOVER RATES
Michigan Municipal 29 %
Income
Minnesota Municipal 17 %
Income
Ohio Municipal Income 43 %
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in a fund through a brokerage account. You can
choose a money market fund as your core account for your Fidelity Ultra
Service Account(registered trademark) or Fidelity PlusSM brokerage account.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee for
this service. If you invest through FBSI, another financial institution, or
an investment professional, read their program materials for any special
provisions, additional service features or fees that may apply to your
investment in a fund. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
EACH FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. Each 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 $2,500
For the money market funds $5,000
TO ADD TO AN ACCOUNT $250
Through regular investment plans* $100
For the money market funds $500
MINIMUM BALANCE $ 2 ,000
* FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE .
These minimums may vary for investments through Fidelity Portfolio Advisory
Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (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.
</TABLE>
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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.
</TABLE>
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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.
</TABLE>
<TABLE>
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Wire (wire_graphic) (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.
</TABLE>
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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
</TABLE>
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. 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.
TO SELL SHARES THROUGH YOUR FIDELITY ULTRA SERVICE OR FIDELITY PLUS
ACCOUNT, call 1-800-544-6262 to receive a handbook with instructions.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$ 2 ,000 worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
$100,000.
(small solid bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: $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 and
accepted by Fidelity before 4
p.m. Eastern time for money
to be wired on the next
business day.
</TABLE>
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Check (check_graphic) All account types (small solid bullet) Minimum check: $500.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
</TABLE>
<TABLE>
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
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)
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more than
one account in the fund. Call 1-800-544-6666 if you need copies of
financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing.
Note that exchanges out of a fund are limited to four per calendar year
(except for the money market funds), 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
$100 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.
</TABLE>
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY
FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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.
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
<TABLE>
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<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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.
</TABLE>
A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THOSE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains, if any, to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains earned by the bond funds are
normally distributed in February and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. Each fund offers four
options (three for the money market funds):
1. REINVESTMENT OPTION. Your dividend and capital gain distributions, if
any, will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. INCOME-EARNED OPTION. 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 funds.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions, if any, will be automatically invested in
another identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions, if any, will be reinvested at the NAV as
of the date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days or longer for a December
ex-dividend date.
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.
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)
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 each fund's distributions are derived from state
tax-free obligations of its respective state, its income dividends will be
exempt from state taxes. For Ohio residents, dividends will be free from
the Ohio individual income tax, a school district tax, and the net income
base of the Ohio corporation franchise tax. For Michigan residents,
dividends will be free from the Michigan income, intangibles, and single
business taxes. For Minnesota residents dividends will be free from the
Minnesota personal income tax.
Unless 95% or more of Minnesota Municipal Income's tax-exempt dividends are
derived from obligations of the State of Minnesota or its political
subdivisions, all of the fund's dividends will be subject to the Minnesota
tax. FMR intends to meet the 95% requirement, but there is no assurance it
will do so.
During the fiscal year ended December 31, 1996, 100% of each fund's income
dividends was free from federal and state income taxes. The table below
shows the percentage of each fund's income dividends that was subject to
the federal alternative minimum tax.
ALTERNATIVE MINIMUM TAX
Michigan Municipal Money Market 45.13
%
Ohio Municipal Money Market 50.21
%
Michigan Municipal Income 1.95%
Minnesota Municipal Income 9.08 %
Ohio Municipal Income 8.28 %
TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to
other Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but not yet
distributed capital gains, you will pay the full price for the shares and
then receive a portion of the price back in the form of a taxable
distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. 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 funds value the securities they own 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 funds, 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) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your 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 learn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
(small solid bullet) If your account is not an Ultra Service Account, there
is a $1.00 charge for each check written under $500.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $ 24 .00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for that
year. The fee, which is payable to the transfer agent, is designed to
offset in part the relatively higher costs of servicing smaller accounts.
This fee will not be deducted from Fidelity brokerage
accounts, retirement accounts (except non-prototype retirement
accounts), accounts using regular investment plans, or if total assets with
Fidelity exceed $30,000 . Eligibility for the $ 30,000 waiver
is determined by aggregating Fidelity accounts maintained by FSC or FBSI
which are registered under the same social security number or which list
the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $2,000, you will be given 30
days' notice to reestablish the minimum balance. If you do not increase
your balance, Fidelity reserves the right to close your account and send
the proceeds to you. Your shares will be redeemed at the NAV on the day
your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the funds without
reimbursement from the funds. Qualified recipients are securities dealers
who have sold fund shares or others, including banks and other financial
institutions, under special arrangements in connection with FDC's sales
activities. In some instances, these incentives may be offered only to
certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be available for
sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, the bond funds 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.
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
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus (dated
February 28, 1997 ). Please retain this document for future
reference. The funds' Annual Reports are separate documents supplied with
this SAI. To obtain a free additional copy of the Prospectus or an
Annual Report, please call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Michigan
Special Considerations Affecting Minnesota
Special Considerations Affecting Ohio
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts with FMR Affiliates
Description of the Trusts
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas) (money market funds)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
OMM-ptb-0297
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,
the investment policies and limitations described in this SAI are not
fundamental and may be changed without shareholder approval.
INVESTMENT LIMITATIONS OF MICHIGAN MUNICIPAL MONEY MARKET FUND
(MICHIGAN MONEY MARKET FUND)
THE FOLLOWING ARE THE MICHIGAN MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that
Fidelity Municipal Trust II may issue additional series of shares in
accordance with the Trust Instrument;
(2) sell securities short, unless it owns, or by virtue of ownership of
other securities has the right to obtain, securities equivalent in kind and
amount to the securities sold short;
(3) purchase securities on margin, except that the fund may obtain such
short-term credits as are necessary for the clearance of transactions;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets (less liabilities other
than borrowings). Any borrowings that come to exceed 33 1/3% of the value
of the fund's total assets by reason of a decline in total assets will be
reduced within three days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(5) underwrite securities issued by others (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies,
instrumentalities, territories, or possessions, or issued or guaranteed by
a state government or political subdivision thereof) if, as a result, more
than 25% of the value of its total assets would be invested in securities
of companies having their principal business activities in the same
industry;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities; or
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to the purchase of debt securities or to
repurchase agreements).
(10) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-ended management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (4)). The fund will not
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.
(iii) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(iv) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(v) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than
5% of the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of other
investment companies. These tax requirements are generally applied at the
end of each quarter of the fund's taxable year.
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page .
INVESTMENT LIMITATIONS OF FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
(OHIO MONEY MARKET FUND)
THE FOLLOWING ARE OHIO MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that
Fidelity Municipal Trust II may issue additional series of shares in
accordance with the Trust Instrument;
(2) sell securities short, unless it owns, or by virtue of ownership of
other securities has the right to obtain, securities equivalent in kind and
amount to the securities sold short;
(3) purchase securities on margin, except that the fund may obtain such
short-term credits as are necessary for the clearance of transactions;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets (less liabilities other
than borrowings). Any borrowings that come to exceed 33 1/3% of the value
of the fund's total assets by reason of a decline in total assets will be
reduced within three days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(5) underwrite securities issued by others (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies,
instrumentalities, territories, or possessions, or issued or guaranteed by
a state government or political subdivision thereof) if, as a result, more
than 25% of the value of its total assets would be invested in securities
of companies having their principal business activities in the same
industry;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities; or
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of debt securities or to repurchase
agreements).
(10) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-ended management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund may borrow money only (a) from a bank or from a registered
investment company or fund for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (4)). The fund will not
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.
(iii) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(iv) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
( v) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than
5% of the fund's total assets are invested in securities of any one
issuer. However, Subchapter M allows unlimited investments in cash, cash
items, government securities (as defined in Subchapter M) and
securities of other investment companies. These tax requirements are
generally applied at the end of each quarter of the fund's taxable year.
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page .
INVESTMENT LIMITATIONS OF FIDELITY MICHIGAN MUNICIPAL INCOME FUND
(MICHIGAN MUNICIPAL INCOME FUND)
THE FOLLOWING ARE MICHIGAN MUNICIPAL INCOME FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements, or
(8) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one
issuer and to invest at least 50% of its total assets so that no more than
5% of the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Su bchapter M) and securities of
other investment companies. These tax requirements are generally applied at
the end of each quarter of the fund's taxable year.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
INVESTMENT LIMITATIONS OF FIDELITY MINNESOTA MUNICIPAL INCOME FUND
(MINNESOTA MUNICIPAL INCOME FUND)
THE FOLLOWING ARE MINNESOTA MUNICIPAL INCOME FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements, or
(8) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
( i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one
issuer and to invest at least 50% of its total assets so that no more than
5% of the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Su bchapter M) and securities of
other investment companies. These tax requirements are generally applied at
the end of each quarter of the fund's taxable year.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
INVESTMENT LIMITATIONS OF FIDELITY OHIO MUNICIPAL INCOME FUND
(OHIO MUNICIPAL INCOME FUND)
THE FOLLOWING ARE OHIO MUNICIPAL INCOME FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements, or
(8) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securi ties of any one
issuer and to invest at least 50% of its total assets so that no more than
5% of the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of
other investment companies. These tax requirements are generally applied at
the end of each quarter of the fund's taxable year.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that doing so will help the fund achieve its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The bond
funds may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond funds' standards for high-quality, taxable obligations
are essentially the same as those described by Moody's Investors Service,
Inc. (Moody's) in rating corporate obligations within its two highest
ratings of Prime-1 and Prime-2, and those described by Standard & Poor's
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2. The money market funds 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 Michigan, Minnesota
and Ohio legislature that would affect the state tax treatment of the
funds' distributions. If such proposals were enacted, the availability of
municipal obligations and the value of the funds' holdings would be
affected and the Trustees would reevaluate the funds' investment objectives
and policies.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, OTC Options, Purchasing Put and Call Options, and
Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and option premiums.
In addition, each bond fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of the
fund's total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this SAI, are not fundamental policies and 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 funds, 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 funds are valued for purposes of monitoring amortized cost
valuation, and for the bond funds are priced at fair value as determined in
good faith by a committee appointed by the Board of Trustees. If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. A fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Indexed securities may
have principal payments as well as coupon payments that depend on the
performance of one or more interest rates. Their coupon rates or principal
payments may change by several percentage points for every 1% interest rate
change. One example of indexed securities is inverse floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, each fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates, but each
fund currently intends to participate in this program only as a borrower.
Interfund borrowings normally extend overnight, but can have a maximum
duration of seven days. A fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and a fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. The bond funds may invest a portion of
their assets in lower-quality municipal securities as described in the
Prospectus.
While the market for Michigan, Minnesota and Ohio municipals is considered
to be substantial, adverse publicity and changing investor perceptions may
affect the ability of outside pricing services used by a fund to value its
portfolio securities, and the fund's ability to dispose of lower-quality
bonds. The outside pricing services are monitored by FMR and reported to
the Board to determine whether the services are furnishing prices that
accurately reflect fair value. The impact of changing investor perceptions
may be especially pronounced in markets where municipal securities are
thinly traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be affected
by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market funds to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the funds.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. The electric utilities industry has been experiencing,
and will continue to experience, increased competitive pressures. Federal
legislation in the last two years will open transmission access to any
electricity supplier, although it is not presently known to what extent
competition will evolve. Other risks include: (a) the availability and cost
of fuel, (b) the availability and cost of capital, (c) the effects of
conservation on energy demand, (d) the effects of rapidly changing
environmental, safety, and licensing requirements, and other federal,
state, and local regulations, (e) timely and sufficient rate increases, and
(f) opposition to nuclear power.
HEALTH CARE. The health care industry is subject to regulatory action by a
number of private and governmental agencies, including federal, state, and
local governmental agencies. A major source of revenues for the health care
industry is payments from the Medicare and Medicaid programs. As a result,
the industry is sensitive to legislative changes and reductions in
governmental spending for such programs. Numerous other factors may affect
the industry, such as general and local economic conditions; demand for
services; expenses (including malpractice insurance premiums); and
competition among health care providers. In the future, the following
elements may adversely affect health care facility operations: adoption of
legislation proposing a national health insurance program; other state or
local health care reform measures; medical and technological advances which
dramatically alter the need for health services or the way in which such
services are delivered; changes in medical coverage which alter the
traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance
and health care services.
HOUSING. Housing revenue bonds are generally issued by a state, county,
city, local housing authority, or other public agency. They generally are
secured by the revenues derived from mortgages purchased with the proceeds
of the bond issue. It is extremely difficult to predict the supply of
available mortgages to be purchased with the proceeds of an issue or the
future cash flow from the underlying mortgages. Consequently, there are
risks that proceeds will exceed supply, resulting in early retirement of
bonds, or that homeowner repayments will create an irregular cash flow.
Many factors may affect the financing of multi-family housing projects,
including acceptable completion of construction, proper management,
occupancy and rent levels, economic conditions, and changes to current laws
and regulations.
EDUCATION. In general, there are two types of education-related bonds;
those issued to finance projects for public and private colleges and
universities, and those representing pooled interests in student loans.
Bonds issued to supply educational institutions with funds are subject to
the risk of unanticipated revenue decline, primarily the result of
decreasing student enrollment or decreasing state and federal funding.
Among the factors that may lead to declining or insufficient revenues are
restrictions on students' ability to pay tuition, availability of state and
federal funding, and general economic conditions. Student loan revenue
bonds are generally offered by state (or substate) authorities or
commissions and are backed by pools of student loans. Underlying student
loans may be guaranteed by state guarantee agencies and may be subject to
reimbursement by the United States Department of Education through its
guaranteed student loan program. Others may be private, uninsured loans
made to parents or students which are supported by reserves or other forms
of credit enhancement. Recoveries of principal due to loan defaults may be
applied to redemption of bonds or may be used to re-lend, depending on
program latitude and demand for loans. Cash flows supporting student loan
revenue bonds are impacted by numerous factors, including the rate of
student loan defaults, seasoning of the loan portfolio, and student
repayment deferral periods of forbearance. Other risks associated with
student loan revenue bonds include potential changes in federal legislation
regarding student loan revenue bonds, state guarantee agency reimbursement
and continued federal interest and other program subsidies currently in
effect.
WATER AND SEWER. Water and sewer revenue bonds are often considered to have
relatively secure credit as a result of their issuer's importance, monopoly
status, and generally unimpeded ability to raise rates. Despite this, lack
of water supply due to insufficient rain, run-off, or snow pack is a
concern that has led to past defaults. Further, public resistance to rate
increases, costly environmental litigation, and Federal environmental
mandates are challenges faced by issuers of water and sewer bonds.
TRANSPORTATION. Transportation debt may be issued to finance the
construction of airports, toll roads, highways, or other transit
facilities. Airport bonds are dependent on the general stability of the
airline industry and on the stability of a specific carrier who uses the
airport as a hub. Air traffic generally follows broader economic trends and
is also affected by the price and availability of fuel. Toll road bonds are
also affected by the cost and availability of fuel as well as toll levels,
the presence of competing roads and the general economic health of an area.
Fuel costs and availability also affect other transportation-related
securities, as do the presence of alternate forms of transportation, such
as public transportation.
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.
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 FUNDS ONLY). Pursuant to procedures
adopted by the Board of Trustees, the funds may purchase only high-quality
securities that FMR believes present minimal credit risks. To be considered
high-quality, a security must be rated in accordance with applicable rules
in one of the two highest categories for short-term securities by at least
two nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of equivalent
quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1 or SP-1), and second tier
securities are those deemed to be in the second highest rating category
(e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued basis
in connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts require the issuer to sell and the fund to buy refunded
municipal obligations at a stated price and yield on a settlement date that
may be several months or several years in the future. A fund generally will
not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). A fund may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract. When required by
SEC guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or other entity in determining whether to purchase a
security supported by a letter of credit guarantee, put or demand feature,
insurance or other source of credit or liquidity.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic
adjustments of the interest rate paid on the security. Variable rate
securities provide for a specified periodic adjustment in the interest
rate, while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some variable or
floating rate securities have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
SPECIAL CONSIDERATIONS AFFECTING MICHIGAN
The following only highlights some of Michigan's more significant financial
trends and problems, and is based in part on information drawn from
official statements and prospectuses relating to securities offerings of
the State of Michigan, its agencies and instrumentalities as available on
the date of this SAI. FMR has not independently verified any of the
information contained in such official statements and other publicly
available documents, but is not aware of any fact that would render such
information inaccurate.
CONSTITUTIONAL STATE REVENUE LIMITATIONS. In 1978 the Michigan Constitution
was amended to limit the amount of total State revenues raised from taxes
and other sources. State revenues (excluding federal aid and revenues for
payment of principal and interest on general obligation bonds) in any
fiscal year are limited to a fixed percentage of State personal income in
the prior calendar year or average of the prior three calendar years,
whichever is greater. The percentage is fixed by the amendment to equal the
ratio of the 1978-79 fiscal year revenues to total 1977 State personal
income.
If any fiscal year revenues exceed the revenue limitation by one percent or
more, the entire amount of such excess shall be rebated in the following
fiscal year's personal income tax or single business tax. Any excess of
less than one percent may be transferred to the State's Budget
Stabilization Fund.
The State may raise taxes in excess of the limit for emergencies when
deemed necessary by the Governor and two-thirds of the members of each
house of the Legislature. The foregoing revenue limit does not apply to
taxes imposed for the payment of principal of and interest on bonds of the
State, if the bonds are approved by voters and authorized by a vote at the
request of two-thirds of the members of each House of the Legislature.
The State Constitution provides that the proportion of State spending
paid to all units of local government to total State spending may not be
reduced below the proportion in effect in the 1978-79 fiscal year. The
percentage, originally determined for the base year 1978-79 at 41.61% was
recalculated effective with fiscal year 1992-93 reflecting the terms of a
legal settlement agreement with Oakland County. As part of the settlement,
the State agreed to recalculate the base year determination to ensure a
consistent base of expenditures to local units of government. The
recalculated base year percentage is 48.97%. If such spending does not meet
the required level in a given year, an additional appropriation for local
government units is required by the "following fiscal year," which means
the year following the determination of the shortfall, according to an
opinion issued by the State's Attorney General.
The State Constitution also requires the State to finance any new or
expanded activity of local governments mandated by State law. Any
expenditures required by this provision would be counted as State spending
for local units of government for purposes of determining compliance with
the provision cited above.
CONSTITUTIONAL LOCAL TAX LIMITATIONS. Under the Michigan Constitution, the
total amount of general ad valorem taxes imposed on taxable property in any
year cannot exceed certain millage limitations specified by the
Constitution, statute or charter. The Constitution was amended by popular
vote in November 1978 (effective December 23, 1978) to prohibit local units
of government from levying any tax not authorized by law or charter, or
from increasing the rate of an existing tax above the rate authorized by
law or charter, at the time the amendments were ratified, without the
approval of a majority of the electors of the local unit voting on the
question.
Local units of government and local authorities are authorized to issue
bonds and other evidences of indebtedness in a variety of situations
without the approval of electors, but the ability of the obligor to levy
taxes for the payment of such obligations is subject to the foregoing
limitations unless the obligations were authorized before December 23, 1978
or approved by the electors.
The 1978 amendments to the Constitution also contain millage reduction
provisions. Under such provisions, should the value of taxable property
(exclusive of new construction and improvements) increase at a percentage
greater than the percentage increase in the Consumer Price Index, the
maximum authorized tax rate would be reduced by a factor which would result
in the same maximum potential tax revenues to the local taxing unit as if
the valuation of taxable property (less new construction and improvements)
had grown only at the Consumer Price Index rate instead of at the higher
actual growth rate. Thus, if taxable property values rise faster than
consumer prices, the maximum authorized tax rate would be reduced
accordingly.
MICHIGAN SCHOOL FINANCE AND PROPERTY TAX CHANGES. On August 19, 1993, the
Governor of Michigan signed into law Act 145, Public Acts of Michigan, 1993
(Act 145), a measure which would have significantly impacted financing of
primary and secondary school operations and which has resulted in
additional property tax and school finance reform legislation. Act 145
would have exempted all property in the State of Michigan from millage
levied for local and intermediate school districts operating purposes,
other than millage levied for community colleges, effectively July 1, 1994.
In order to replace local property tax revenues lost as a result of Act
145, the Michigan Legislature, in December 1993, enacted several statutes
which address property tax and school finance reform. Education reform
legislation not dealing with school finance was also enacted.
The property tax and school finance reform measures included a ballot
proposal (Proposal A) which was subject to voter approval and in fact
approved on March 15, 1994, and a statutory proposal which would have
automatically taken effect if Proposal A had not been approved. Under
Proposal A as approved, effective May 1, 1994, the State sales and use tax
was increased from 4% to 6%, the State income tax was decreased from 4.6%
to 4.4%, the cigarette tax was increased from $.25 to $.75 per pack and an
additional tax of 16% of the wholesale price was imposed on certain
other tobacco products. A 0.75% real estate transfer tax was effective
January 1, 1995. Since the beginning of 1994, a State property tax of 6
mills has been imposed on all real and personal property currently subject
to the general property tax. The ability of school districts to levy
property taxes for school operating purposes has been partially restored. A
school board is authorized, with voter approval, to levy up to the lesser
of 18 mills or the number of mills levied in 1993 for school operating
purposes, on non-homestead property and non-qualified agricultural
property. Proposal A contains additional provisions r egarding the
ability of local school districts to levy taxes as well as a limit on
assessment increases for each parcel of property, beginning in 1995 to the
lesser of 5% or the rate of inflation. When property is subsequently sold,
its assessed value will revert to the current assessment level of 50% of
true cash value. Under Proposal A, much of the additional revenue generated
by the new taxes will be dedicated to the State School Aid Fund.
Proposal A contains a system of financing local school operating costs
which relies upon a foundation allowance amount which may vary by district
based upon historical spending levels. State funding will provide each
school district an amount equal to the difference between its foundation
allowance and the revenues that would be generated by the levy of certain
local property taxes for school operating purposes at specified maximum
authorized rates. Under Proposal A, a local school district will also be
entitled to levy supplemental property taxes to generate additional
revenues if its foundation allowance is less than its historical per pupil
expenditures. Proposal A also contains provisions which allow for the levy
of a limited number of enhancement mills on regional and local school
district bases.
Proposal A shifts significant portions of the cost of local school
operations from local school districts to the State and raises additional
State revenues to fund these additional State expenses. These additional
revenues will be included within the State's constitutional revenue
limitations and may impact the State's ability to raise additional revenues
in the future. See, "Constitutional State Revenue Limitations."
EFFECT OF LIMITATIONS ON ABILITY TO PAY BONDS. The ability of the
State of Michigan to pay the principal of and interest on its general
obligation bonds may be affected by the limitations described above under
"Constitutional State Revenue Limitations:" and "Recent Michigan School
Finance and Property Tax Changes." Similarly, the ability of local units of
government to levy taxes to pay the principal of and interest on their
general obligation bonds is subject to the constitutional, statutory, and
charter limitations described above under "Constitutional Local Tax
Limitations" and "Recent Michigan School Finance and Property Tax Changes."
In general, revenue bonds issued by the State, by local units of
government, or by authorities created by the State or local units of
government are payable solely from such specified revenues (other than tax
revenues) as are pledged for that purpose, and such authorities generally
have no taxing power.
EFFECT OF GENERAL ECONOMIC CONDITIONS IN MICHIGAN. Michigan is an
industrialized state, whose economy is dominated by the automobile industry
and related industries. It tends to be more vulnerable to economic
downturns than the economies of many other states and the nation as a
whole. Tourism and agriculture are two other important, but less
significant industries in the State, both of which have been affected
adversely by prior recessions.
Over the past fifteen years the Michigan unemployment rate typically has
been higher than the national rate, however, this was not the case for
1994, 1995 or as of November 30, 1996. The State's seasonally adjusted
November 30, 1996 unemployment rate was 4.7% compared to the seasonally
adjusted national rate of 5.4%. The table below shows the State and
national unemployment rates published by the Michigan Employment Security
Commission and the U.S. Bureau of Labor Statistics, respectively, for the
years indicated.
Period Michigan United States
1984 11.2% 7.4%
1985 9.9% 7.1%
1986 8.8% 6.9%
1987 8.2% 6.1%
1988 7.6% 5.5%
1989 7.1% 5.3%
1990 7.5% 5.5%
1991 9.2% 6.7%
1992 8.8% 7.4%
1993 7.0% 6.8%
1994 5.9% 6.1%
1995 5.4% 5.6%
1996 4.7% 5.4%
Although most of the bonds in the Michigan fund are expected to be
obligations of local units of government or local authorities in the State,
rather than general obligations of the State itself, there can be no
assurance that the same factors that adversely affect the economy of the
State generally will not also affect adversely the market value or
marketability of obligations issued by local units of government or local
authorities in the State or the ability of the obligors to pay the
principal of or interest on such obligations.
STATE LITIGATION. A significant number of lawsuits, involving substantial
dollars, have been filed against the State and are pending. These include
tax refund claims, including claims for Single Business Taxes, condemnation
actions, claims relating to funding for county courts, and other types of
actions. In particular, on September 19, 1995, the Michigan Court of
Appeals issued a decision in the consolidated cases captioned Durant v.
State of Michigan, which involved claims consolidated from 34 separate
lawsuits by local school districts against the State of Michigan under
section 29 of article 9 of the Michigan Constitution, a part of the
Constitution commonly known as the Headlee Amendment. These suits alleged
the underfunding of certain mandated school programs including special
education, special education transportation, bilingual education, driver
education and school lunch programs. The aggregate total amount of
liability of these judgments, as of August, 1995, is approximately $495
million . On November 21, 1996, the Michigan Supreme Court granted
the State's application for leave of appeal. The extent to which parties
will ultimately prevail against the State, in Durant or in any other case,
cannot be predicted at this time .
SPECIAL CONSIDERATIONS AFFECTING MINNESOTA
The following only highlights some of the more significant financial trends
and problems affecting Minnesota, and is based on information drawn from
official statements and prospectuses relating to securities offerings of
the State of Minnesota, its agencies, and instrumentalities as available on
the date of this SAI. FMR has not independently verified any of the
information contained in such official statements and other publicly
available documents, but is not aware of any fact which would render such
information inaccurate.
CONSTITUTIONAL STATE REVENUE LIMITATIONS. Minnesota's constitutionally
prescribed fiscal period is a biennium, and the state operates on a
biennial budget basis. An agency or other entity may not expend monies in
excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, the State's Commissioner of Finance,
with the approval of the Governor, is required to reduce allotments to the
extent necessary to balance expenditures and forecast available resources
for the then current biennium. The Governor may seek legislative action
when a large reduction in expenditures appears necessary, and if the
State's legislature is not in session the Governor is empowered to convene
a special session.
EFFECT OF LIMITATIONS ON ABILITY TO PAY BONDS. There are no
constitutional or statutory provisions which would impair the ability of
Minnesota municipalities to meet their bond obligations if the bonds have
been properly issued.
MINNESOTA'S ECONOMY. The State of Minnesota relies heavily on a
progressive individual income tax and a retail sales tax for revenue, which
results in a fiscal system that is sensitive to economic conditions. In
1995, the structure of the State's economy closely paralleled the structure
of the United State's economy as a whole. State employment in ten major
sectors was distributed in approximately the same proportions as national
employment. In all sectors, the share of total employment was within 2
percentage points of the national employment share.
During the period from 1980 to 1990, overall employment growth in Minnesota
lagged behind national growth; total employment increased 17.9% in
Minnesota while increasing 20.1% nationally. Most of Minnesota's relatively
slower growth during this period is associated with declining agricultural
employment and with the two recessions in the United States economy
occurring in the early 1980s, which were more severe in Minnesota than
nationwide. Minnesota non-farm employment growth generally kept pace with
that of the nation after the end of the 1981-82 recession. In the period
1990 to 1995, non-farm employment grew 11.5 % compared to 6.6% nationwide.
Employment data indicate that the recession which began in July 1990 was
less severe in Minnesota than in the national economy and that Minnesota's
recovery has been more rapid than the nation's.
Since 1980, state per capita personal income has been within four
percentage points of national per capita personal income. Minnesota per
capita income generally remained above the national average during this
period in spite of the early 1980s recession and some difficult years in
agriculture. In 1995, Minnesota per capita income was 103.3% of the
national average.
Minnesota's monthly unemployment rate was generally less than the national
average during 1994 and 1995, averaging 3.6% in 1995, as compared to the
national average of 5.2%. This trend continued through May of 1995. A major
continuing trend for Minnesota, as for the nation, is the large employment
gain in the service industries. In 1993, almost all private sector jobs
added had been in services and in the finance, insurance and real estate.
Accompanying this was a decline in jobs in construction and mining.
Minnesota resident population grew from 4,085,000 in 1980 to 4,367,000 in
1990 or, at an average annual compound rate of .7 percent. In comparison,
U.S. population grew at an annual compound rate of .9 percent during this
period. Minnesota population is currently forecast by the U. S. Department
of Commerce to grow at an annual compound rate of .8 percent through 2005.
Manufacturing has proven to be a strong sector, with Minnesota employment
growth in this area outperforming its U.S. counterpart in both the
1980-1990 and 1990-1995 periods. Minnesota's manufacturing industries
accounted for 17.4 percent of the state's employment mix in 1994. In the
durable goods industries, the state's employment in 1995 was highly
concentrated in the industrial machinery and instrument and miscellaneous
categories. Of particular importance is the industrial machinery category
in which 31.1% of the state's durable goods employment was concentrated in
1995, as compared to 19.3% for the United States as a whole. The emphasis
is partly explained by the location in the state of Unisys, IBM, Cray
Research, and other computer equipment manufacturers which are included in
the industrial machinery classification.
The importance of the state's rich resource base for overall employment is
apparent in the employment mix in non-durable goods industries. In 1995,
29.0% of the state's non-durable goods employment was concentrated in food
and kindred industries, and 18.2% in paper and allied industries. This
compares to 21.7% and 8.9%, respectively, for comparable sectors in the
national economy. Both of these rely heavily on renewable resources in the
state. Over half of the state's acreage is devoted to agricultural
purposes, and nearly one-third to forestry. Printing and publishing is also
relatively more important in Minnesota than in the U.S.
The state is situated in the midst of the family farm belt. Although a
decline in jobs in agriculture is forecasted due to technological
improvements and the trend away from small family farms, in 1994 Minnesota
ranked seventh among all states in total cash receipts derived from
agricultural products. In order of receipts, the six major agricultural
products in 1995 were corn, dairy products, soybeans, hogs and cattle and
calves.
In 1995, Minnesota ranked seventh among all states in agricultural exports.
The state's major agricultural commodities exported in 1995, were in order
of value, feed grains and products, soybeans and products, wheat and wheat
products, live animals and meat, vegetables and feed and fodder. The
average Minnesota farm had gross farm income of $96,141 in 1995, however,
expenses used up $84,951 of the income leaving the average farm net income
in 1995 at $11,190, compared to the 1994 average farm net income of
$18,183.
Mining is currently a less significant factor in the state economy than it
once was. Mining employment, primarily in the iron ore or taconite
industry, dropped from 17.3 thousand in 1979 to 7.9 thousand in 1995. It is
not expected that mining employment will return to 1979 levels. However,
Minnesota retains vast quantities of taconite as well as copper, nickel,
cobalt, and peat, which may be utilized in the future.
The fastest growing sector of the economy in Minnesota and the rest of the
country is the service sector. Business services employment is projected to
increase by 23% from 1989 to 1996, and health care services (exclusive of
hospitals and nursing homes) is projected to grow by 18%.
In 1995, 33 Minnesota based public companies and 10 private companies
reported revenues of $600 million or more. These companies are involved in
a varied group of industries including agricultural and industrial
commodities, manufacturing, food and kindred products and services.
The Minnesota economy rebounded from last winter's mini-slump more quickly
than expected. The resulting increase in activity has added revenue to the
outlook for the 1996-97 biennium. Revenues for the current biennium are
forecast to total $19,099 billion, up $646 million (3.5 percent), from end
of session estimates. Expenditures are now expected to be $18,644 billion,
down $209 million (1.1 percent). These gains are partially offset by other
changes totalling $63 million, leaving a forecast balance at the close of
the biennium of $793 million.
Not all of that balance will be available for new initiatives. Current law
dedicates the first $114 million of the forecast balance to a new school
aid reserve. An additional $157 million must be used for a one time change
in the payment schedule for school districts. These statutory obligations
reduce the available balance to $522 million. This balance cannot be used
to fund ongoing expenditures without creating potential budget problems for
future years.
SPECIAL CONSIDERATIONS AFFECTING OHIO
The following only highlights some of Ohio's more significant financial
trends and problems, and is based on information drawn from official
statements and prospectuses relating to securities offerings of the State
of Ohio, its agencies, and instrumentalities as available on the date of
this SAI. FMR has not independently verified any of the information
contained in such official statements and other publicly available
documents, but is not aware of any fact that would render such information
inaccurate.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. Under current law the biennium for
operating purposes runs from July 1 in an odd-numbered year to June 30 in
the next odd-numbered year with fiscal years within a fiscal biennium
running from July 1 to June 30 (references to a particular fiscal year
refer to the fiscal year ending on June 30 of each year). The State is
effectively precluded by law from ending a fiscal year or a biennium in a
deficit position. The Governor has the power to order state agencies to
operate within their means. The State carries out most of its operations
through the general revenue fund (GRF) which receives general State
revenues not otherwise dedicated. GRF revenues are derived mainly from
personal income, sales /use, and corporate franchise taxes. There is no
present constitutional limit on the rates of state-levied taxes, except for
taxes on intangible property. In 1995, the Ohio House of Representatives
adopted a resolution that would submit to the electors a constitutional
amendment prohibiting the General Assembly from imposing a new tax or
increasing an existing tax unless approved by a three-fifths vote of
each house or by a majority vote of the electors. Because the Ohio
Senate did not act on the resolution, the concurrence required to submit
the proposed constitutional amendment to the electors was not received. A
new General Assembly convenes in January 1997, and the proposal regarding
such constitutional amendment does not carry over to the new General
Assembly.
Economic activity in Ohio, as in many other industrially developed states,
tends to be more cyclical than in some other states and the nation as a
whole. In the 1980's Ohio experienced an unemployment rate generally higher
than the United States average, largely due to the importance of heavy
industry and manufacturing to Ohio's economy. This trend has not continued
in the 1990's. Although manufacturing (including automobile-related
manufacturing) in Ohio remains an important part of the state's economy,
the greatest growth in employment in Ohio in recent years, consistent with
national trends, has been in the non-manufacturing areas. The State's
experience is similar to that of other midwestern states with comparable
economic structures.
Budgetary shortfalls in recessionary periods have required emergency
spending reductions by the Governor and the adoption of temporary and
permanent tax increases and/or new tax measures by the General Assembly to
meet the State's constitutional requirement that the State end each year
without a deficit. No appropriations for debt service, however, were
affected by the spending reductions, and the State has, in fact, ended each
fiscal year with a budget surplus.
The 1989-91 recession in the United States had an adverse effect on both
the economy in Ohio and the financial condition of the State of Ohio and
its underlying municipalities. As an initial action to address a projected
1992 fiscal year imbalance in the GRF, the Governor ordered most state
agencies to reduce GRF appropriations spending in the final six months of
fiscal year 1992 by approximately $184 million and the General Assembly
authorized the transfer of the $100.4 million balance in the Budget
Stabilization Fund to the GRF. Other revenue and spending actions,
legislative and administrative, resolved the remaining GRF imbalance for
fiscal year 1992.
In response to a then estimated $520 million GRF shortfall for fiscal year
1993, the Governor ordered, effective July 1, 1992; selected GRF
appropriations reductions totalling $300 million. Subsequent executive and
legislative actions - including tax revisions that produced an
additional $194.5 million in fiscal year 1993, and an additional $50
million in spending reductions - resulted in positive biennium-ending GRF
balances. Appropriations for debt service were expressly excluded from the
Governor's appropriation orders.
The GRF appropriations act for the 1994-95 biennium provided for total GRF
biennial expenditures of approximately $30.7 billion, those for fiscal year
1994 being 9.2% higher than in fiscal year 1993 (taking into account fiscal
year 1993 expenditure reductions), and for fiscal year 1995 being 6.6%
higher than in fiscal year 1994. Fiscal year 1994 ended with a GRF fund
balance of over $560 million, permitting an additional $260.3 million
to be deposited in the Budget Stabilization Fund. The 1994-95 biennium GRF
ending fund balance was $928 million.
The GRF appropriations act for the 1996-97 biennium was passed on June 28,
1995 and promptly signed after selective vetoes, by the Governor. The
appropriations acts as passed and signed include all necessary
appropriations for debt service on State obligations. In accordance with
the appropriations act, the significant June 30, 1995 GRF fund balance,
after retaining in the GRF an unreserved and undesignated balance of $70
million, was transferred to a variety of funds, including $535.2 million to
the Budget Stabilization Fund (which has a current balance of $828.3
million) and $322.8 million to other funds, including school assistance
funds and, in anticipation of possible federal program changes, a human
services stabilization fund.
The June 30, 1996 GRF ending fund balance was over $781 million which
was higher than forecast. In accordance with General Assembly directions,
$100 million of such balance was transferred from the GRF to the fund
providing for the elementary and secondary school computer network and $30
million was transferred to a new fund for state transportation
infrastructure. Approximately $400.8 million of such balance is serving as
the basis for a temporary 1996 personal income tax reduction equalling that
amount.
Litigation pending in federal district court contests the Ohio Department
of Human Services' (ODHS) former Medicaid financial eligibility rules for
married couples where one spouse is living in a nursing facility and the
other spouse resides in the community. ODHS promulgated new eligibility
rules effective January 1, 1996, and is appealing a court order directing
it to provide notice to persons potentially affected by the former rules
from 1990 through 1995. It is not possible at this time to state whether
this appeal will be successful, or, should plaintiffs prevail, the period
beyond the current fiscal year during which necessary additional Medicaid
expenditures would have to be made. Plaintiffs have estimated total
additional Medicaid expenditures at $600 million for the retroactive period
and, based on current law, it is estimated that the State of Ohio's share
of those additional expenditures is approximately $240 million.
A number of local Ohio communities and school districts have also faced
significant financial problems. The State has established procedures for
municipal fiscal emergencies, under which joint state/local commissions are
established to monitor the fiscal affairs of a financially troubled
municipality, and the municipality must develop a financial plan to
eliminate deficits and cure any defaults. Since their adoption in 1979,
these procedures have been applied to twenty-four cities and villages,
including the City of Cleveland; in nineteen of these communities, the
fiscal situation has been resolved and the procedures terminated. The
fiscal emergency legislation was recently amended to extend its
potential application to counties and townships. The extension is on an "if
and as needed" basis, and not aimed at particular existing fiscal problems
of those subdivisions.
Local school districts in Ohio receive a major portion of their operational
funds from state subsidies (the primary portion of which is known as the
Foundation Program), but are dependent upon local taxes for significant
portions of their budgets. Local school districts are also authorized to
submit for voter approval an income tax on the district income of
individuals and estates. In part because of provisions of some State
laws, such as the law partially limiting (without local voter approval) the
increase in property tax collections that would otherwise result from
increased assessed valuations, some school districts in recent years have
experienced difficulty in meeting mandated and discretionary increased
costs. In addition, the Governor's appropriations reduction orders
described above have, in some instances, included reductions in
appropriations for state school subsidy programs. A small number of local
school districts have required emergency advances from the State in
order to prevent year-end deficits. The number of districts applying for
aid has fluctuated over the years; during the 1979 fiscal year through the
1989 fiscal year, a total of 143 loans totaling $137.4 million had been
made to school districts from the state funded Emergency School Advancement
Fund (EASF). Legislation with enhanced provisions for individual district
borrowing replaced the EASF program for fiscal years subsequent to fiscal
year 1989. In fiscal year 1996, there were 26 loans made for an aggregate
amount of $87.2 million (including one loan of $42.1 million to the
Cleveland City School District). New legislation addresses larger school
districts with financial difficulties. It is similar to that for municipal
fiscal emergencies described above, but is particularly tailored to certain
school districts and their present and potential fiscal problems. It has
been applied to two school districts and five school districts have been
placed on fiscal watch.
Litigation contesting the Ohio system of school funding is pending on
appeal in the Ohio Supreme Court with defendants being the State and
several State agencies and officials. Among other relief sought by the
plaintiff school districts was essentially a declaratory judgment that the
State's statutory system of funding public elementary and secondary
education violates various provisions of the Ohio Constitution. As a
remedy, the plaintiffs requested decrees as may be required to compel the
State and the General Assembly to devise and enact a constitutionally
acceptable system of school funding. The trial court in July 1994 concluded
that certain provisions of current law (including those relating to the
Foundation Program, and certain school district borrowing authorizations)
violated provisions of the Ohio Constitution, and directed the Sate
"forthwith to provide for and fund a system of funding public elementary
and secondary education in compliance with the Ohio Constitution." The
State appealed, and the trial court granted a stay of its findings and
conclusions, and a stay of its orders except for requirements that
officials prepare and present to the General Assembly proposals for a
school funding system complying with the court-specified criteria and
except for periodic reports to the court on steps taken to eliminate
wealth-based disparities among school districts. In August 1995, a court of
appeals reversed the trial court's findings in favor of plaintiff school
districts and vacated the trial court's remedial orders.
In prior litigation, the Ohio Supreme Court in 1979 upheld what was
essentially the then existing Foundation Program against similar claims
that a the school funding system violated provisions of the Ohio
Constitution. Applying that 1979 decision to the present case, the court of
appeals found no constitutional violation.
It is not possible at this time to predict the outcome of the appeal to
the Ohio Supreme Court or, should the plaintiffs prevail, the effect on the
State's present school funding system, including the amount of and criteria
for State basic aid allocations to school districts.
Ohio's general obligation bonds are currently rated Aa1 by Moody's
Investors Service, Inc., AA+ by Standard & Poor's Rating Services, a
division of McGraw-Hill Companies, Inc., and AA+ by Fitch Investors
Service, L.P., except that Highway Obligations are rated AAA by Standard &
Poor's Corporation.
Although most of the bonds in the Ohio fund are expected to be obligations
of local units of government or local authorities in the State, rather than
general obligations of the State itself, there can be no assurance that the
same factors that adversely affect the economy of the State generally will
not also affect adversely the market value or marketability of obligations
issued by local units of government or local authorities in the State, or
the ability of the obligors to pay the principal of or interest on such
obligations. Investment policies of local units of government or local
authorities may also affect adversely the ratings of obligations of current
or future issues.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the Commonwealth or
Puerto Rico), and is based on information drawn from official statements
and prospectuses relating to the securities offerings of Puerto Rico, its
agencies and instrumentalities, as available on the date of this Statement
of Additional Information. FMR has not independently verified any of the
information contained in such official statements, prospectuses and other
publicly available documents, but is not aware of any fact which would
render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1995 trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of its
imports. In this regard, in fiscal 1995 Puerto Rico experienced a $4.6
billion positive adjusted merchandise trade balance.
Since fiscal 1985 personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1995 aggregate personal
income was $27.0 billion ($26.2 billion in 1992 prices) and personal per
capita income was $7,296 ($7,074 in 1992 prices). Gross domestic product in
fiscal 1992 was $23.7 billion and gross product in fiscal 1996 was $30.2
billion; ($26.7 billion in 1992 prices). This represents an increase in
gross product of 27.5% from fiscal 1992 to 1996 (12.7% in 1992 prices). For
fiscal 1997, an increase in gross domestic product of 2.7% over fiscal 1996
is forecasted. However, actual growth in the Puerto Rico economy will
depend on several factors including the condition of the U.S. economy, the
exchange value of the U.S. dollar, the price stability of oil imports,
increase in the number of visitors to the island, the level of exports, the
level of federal transfers, and the cost of borrowing.
Puerto Rico's economy continued to expand throughout the five-year period
from fiscal 1992 through fiscal 1996. Almost every sector of the economy
participated and record levels of employment were achieved. Factors behind
the continued expansion included government sponsored economic development
programs, periodic declines in the exchange value of the U.S. dollar, the
level of federal transfers and the relatively low cost of borrowing funds
during the period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the United States average and has been
increasing in recent years. Despite long term improvements, the
unemployment rate rose from 16.5% to 16.8% from fiscal 1992 to fiscal 1993.
However, by the end of fiscal 1994, the unemployment rate dropped to 15.9%
and as of the end of fiscal 1996, stands at 13.8%. Despite this downturn,
there is a possibility that the unemployment rate will increase.
Manufacturing is the largest sector in the economy accounting for $17.7
billion or 41.8% of gross domestic product in fiscal 1995. Manufacturing
has experienced a basic change over the years as a result of the influx of
higher wage, high technology industries such as the pharmaceutical
industry, electronics, computers, microprocessors, scientific instruments
and high technology machinery. The service sector, which includes finance,
insurance, real estate, wholesale and retail trade, hotels and related
services and other services, ranks second in its contribution to gross
domestic product and is the sector that employs the greatest number of
people. In fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector grew from
449,000 in fiscal 1992 to 527,000 in fiscal 1996, a cumulative increase of
17.6%, which increase was greater than the 11.8% cumulative growths in
employment over the same period, providing 46.7% of total employment. The
government sector of the Commonwealth plays an important role in the
economy of the island. In fiscal year 1995 the government accounted for
$4.5 billion or 10.6% of Puerto Rico's gross domestic product and provided
21.7% of the total employment. Tourism also contributes significantly to
the island economy, accounting for $1.8 billion of gross domestic product
in fiscal 1995.
The present administration has developed and is implementing a new economic
development program which is based on the premise that the private sector
should provide the primary impetus for economic development and growth.
This new program, which is referred to as the New Economic Model, promotes
changing the role of the government from one of being a provider of most
basic services to that of a facilitator for private sector initiatives and
encourages private sector investment by reducing government-imposed
regulatory restraints.
The New Economic Model contemplates the development of initiatives that
will foster private investment in, and private management of, sectors that
are served more efficiently and effectively by the private enterprise. One
of these initiatives has been the adoption of a new tax code intended to
expand the tax base, reduce top personal and corporate tax rates, and
simplify the tax system.
The New Economic Model also seeks to identify and promote areas in which
Puerto Rico can compete more effectively in the global markets. Tourism has
been identified as one such area because of its potential for job creation
and contribution to the gross product. In 1993, a new Tourism Incentives
Act and a Tourism Development Fund were implemented in order to provide
special tax incentives and financing for the development of new hotel
projects and the tourism industry. As a result of these initiatives, new
hotels have been constructed or are under construction which have increased
the number of hotel rooms on the island from 8,415 in fiscal 1992 to 10,345
in fiscal 1996 and to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the government's
direct contribution to gross domestic product. As part of this goal the
government has transferred certain governmental operations and sold a
number of its assets to private parties. Among these are: (i) the sale of
the assets of the Puerto Rico Maritime Authority; (ii) the execution of a
five-year management agreement for the operation and management of the
Aqueducts and Sewer Authority by a private company; (iii) the execution by
the Aqueducts and Sewer Authority of a construction and operating agreement
with a private consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts with
private power producers under which two cogeneration plants (with a total
capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of private
health services, in 1994 a new health insurance program was started in the
Fajardo region to provide qualifying Puerto Rico residents with
comprehensive health insurance coverage. In conjunction with this program
certain public health facilities are being privatized. The administration's
goal is to provide universal health insurance for such qualifying
residents. The total cost of this program will depend on the number of
municipalities included and the total number of participants. As of June
30, 1996, over 760,000 persons were participating in the program at an
annual cost to the General Fund of approximately $296 million.
One of the factors assisting the development of the manufacturing sector in
Puerto Rico has been the federal and Commonwealth tax incentives available,
most notably section 936 of the Internal Revenue Code of 1986, as amended
(Section 936) and the Commonwealth's Industrial Incentives Program. The
Industrial Incentives Program, through the 1987 Industrial Incentives Act,
grants corporations engaged in certain qualified activities a fixed 90%
exemption from Commonwealth income and property taxes and a 60% exemption
from municipal license taxes during a 10, 15, 20, or 25 year period
depending on location.
For many years, United States companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax exemption for
operating and qualifying investment income from Puerto Rico sources.
Amendments to Section 936 made in 1993 (the 1993 Amendments) instituted two
alternative methods for calculating the tax credit and limited the amount
of the credit that a qualifying company could claim. These limitations are
based on a percentage of qualifying income (the percentage of income
limitation) and on qualifying expenditures on wages and other wage related
benefits (the economic activity limitation, also known as the wage credit
limitation). As a result of amendments incorporated in the Small Business
Job Protection Act of 1996 enacted by the United States Congress and signed
into law by President Clinton on August 20, 1996 (the 1996 Amendments), as
described below the tax credit is now being phased out over a ten-year
period for existing claimants and is no longer available for corporations
that establish operations in Puerto Rico after October 13, 1995 (including
existing Section 936 Corporations (as defined below) to the extent
substantially new operations are established in Puerto Rico). The 1996
Amendments also moved the credit based on the economic activity limitation
to Section 30A of the Code and phased it out over 10 years. In addition,
the 1996 Amendments eliminated the credit previously available for income
derived from certain qualified investments in Puerto Rico. The Section 30A
Credit and the remaining Section 936 credit are discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" (QDC) that meets
certain gross income tests (which are similar to the 80% and 75% gross
income tests of Section 936 of the Code discussed below) to claim a credit
(the Section 30A Credit) against the federal income tax imposed on taxable
income derived from sources outside the United States from the active
conduct of a trade or business in Puerto Rico or from the sale of
substantially all the assets used in such business (possession income).
A QDC is a United States corporation which (i) was actively conducting a
trade or business in Puerto Rico on October 13, 1995, (ii) had a Section
936 election in effect for its taxable year that included October 13, 1995,
(iii) does not have in effect an election to use the percentage limitation
of Section 936(a)(4)(B) of the Code, and (iv) does not add a "substantial
new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to 85% of
the maximum earnings subject to the OASDI portion of Social Security taxes
plus an allowance for fringe benefits of 15% of qualified possession wages,
(ii) a specified percentage of depreciation deductions ranging between 15%
and 65%, based on the class life of tangible property, and (iii) a portion
of Puerto Rico income taxes paid by the QDC, up to a 9% effective tax rate
(but only if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the code may compute the amount of its active
business income, eligible for the Section 30A Credit, by using either the
cost sharing formula, the profit-split formula, or the cost-plus formula,
under the same rules and guidelines prescribed for such formulas as
provided under Section 936 (see discussion below). To be eligible for the
first two formulas, the QDC must have a significant presence in Puerto
Rico.
In the case of taxable years beginning after December 31, 2001, the amount
of possession income that would qualify for the Section 30A Credit would be
subject to a cap based on the QDC's possession income for an average
adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31, 1995
and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, United States
corporations that meet certain requirements and elect its application
(Section 936 Corporations) are entitled to credit against their United
States corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto Rico
(active business income) and from the sale or exchange of substantially all
assets used in the active conduct of such trade or business. To qualify
under Section 936 in any given taxable year, a corporation must derive for
the three-year period immediately preceding the end of such taxable year,
(i) 80% or more of its gross income from sources within Puerto Rico, and
(ii) 75% or more of its gross income from the active conduct of a trade or
business in Puerto Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one of
three formulas: (A) a cost-sharing formula, whereby it is allowed to claim
all profits attributable to manufacturing intangibles, and other functions
carried out in Puerto Rico, provided it contributes to the research and
development expenses of its affiliated group or pays certain royalties; (B)
a profit-split formula, whereby it is allowed to claim 50% of the net
income of its affiliated group from the sale of products manufactured in
Puerto Rico; or (C) a cost-plus formula, whereby it is allowed to claim a
reasonable profit on the manufacturing costs incurred in Puerto Rico. To be
eligible for the first two formulas, the Section 936 Corporation must have
a significant business presence in Puerto Rico for purposes of the Section
936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the Section 936
credit is only available to companies that elect the percentage of income
limitation and is limited in amount to 40% of the credit allowable prior to
the 1993 Amendments, subject to a five-year phase-in period from 1994 to
1998 during which period the percentage of the allowable credit is reduced
from 60% to 40%.
In the case of taxable years beginning on or after 1998, the possession
income subject to the 936 credit will be subject to a cap based on the
Section 936 Corporation's possession income for an average adjusted base
period ending on October 14, 1995. The 936 credit is eliminated for taxable
years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the long-term effect
on the Puerto Rico economy of the enactment of the 936 Amendments. The
Government of Puerto Rico does not believe there will be short-term or
medium-term material adverse effects on Puerto Rico's economy as a result
of the enactment of the 1996 Amendments. The Government of Puerto Rico
further believes that during the phase-out period sufficient time exists to
implement additional incentive programs to safeguard Puerto Rico's
competitive position. Additionally, the Governor intends to propose a new
federal incentive program similar to what is now provided under Section
30A. Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe benefits,
depreciation expenses for certain tangible assets, and research and
development expenses, and would restore the credit granted to passive
income under Section 936 prior to its repeal by the 1996 Amendments. Under
the Governor's proposal, the credit granted to qualifying companies would
continue in effect until Puerto Rico shows, among other things, substantial
economic improvements in terms of certain economic parameters.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
management contract. In the case of the money market funds, 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 funds generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
funds 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.
The bond funds' annual portfolio turnover rates for the fiscal years ended
December 31, 1996 and 1995 are shown in the following table:
ANNUAL PORTFOLIO TURNOVER RATES F OR MUNICIPAL BOND FUNDS
Fiscal Year Ended Michigan Minnesota Ohio
December 31 Municipal Income Municipal Income Municipal Income
Fund Fund Fund
1996 29 % 17 % 43 %
1995 29 % 49 % 48 %
For the fiscal years ended December 31, 1996, 1995 and 1994, 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
FSC normally determines each fund's net asset value per share (NAV) as of
the close of the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern
time). The valuation of portfolio securities is determined as of this time
for the purpose of computing each fund's NAV.
BOND FUNDS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Fixed-income securities are valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Use of pricing services has been
approved by the Board of Trustees. A number of pricing services are
available, and the funds may use various pricing services or discontinue
the use of any pricing service.
Futures contracts and options are valued on the basis of market quotations,
if available.
Securities and other assets for which there is no readily available market
value are valued in good faith by a committee appointed by the Board of
Trustees. The procedures set forth above need not be used to determine the
value of the securities owned by a fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more accurately
reflect the fair market value of such securities.
MONEY MARKET FUNDS
For the money market funds, portfolio securities and other assets are
valued on the basis of amortized cost. This technique involves initially
valuing an instrument at its cost as adjusted for amortization of premium
or accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the price
a fund would receive if it sold the instrument.
During periods of declining interest rates, a fund's yield based on
amortized cost valuation may be higher than would result if the fund used
market valuations to determine its NAV. The converse would apply during
periods of rising interest rates.
Valuing each money market fund's investments on the basis of amortized cost
and use of the term "money market fund" are permitted pursuant to Rule 2a-7
under the 1940 Act. Each money market fund must adhere to certain
conditions under Rule 2a-7, as summarized in the section entitled "Quality
and Maturity" on page .
The Board of Trustees oversees FMR's adherence to the provisions of Rule
2a-7 and has established procedures designed to stabilize each money market
fund's NAV at $1.00. At such intervals as they deem appropriate, the
Trustees consider the extent to which NAV calculated by using market
valuations would deviate from $1.00 per share. If the Trustees believe that
a deviation from a fund's amortized cost per share may result in material
dilution or other unfair results to shareholders, the Trustees have agreed
to take such corrective action, if any, as they deem appropriate to
eliminate or reduce, to the extent reasonably practicable, the dilution or
unfair results. Such corrective action could include selling portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming shares
in kind; establishing NAV by using available market quotations; and such
other measures as the Trustees may deem appropriate.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. A bond fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of a bond fund's shares when redeemed may
be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market fund
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields are computed by dividing the fund's interest
income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive dividends during the period,
dividing this figure by the fund's net asset value per share (NAV) at the
end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of the bond fund's yield quotations in accordance
with standardized methods applicable to all stock and bond funds. In
general, interest income is reduced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds trading at
a discount by adding a portion of the discount to daily income. Capital
gains and losses generally are excluded from the calculation.
Income calculated for the purposes of determining the bond fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the bond fund's yield may not equal
its distribution rate, the income paid to your account, or the income
reported in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a fund's yield by
the result of one minus a stated combined federal and state income tax
rate. If only a portion of a fund's yield is tax-exempt, only that portion
is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
effective yield under federal and state income tax laws for 1997 .
The second table shows the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent
to those of hypothetical tax-exempt obligations yielding from 3 % to
7 %. Of course, no assurance can be given that a fund will achieve
any specific tax-exempt yield. While the funds invest principally in
obligations whose interest is exempt from federal and state income tax,
other income received by the funds may be taxable. The tables do not take
into account local taxes, if any, payable on fund distributions.
Use the first table to find your approximate effective tax bracket
taking into account federal, state, and city taxes for 1997.
1997 TAX RATES FOR MICHIGAN
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal State Combined Federal
and State Effective
Single Return Joint Return Marginal Rate Marginal Rate Rate**
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
$ 0 - $ 24,650 $ 0 - $ 41,200 15.00% 4.40% 18.74%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 28.00% 4.40% 31.17%
$ 59,751 - $ 124,650 $ 99,601 - $ 151,750 31.00% 4.40% 34.04%
$ 124,651 - $ 271,050 $ 151,751 - $ 271,050 36.00% 4.40% 38.82%
$ 271,051 - + Above $ 271,051 - + Above 39.60% 4.40% 42.26%
</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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
If your combined federal and state effective tax rate in 1997 is:
31.17% 34.04% 38.82% 42.26%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To match these
Your taxable investment would have to earn the following yield:
tax-free yields:
</TABLE>
3% 4. 36 % 4. 55 % 4.90 % 5. 20 %
4% 5.81 % 6.06 % 6.54 % 6.93 %
5% 7.26 % 7. 58 % 8.17 % 8 .66 %
6% 8.72 % 9. 10 % 9.81 % 10. 39 %
7% 10.17 % 10. 61 % 11. 44 % 12. 12 %
1997 TAX RATES FOR MINNESOTA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal State Combined Federal
and State Effective
Single Return Joint Return Marginal Rate Marginal Rate Rate**
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 16,510 $ 0 - 24,140 15.00% 6.00% 20.10%
$ 16,511 - 24,650 $ 24,141 - 41,200 15.00% 8.00% 21.80%
$ 24,651 - 54,250 $ 41,201 - 95,920 28.00% 8.00% 33.76%
$ 54,251 - 59,750 $ 95,921 - 99,600 28.00% 8.50% 34.12%
$ 59,751 - 124,650 $ 99,601 - 151,750 31.00% 8.50% 36.87%
$ 124,651 - 271,050 $ 151,751 - 271,050 36.00% 8.50% 41.44%
$ 271,
051 + Above $ 271,051 + Above 39.60% 8.50% 44.73%
</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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
If your combined federal and state effective tax rate in 1997 is:
33.76% 34.12% 38.87% 41.44% 44.73%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
To match these
Your taxable investment would have to earn the following yield:
tax-free yields:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
3% 4.53% 4. 55 % 4. 75 % 5.12 % 5. 43 %
4% 6.04% 6.07 % 6.34 % 6.83 % 7.24 %
5% 7.55% 7.59 % 7.92 % 8.54 % 9.05 %
6% 9.06% 9.11 % 9.50 % 10.25 % 10.86 %
7% 10.57% 10.63 % 11.09 % 11.95 % 12.67 %
</TABLE>
1997 TAX RATES FOR OHIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal State Combined Federal
and State Effective
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$24,651 - 40,000 - 28 .00% 4.162 % 31.00%
$40,001 - 59,750 $ 40,101 - 80,000 28 .00% 4.857% 31.50%
- $ 80,001 - 99,600 28.00% 5.550% 32.00%
$59,751 - 80,000 - 31.00% 4.857% 34.35 %
$80,001 - 100,000 $ 99,601 - 100,000 31.00% 5.550% 34.83%
$100,001 - 124,650 $ 100,001 - 151,750 31.00% 6.443% 35.45%
$124,651 - 200,000 $ 151,751 - 200,000 36.00% 6.443% 40.12%
$200,001 - 271,050 $ 200,001 - 271,050 36. 0 0% 7.004 % 40.48%
$271,051 - + Above $ 271,051 - + Above 39.60% 7.004% 43.83%
</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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
If your combined federal and state effective tax rate in 1997 is:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.00% 31.50% 32.00% 34.35% 34.83% 35.45% 40.12% 40.48% 43.83%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
To match these Your taxable investment would have to earn the following yield:
tax-free yields:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3% 4.35% 4.38% 4.41% 4.57% 4.60% 4.65% 5.01% 5.04% 5.34%
4% 5.80% 5.84% 5.88% 6.09% 6.14% 6.20% 6.68% 6.72% 7.12%
5% 7.25% 7.30% 7.35% 7.62% 7.67% 7.75% 8.35% 8.40% 8.90%
6% 8.70% 8.76% 8.82% 9.14% 9.21% 9.30% 10.02% 10.08% 10.68%
7% 10.14% 10.22% 10.29% 10.66% 10.74% 10.84% 11.69% 11.76% 12.46%
</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 tables 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 each bond fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the fund's net
asset value (NAV) over a stated period. Average annual total returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then calculating
the annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady annual
rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that a fund's
performance is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as opposed to
the actual year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis 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.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show the money market fund's
7-day yields, the bond fund's 30-day yields, each fund's tax-equivalent
yields, and total returns for periods ended December 31, 1996.
The tax-equivalent yield is based on a combined effective 1996 federal and
state income tax rate of 38.82 % (Michigan) 41.44 % (Minnesota)
and 40.48 % (Ohio) and reflects that, as of December 31, 1996, none
of the fund's income was subject to state taxes. Note that each fund may
invest in securities whose income is subject to the federal alternative
minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven-Day Tax- One Five One Five
Yield Equivalent Year Years Life of Year Years Life of
Yield Fund* Fund*
Ohio
Municipal 3.47 % 5.83 % 3.08 % 2.79 % 3.60 % 3.08 % 14.75 % 29.72 %
Money Market
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven-Day Tax- One Five One Five
Yield Equivalent Year Years Life of Year Years Life of
Yield Fund** Fund**
Michigan 3.39 % 5.54 % 3.00 % 2.69 % 3.37 % 3.00 % 14.20 % 26.05 %
Municipal
Money
Market
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty Day Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Michigan 4.79 % 7.83 % 3.38 % 6.59 % 6.97 % 3.38 % 37.60 % 96.24 %
Municipal
Income
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty Day Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Minnesota 4.73 % 8.08 % 3.78 % 6.48 % 6.54 % 3.78 % 36.90 % 88.41 %
Municipal
Income
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty Day Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Ohio
Municipal 4.74 % 7.96 % 4.23 % 6.98 % 7.37 % 4.23 % 40.15 % 103.59 %
Income
</TABLE>
* From commencement of operations (August 29, 1989)
** From commencement of operations (January 12, 1990)
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 500 Index (S&P 500(registered trademark)),
the Dow Jones Industrial Average (DJIA), and the cost of living, as
measured by the Consumer Price Index (CPI), over the same period. The CPI
information is as of the month end closest to the initial investment date
for each fund. The S&P 500 and DJIA comparisons are provided to show how
each fund's total return compared to the record of a broad unmanaged index
of common stocks and a narrower set of stocks of major industrial
companies, respectively, over the same period. Each money market fund
invests in short-term fixed-income securities; common stocks represent a
different type of investment from the funds. Common stocks generally offer
greater growth potential than the funds, but generally experience greater
price volatility, which means greater potential for loss. In addition,
common stocks generally provide lower income than fixed-income investments
such as the funds. The S&P 500 and DJIA returns are based on the prices of
unmanaged groups of stocks and, unlike each fund's returns, do not include
the effect of brokerage commissions or other costs of investing.
The following tables show the growth in value of a hypothetical $10,000
investment in each fund for the period ended December 31, 1996,
assuming all distributions were reinvested. The figures on the next page
reflect the fluctuating interest rates, and bond prices of the specified
periods and should not be considered representative of the dividend income
or capital gain or loss that could be realized from an investment in a fund
today. Tax consequences of different investments have not been factored
into the figures below.
During the 10 - year period ended December 31, 1996, a hypothetical
$10,000 investment in Michigan Municipal Income would have grown to
$ 19,624 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY MICHIGAN MUNICIPAL INCOME FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 9,930 $ 9,062 $ 632 $ 19,624 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,158 $ 8,182 $ 643 $ 18,983 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,297 $ 6,562 $ 589 $ 16,448 $ 24,532 $ 26,244 $ 13,548
1993 $ 10,844 $ 6,533 $ 405 $ 17,782 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,290 $ 5,269 $ 63 $ 15,622 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,026 $ 4,200 $ 36 $ 14,262 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,569 $ 3,127 $ 33 $ 12,729 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,754 $ 2,318 $ 34 $ 12,106 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,482 $ 1,469 $ 33 $ 10,984 $ 12,275 $ 12,222 $ 10,905
1987 $ 9,007 $ 681 $ 31 $ 9,719 $ 10,526 $ 10,543 $ 10,443
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on December
31, 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 $19,627. 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 $6,292 for dividends and $415 for capital
gain distributions.
During the 10 - year period ended December 31, 1996, a hypothetical
$10,000 investment in Minnesota Municipal Income would have grown to
$18,841.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY MINNESOTA MUNICIPAL INCOME FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 9,955 $ 8,743 $ 143 $ 18,841 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,100 $ 7,909 $ 146 $ 18,155 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,217 $ 6,303 $ 131 $ 15,651 $ 24,532 $ 26,244 $ 13,548
1993 $ 10,482 $ 6,142 $ 28 $ 16,652 $ 24,213 $ 25,001 $ 13,195
1992 $ 9,873 $ 4,912 $ 27 $ 14,812 $ 21,996 $ 21,370 $ 12,842
1991 $ 9,763 $ 3,973 $ 26 $ 13,762 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,600 $ 3,058 $ 26 $ 12,684 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,572 $ 2,232 $ 26 $ 11,830 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,381 $ 1,423 $ 26 $ 10,830 $ 12,275 $ 12,222 $ 10,905
1987 $ 8,935 $ 658 $ 24 $ 9,617 $ 10,526 $ 10,543 $ 10,443
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on
December 3 1, 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 $18,638. 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 $6,062 for
dividends and $102 for capital gain distributions.
During the 10 year period ended December 31, 1996, a hypothetical
$10,000 investment in Ohio Municipal Income would have grown to $20,359.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY OHIO MUNICIPAL INCOME FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 10,419 $ 9,171 $ 769 $ 20,359 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,565 $ 8,312 $ 656 $ 19,533 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,590 $ 6,596 $ 596 $ 16,782 $ 24,532 $ 26,244 $ 13,548
1993 $ 10,957 $ 6,448 $ 362 $ 17,767 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,529 $ 5,256 $ 0 $ 15,785 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,319 $ 4,207 $ 0 $ 14,526 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,881 $ 3,153 $ 0 $ 13,034 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,836 $ 2,289 $ 0 $ 12,125 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,572 $ 1,452 $ 0 $ 11,024 $ 12,275 $ 12,222 $ 10,905
1987 $ 9,088 $ 674 $ 0 $ 9,762 $ 10,526 $ 10,543 $ 10,443
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on December
31, 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 $19,625. 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 $6,270 for dividends and $465 for capital
gains distributions.
During the period from January 12, 1990 (commencement of operations) to the
period ended December 31, 1996, a hypothetical $10,000 investment in
Michigan Municipal Money Market would have grown to $12,605 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 factored or capital gain or loss that
could be realized form an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 10,000 $ 2,605 $ 0 $ 12,605 $ 26,016 $ 28,566 $ 12,577
1995 $ 10,000 $ 2,238 $ 0 $ 12,238 $ 21,158 $ 22,195 $ 12,173
1994 $ 10,000 $ 1,839 $ 0 $ 11,839 $ 15,379 $ 16,234 $ 11,872
1993 $ 10,000 $ 1,557 $ 0 $ 11,557 $ 15,179 $ 15,465 $ 11,562
1992 $ 10,000 $ 1,332 $ 0 $ 11,332 $ 13,789 $ 13,219 $ 11,253
1991 $ 10,000 $ 1,038 $ 0 $ 11,038 $ 12,810 $ 12,320 $ 10,936
1990 $ 10,000 $ 566 $ 0 $ 10,566 $ 9,817 $ 9,908 $ 10,611
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
12, 1990, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested) amounted to
$12,60 5 . 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 $ 2,319 for
dividends. The fund did not distribute any capital gains during the period.
During the period from August 29, 1989 (commencement of operations) to the
period ended December 31, 1996, a hypothetical $10,000 investment in Ohio
Municipal Money Market would have grown to $ 12,972, 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 factored or capital gain or loss that
could be realized form an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 10,000 $ 2,972 $ 0 $ 12,972 $ 26,059 $ 29,146 $ 12,729
1995 $ 10,000 $ 2,584 $ 0 $ 12,584 $ 21,193 $ 22,646 $ 12,319
1994 $ 10,000 $ 2,161 $ 0 $ 12,161 $ 15,405 $ 16,564 $ 12,014
1993 $ 10,000 $ 1,865 $ 0 $ 11,865 $ 15,204 $ 15,779 $ 11,701
1992 $ 10,000 $ 1,622 $ 0 $ 11,622 $ 13,812 $ 13,487 $ 11,388
1991 $ 10,000 $ 1,304 $ 0 $ 11,304 $ 12,831 $ 12,570 $ 11,067
1990 $ 10,000 $ 817 $ 0 $ 10,817 $ 9,834 $ 10,109 $ 10,738
1989 $ 10,000 $ 215 $ 0 $ 10,215 $ 10,150 $ 10,164 $ 10,120
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August 29,
1989, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their cash
value at the time they were reinvested) amounted to $ 12,972 . 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 $ 2,606 for dividends. The fund did not
distribute any capital gains during the period.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on total
return, assume reinvestment of distributions, do not take sales charges or
redemption fees into consideration, and are prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to the
mutual fund rankings, a fund's performance may be compared to stock, bond,
and money market mutual fund performance indices prepared by Lipper or
other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund 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 Consumer Price Index), and
combinations of various capital markets. The performance of these capital
markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC Financial Data, Inc. of
Ashland, Massachusetts. These averages assume reinvestment of
distributions. IBC's MONEY FUND REPORT AVERAGES(trademark)/All Tax-Free,
which is reported in IBC's MONEY FUND REPORT(registered trademark), covers
over 416 tax-free money market 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, invest in longer-term instruments and
their share prices change 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, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of December 31, 1996, FMR advised over $ 28 billion in tax-free
fund assets, $ 96 billion in money market fund assets, $ 303
billion in equity fund assets, $ 61 billion in international fund
assets, and $ 25 billion in Spartan fund assets. The funds may
reference the growth and variety of money market mutual funds and the
adviser's innovation and participation in the industry. The equity funds
under management figure represents the largest amount of equity fund assets
under management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1997: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, 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 occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
A fund purchases municipal securities whose interest FMR believes is free
from federal income tax. Generally, issuers or other parties have entered
into covenants requiring continuing compliance with federal tax
requirements to preserve the tax-free status of interest payments over the
life of the security. If at any time the covenants are not complied with,
or if the IRS otherwise determines that the issuer did not comply with
relevant tax requirements, interest payments from a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, the tax status of the pass-through
of tax-free income may also be based on the federal and state tax treatment
of the structure.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of each fund's policies of investing so
that at least 80% of its income is free from federal income tax. Interest
from private activity securities is a tax preference item for the purposes
of determining whether a taxpayer is subject to the AMT and the amount of
AMT to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by 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 each fund's policy of investing so that at least 80%
of its income is 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.
MICHIGAN TAXES. Under a ruling of the Michigan Department of Treasury,
shareholders of Michigan Municipal Money Market and Michigan Municipal
Income who are subject to the Michigan income tax or single business tax
will not be subject to the Michigan income tax or single business tax on
their Michigan fund dividends to the extent that such distributions are
exempt-interest dividends for federal income tax purposes and are
attributable to interest on tax-exempt obligations of the State of
Michigan, its political or governmental subdivisions, or its governmental
agencies or instrumentalities (as well as certain federally tax-exempt
obligations of territories and possessions of the United States). Such
distributions will also not be subject to city income taxes imposed by
certain Michigan cities. Any distributions with respect to shares of each
Michigan fund other than those described in the preceding sentence,
including, but not limited to, long or short-term capital gains, will be
subject to the Michigan income tax or single business tax and may be
subject to the city income taxes imposed by certain Michigan cities. The
Michigan Court of Appeals has ruled that shares of a mutual fund such as
Michigan Money Market and Municipal Income are exempt from the Michigan
intangibles tax to the extent the funds invest in obligations exempt from
the intangibles tax.
MINNESOTA TAXES. FMR understands that shareholders of Minnesota Municipal
Income who are individuals, estates or trusts and who are subject to
Minnesota personal income tax will not be subject to such tax on
distributions with respect to shares of Minnesota Municipal Income to the
extent that such distributions are exempt-interest dividends for federal
income tax purposes, are attributable to interest on tax-exempt obligations
of the State of Minnesota, or its political or governmental subdivisions,
or any of its municipalities or its governmental agencies or
instrumentalities and the portion of the exempt-interest dividends from
Minnesota that are paid equals or exceeds 95% of all exempt-interest
dividends paid. In addition, distributions with respect to interest derived
from obligations of the United States will not be subject to the Minnesota
personal income tax. Any distributions with respect to shares of Minnesota
Municipal Income other than those described in the preceding sentences,
including, but not limited to, long or short-term capital gains, may be
subject to the Minnesota personal income tax. Capital gain distributions
paid will be taxed in Minnesota at the same rate as other income.
Distributions derived from private activity bonds included in federal
minimum taxable income and tax-exempt dividends may generate Minnesota
alternative minimum tax. Generally, Minnesota Municipal Income will not be
subject to Minnesota corporate franchise tax except to the extent that it
has federal taxable income.
OHIO TAXES. FMR understands that shareholders of Ohio Money Market and the
Ohio Municipal Income who are otherwise subject to Ohio personal income
tax, a school district income tax, or the net income base of the Ohio
corporation franchise tax will not be subject to such taxes on
distributions with respect to shares of each Ohio fund to the extent that
such distributions are exempt-interest dividends for federal income tax
purposes and are attributable to interest on tax-exempt obligations of the
State of Ohio or its political subdivisions or authorities (as well as any
tax-exempt obligations of territories or possessions of the United States).
Any distributions with respect to shares of each Ohio fund other than those
described in the preceding sentence may be subject to the Ohio personal
income tax or the net income base of the Ohio corporation franchise tax.
Distributions received by shareholders will be exempt from an income tax
levied by an Ohio municipal corporation unless the shareholder is subject
to a municipal income tax that includes "intangible income" in the tax base
in accordance with Ohio Revenue Code (sub-section)718.02(G). Distributions
represented by interest from obligations held by each Ohio fund, which
interest is specifically exempt under Ohio law from an income tax imposed
by a political subdivision of the State of Ohio, will be exempt from a
municipal income tax that includes "intangible income" in the tax base in
accordance with Ohio Revenue Code (sub-section)718.02(G) when received by a
shareholder.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a 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 funds do not anticipate distributing long-term capital
gains.
As of December 31, 1996, Ohio Municipal Income designated
approximately $191,583 as a capital gain dividend for the purpose of the
dividend-paid deduction.
As of December 31, 1996, Michigan Money Market had capital loss
carryforwards aggregating approximately $96,800 of which $1,600, $1,700,
$10,300, $39,100, $4,800 and $39,300 will expire on December 31,
1998, 1999, 2001, 2002, 2003, and 2004, respectively.
As of December 31, 1996, Ohio Money Market had capital loss carryforwards
aggregating approximately $79,000 of which $5,000, $6,000, $11,000, $7,000,
and $50,000 will expire on December 31, 1998, 2000, 2002, 2003, and 2004,
respectively.
As of December 31, 1996, Michigan Municipal Income had capital loss
carryforwards aggregating approximately $676,000 which will expire on
December 31, 2003.
As of December 31, 1996, Minnesota Municipal Income had capital loss
carryforwards aggregating approximately $7,963,000 which will expire on
December 31, 2003.
For the above mentioned funds, theses amounts are available to offset any
future capital gains.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
each fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. 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 (bond funds) and Fidelity Municipal Trust II (money market
funds) for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
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 personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. Trustees and officers elected or
appointed to Fidelity Municipal Trust prior to the fund's conversion from a
series of a Massachusetts business 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. The business address of all the other Trustees is
Fidelity Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235.
Those Trustees who are "interested persons" by virtue of their affiliation
with either the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (66), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (55), 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 (64), Trustee (1991), is a management consultant (1994). Prior
to February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). Until March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Sanifill Corporation
(non-hazardous waste, 1993), CH2M Hill Companies (engineering), Rio Grande,
Inc. (oil and gas production), and Daniel Industries (petroleum measurement
equipment manufacturer). In addition, he is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (65), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores), and previously served as a
Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
E. BRADLEY JONES (69), Trustee. Prior to his retirement in 1984, Mr. Jones
was Chairman and Chief Executive Officer of LTV Steel Company. He is a
Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products), and
he previously served as a Director of NACCO Industries, Inc. (mining and
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 (64), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Chairman of the Board of Trustees of the Greenwich
Hospital Association, a Member of the Public Oversight Board of the
American Institute of Certified Public Accountants' SEC Practice Section
(1995), and as a Public Governor of the National Association of Securities
Dealers, Inc. (1996).
*PETER S. LYNCH (53), Trustee, is Vice Chairman and Director of FMR (1992).
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). 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.
WILLIAM O. McCOY (63), Trustee (1997), or M ember of the Advisory
Board (1996), is the Vice President of Finance for the University of North
Carolina (16-school system, 1995). Prior to his retirement in December
1994, Mr. McCoy was Vice Chairman of the Board of BellSouth Corporation
(telecommunications, 1984) and President of BellSouth Enterprises (1986).
He is currently a Director of Liberty Corporation (holding company,
1984), Weeks Corporation of Atlanta (real estate, 1994), Carolina Power and
Light Company (electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member of
the Board of Visitors for the University of North Carolina at Chapel Hill
(1994) and for the Kenan-Flager Business School (University of North
Carolina at Chapel Hill, 1988). Mr. McCoy currently serves as a Trustee
for Fidelity Municipal Trust and currently serves as a Member of the
Advisory Board for Fidelity Municipal Trust II.
GERALD C. McDONOUGH (67), Trustee and Vice-Chairman of the non-interested
Trustees, 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 Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration),
Commercial Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products, 1996), and
Associated Estates Realty Corporation (a real estate investment trust,
1993). Mr. McDonough served as a Director of ACME-Cleveland Corp. (metal
working, telecommunications, and electronic products) from 1987-1996.
MARVIN L. MANN (63), 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.
THOMAS R. WILLIAMS (68), 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. (57), Vice President, is Vice President of Fidelity's
fixed-income funds (1995) and Senior Vice President of FMR (1995).
SARAH H. ZENOBLE (46), Vice President, is Vice President of Fidelity's
money market funds (1996) and Vice President of FMR Texas Inc.
DAVID MURPHY (47), is Vice President of Michigan Municipal Income, which he
has managed since May 1996. He also manges several other bond funds. Since
joining Fidelity in 1989, Mr. Murphy has worked as a manager.
SCOTT ORR (34), is Vice President of Ohio Municipal Money Market (1996)
and other funds advised by FMR, and an employee of FMR.
DEBRA WATSON (37), is Vice President of Michigan Municipal Money Market
(1996) and other funds advised by FMR, and an employee of FMR.
ARTHUR S. LORING (49), 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 (49), 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 (51), Assistant Vice President, is Assistant Vice President
of Fidelity's municipal bond funds (1996) and of Fidelity's money
market funds and Vice President and Associate General Counsel of FMR Texas
Inc.
JOHN H. COSTELLO (50), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (50), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994) and Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993).
THOMAS J. SIMPSON (38), Assistant Treasurer, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money market funds
(1996) and an employee of FMR (1996). Prior to joining FMR, Mr. Simpson was
Vice President and Fund Controller of Liberty Investment Services
(1987-1995).
The following tables set forth information describing the compensation of
each Trustee and Member of the Advisory Board of each fund for his
or her services as trustee for the fiscal year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggre
gate J.Gary Ralph Phyllis Richard
Edward C. E. Donald Peter S. William Gerald
Edward Marvin
Thomas
Compen
sation
Burk
head** F.Cox Burke J. Johnson Brad
ley J. Kirk Lynch** O. C. H.
L. R.
From a Fund Davis Flynn
***
3d** Jones McCoy
*** *
McDonough Malone
***
Mann Williams
Michi
gan
$ 0 $160 $159 $197 $0 $159 $160 $0 $94 $160 $159 $157 $160
Municipal
Income A,B
Minn
esota
$ 0 $104 $103 $128 $0 $103 $104 $0 $61 $104 $103 $102 $104
Municipal
IncomeA,C
Ohio $ 0 $133 $131 $163 $0 $131 $132 $0 $ 78 $132 $131 $130 $132
Municipal
Income A,D
Mich
igan
$ 0 $80 $78 $ 98 $0 $78 $79 $0 $48 $79 $79 $ 78 $ 79
Municipal
Money
Market A,E
Ohio $ 0 $106 $104 $130 $0 $104 $105 $0 $ 64 $105 $104 $103 $105
Municipal
Money
Market A,F
Total $ 0 $137,
700 $134,
700 $168,
000 $0 $134,
700 $136,
200 $0 $85,
333 $136,
200 $136,
200 $134,
700 $136,200
Compensation
From the Fund
Complex *,A
</TABLE>
* Information is as of December 31, 1996 for 235 funds in the complex.
** Interested Trustees of the fund are compensated by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of Trustees
through December 31, 1996.
**** During the period from may 1, 1996 through December 31, 1996, William
O. McCoy has served as a Member of the Advisory Board of Fidelity Municipal
Trust and of Fidelity Municipal Trust II.
A Compensation figures include cash, a pro rata portion of benefits accrued
under the retirement program for the period ended December 30, 1996 and
required to be deferred, and may include amounts deferred at the election
of Trustees.
B The following amounts are required to be deferred by each non-interested
trustee, most of which is subject to vesting: Ralph F. Cox, $6, Phyllis
Burke Davis, $6, Richard J. Flynn, $0, E. Bradley Jones, $6, Donald J.
Kirk, $6, William O. McCoy, $0, Gerald C. McDonough, $6, Edward H. Malone,
$6, Marvin L. Mann, $6, and Thomas R. Williams, $6.
C The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $4, Phyllis
Burke Davis, $4, Richard J. Flynn, $0, E. Bradley Jones, $4, Donald J.
Kirk, $4, William O. McCoy, $0, Gerald C. McDonough, $4, Edward H. Malone,
$4, Marvin L. Mann, $4, and Thomas R. Williams, $4.
D The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $5, Phyllis
Burke Davis, $5, Richard J. Flynn, $0, E. Bradley Jones, $5, Donald J.
Kirk, $5, William O. McCoy, $0, Gerald C. McDonough, $5, Edward H. Malone,
$5, Marvin L. Mann, $5, and Thomas R. Williams, $5.
E The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $3, Phyllis
Burke Davis, $3, Richard J. Flynn, $0, E. Bradley Jones, $3, Donald J.
Kirk, $3, William O. McCoy, $0, Gerald C. McDonough, $3, Edward H. Malone,
$3, Marvin L. Mann, $3, and Thomas R. Williams, $3.
F The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $4, Phyllis
Burke Davis, $4, Richard J. Flynn, $0, E. Bradley Jones, $4, Donald J.
Kirk, $4, William O. McCoy, $0, Gerald C. McDonough, $4, Edward H. Malone,
$4, Marvin L. Mann, $4, and Thomas R. Williams, $4.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In connection
with the termination of the retirement program, each existing
non-interested Trustee received a credit to his or her Plan account equal
to the present value of the estimated benefits that would have been payable
under the retirement program. The amounts credited to the non-interested
Trustees' Plan accounts are subject to vesting. The termination of the
retirement program and related crediting of estimated benefits to the
Trustees' Plan accounts did not result in material cost to the funds.
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 fees in accordance with the Plan will have a
negligible effect on the fund's assets, liabilities, and net income per
share, and will not obligate the funds to retain the services of any
Trustee or to pay any particular level of compensation to the Trustee. The
funds may invest in such designated securities under the Plan without
shareholder approval.
Under a retirement program adopted in July 1988 and modified in November
1995 and November 1996, each non-interested Trustee who retired before
December 30, 1996, may receive payments from a Fidelity fund during his or
her lifetime based on his or her basic trustee fees and length of service.
The obligation of a fund to make such payments is neither secured nor
funded. A Trustee became eligible to participate in the program at the end
of the calendar year in which he or she reached age 72, provided that, at
the time of retirement, he or she has served as a Fidelity fund Trustee for
at least five years.
As of December 31, 1996, the Trustees, Members of the Advisory Board, and
officers of each fund owned, in the aggregate, less than 1 % of each
fund's total outstanding shares.
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.
In addition to the management fee payable to FMR and the fees payable to
UMB, each fund pays all of its expenses, without limitation, that are not
assumed by those parties. Each fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although each
fund's current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders, the trust, on behalf of
each fund has entered into a revised transfer agent agreement with UMB,
pursuant to which UMB bears the costs of providing these services to
existing shareholders. Other expenses paid by each fund include interest,
taxes, brokerage commissions, and each fund's proportionate share of
insurance premiums and Investment Company Institute dues. Each fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which each fund may be a party, and any obligation it may
have to indemnify its officers and Trustees with respect to litigation.
FMR is each fund's manager pursuant to management contracts dated February
28, 1992 (money market), and December 15, 1993 (bond funds) respectively,
which were approved by shareholders on February 28, 19 92 , and
December 15 , 19 93 , respectively.
For the services of FMR under the contract, each fund pays FMR a monthly
management fee composed of the sum of two elements: a group fee rate and an
individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $453 billion of group net
assets - the approximate level for December 31, 1996 - was .1425 %,
which is the weighted average of the respective fee rates for each level of
group net assets up to $ 453 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Under the money market fund's current management contract with FMR, the
group fee rate is based on a schedule with breakpoints ending at .1500% for
average group assets in excess of $84 billion. The group fee rate
breakpoints shown above for average group assets in excess of $120 billion
and under $228 billion were voluntarily adopted by FMR on January 1, 1992.
The additional breakpoints shown above for average group assets in excess
of $228 billion were voluntarily adopted by FMR on November 1, 1993.
Under each bond fund's current management contract with FMR, the group fee
rate is based on a schedule with breakpoints ending at .1400% for average
group assets in excess of $174 billion. Prior to January 1, 1994, the group
fee rate breakpoints shown above for average group assets in excess of $120
billion and under $228 billion were voluntarily adopted by FMR on January
1, 1992. The additional breakpoints shown above for average group assets in
excess of $228 billion were voluntarily adopted by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints for average group assets
in excess of $156 billion and under $372 billion as shown in the schedule
below. The revised group fee rate schedule was identical to the above
schedule for average group assets under $156 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
Over 372 .1200 325 .1514
350 .1494
375 .1476
400 .1459
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $156
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The individual fund fee rate is .25 %. Based on the average group net
assets of the funds advised by FMR for December 31, 1996, the annual
management fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1425 % + . 25 % = . 3925 %
One-twelfth of this annual management fee rate is applied to each fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
The table below shows the management fees paid to FMR by each fund for the
last three fiscal years:
MICHIGAN MUNICIPAL INCOME
Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1996 $ 1,839,031 .3951 %
1995 $ 1,902,956 .4016 %
1994 $ 2,071,121 .4090 %
MINNESOTA MUNICIPAL INCOME
Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1996 $ 1,192,189 .3951 %
1995 $ 1,215,788 .4017 %
1994 $ 1,277,538 .4089 %
OHIO MUNICIPAL INCOME
Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1996 $ 1,524,443 .3951 %
1995 $ 1,547,084 .4016 %
1994 $ 1,643,714 .4090 %
MICHIGAN MUNICIPAL MONEY MARKET
Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1996 $ 930,291 .3949 %
1995 $ 881,070 .4017 %
1994 $ 803,963 .4082 %
OHIO MUNICIPAL MONEY MARKET
Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1996 $ 1,231,605 .3950 %
1995 $ 1,153,092 .4018 %
1994 $ 1,161,251 .4078 %
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 repayment of the
reimbursement by each fund will lower its total returns and yield.
SUB-ADVISER. On behalf of the money market funds, FMR has entered into a
sub-advisory agreement with FMR Texas pursuant to which FMR Texas has
primary responsibility for providing portfolio investment management
services to each money market fund.
Under the sub-advisory agreement, dated February 28, 1992, which was
approved by shareholders on February 28, 1992, FMR pays FMR Texas fees
equal to 50% of the management fee payable to FMR under its management
contract with each money market fund. The fees paid to FMR Texas are not
reduced by any voluntary or mandatory expense reimbursements that may be in
effect from time to time. The following table shows fees FMR paid to FMR
Texas on behalf of each money market fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees Paid to FMR Texas
1996 1995 1994
Michigan Municipal Money Market $ 465,146 $ 430,535 $ 392,312
Ohio Municipal Money Market $ 615,803 $ 576,546 $ 535,819
</TABLE>
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.
Payments made by FMR to third parties during the fiscal year ended December
31, 1996 amounted to $ 1,713 for Minnesota Munici pal Income. No
third party payments were made during the fiscal year ended December 31,
1996 for Michigan Municipal Money Market, Ohio Municipal Money Market,
Michigan Municipal Income, or Ohio Municipal Income.
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 Plans for the money market funds were approved by FMR as the then sole
shareholder of each fund on February 28,1992. Each fund's plan was approved
by shareholders,in connection with a reorganization transaction on December
11, 1991, pursuant to an Agreement and Plan of Conversion. The Plans for
the bond funds were approved by shareholders of each fund at a special
meeting of shareholders on December 30, 1986.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and 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 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 the sub-contracts,
FSC bears the expense of typesetting, printing, and mailing prospectuses,
statements of additional information, and all other reports, notices, and
statements to shareholders, with the exception of proxy statements. FSC
also pays all out-of-pocket expenses associated with transfer agent
services.
Under this arrangement, FSC receives an annual account fee and an
asset-based fee each based on account size and fund type for each retail
account and certain institutional accounts. With respect to certain
institutional retirement accounts, FSC receives an annual account fee and
an asset-based fee based on account type or fund type. These annual account
fees are subject to increase based on postal rate changes. FSC also
collects small account fees from certain accounts with balances of less
than $2,500.
UMB has an additional sub-contract with FSC, pursuant to which FSC performs
the calculations necessary to determine each fund's NAV and dividends and
maintains each fund's accounting records. The annual fee rates for these
pricing and bookkeeping services are based on each fund's average net
assets, and are presented in the table below.
Pricing and Bookkeeping Annual Fee Rates
First $0 - $500 Greater Than Minimum Maximum
Million $500 Million Per Year Per Year
Money Market Funds .0175% .0075% $ 40,000 $ 800,000
Bond Funds .0400% .0200% 60,000 800,000
Pricing and bookkeeping fees, including reimbursement for out-of-pocket
expenses, paid to FSC for fiscal 1996, 1995, and 1994 are indicated in the
table below.
Pricing and Bookkeeping Fees
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996 1995 1994
Michigan Municipal Income $ 203,023 $ 202,658 $ 216,724
Minnesota Municipal Income $ 131,336 $ 129,874 $ 135,450
Ohio Municipal Income $ 166,150 $ 164,613 $ 175,407
Michigan Municipal Money Market $ 49,657 $ 45,937 $ 40,958
Ohio Municipal Money Market $ 63,897 $ 58,019 $ 60,657
</TABLE>
The pricing and bookkeeping fees described above are paid to FSC by UMB,
which is entitled to reimbursement from the funds for these expenses.
For the money FSC has entered into an agreement with Fidelity Brokerage
Services, Inc. (FBSI), a subsidiary of FMR Corp., pursuant to which FBSI
performs certain recordkeeping, communication, and other services for money
market fund shareholders participating in the Fidelity Ultra Service
Account program. FBSI directly charges a monthly administrative fee to each
Ultra Service Account client who chooses certain additional features. This
fee is in addition to the transfer agency fee received by FSC.
Each fund has 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. Fidelity Michigan Municipal Income Fund, Fidelity
Minnesota Municipal Income Fund, and Fidelity Ohio Municipal Income Fund
are funds (series) of Fidelity Municipal Trust (the Massachusetts trust),
which is an open-end management investment company originally organized as
a Maryland corporation on November 22, 1976 and was reorganized as a
Massachusetts business trust, at which time its name changed from Fidelity
Municipal Bond Fund, Inc. to Fidelity Municipal Bond Fund. On March 1,
1986, the trust's name was changed to Fidelity Municipal Trust to reflect
the multiple funds within the trust. Currently, there are seven funds of
the trust: Fidelity Municipal Bond Fund, Fidelity Aggressive Municipal
Fund, Fidelity Insured Municipal Income Fund, Fidelity Ohio Municipal
Income Fund, Fidelity Michigan Municipal Income Fund, Fidelity Minnesota
Municipal Income Fund, and Spartan Pennsylvania Municipal Income Fund.
The Declaration of trust permits the Trustees to create additional
funds.
Fidelity Michigan Municipal Money Market Fund and Fidelity Ohio Municipal
Money Market Fund are funds (series) of Fidelity Municipal Trust II (the
Delaware trust) an open-end management investment company organized as a
Delaware business trust on June 20, 1991. The funds acquired all of the
assets of Fidelity Ohio Municipal Money Market Fund and Fidelity Michigan
Municipal Money Market Fund, respectively, of Fidelity Municipal Trust on
February 28, 1992. Currently there are three funds of Fidelity Municipal
Trust II: Fidelity Ohio Municipal Money Market Fund, Fidelity Michigan
Municipal Money Market Fund, and Spartan Pennsylvania Municipal Money
Market Fund. The Declaration of trust 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" may be withdrawn. There is a remote possibility that one fund
might become liable for any misstatement in its prospectus or SAI 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 business trust,,
you receive one vote for each dollar value of net asset value you own. The
shares have no preemptive or conversion rights; voting and dividend rights,
the right of redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set forth
under the respective "Shareholder and Trustee Liability" headings above.
Shareholders representing 10% or more of a trust or one of its funds may,
as set forth in the Declaration of Trust or Trust Instrument, call meetings
of the trust or fund for any purpose related to the trust or fund, as the
case may be, including, in the case of a meeting of an entire trust, the
purpose on voting on removal of one or more Trustees.
A trust or any fund may be terminated upon the sale of its assets to (or,
in the case of the Delaware trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations
must be approved by vote of the holders of a majority of (money market
funds: the outstanding shares of) the trust or the fund as determined by
the current value of each shareholder's investment in the fund or trust;
however, the Trustees of the Delaware trust may, without prior shareholder
approval, change the form of the organization of the Delaware trust by
merger, consolidation, or incorporation. If not so terminated or
reorganized, the trusts and their funds will continue indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the Delaware trust to merge or consolidate into one or more trusts,
partnerships, or corporations, so long as the surviving entity is an
open-end management investment company that will succeed to or assume the
Delaware trust registration statement, or cause the Delaware trust to be
incorporated under Delaware law. Each fund of the Delaware trust may also
invest all of its assets in another investment company.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is
custodian of the assets of the fund(s). The custodian is responsible for
the safekeeping of a fund's assets and the appointment of any subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts (bond funds) and 1999 Bryan Street, Dallas, Texas (money
market funds) 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, 1996, and reports of the auditor, are included in
each fund's Annual Report, which are separate reports supplied with this
SAI. The fund's financial statements, including the financial highlights,
and reports of the auditor are incorporated herein by reference. For a
free additional copy of a fund's Annual Report, contact Fidelity at
1-800-544-8888, 82 Devonshire Street, Boston, MA.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for short-term municipal obligations will be designated
Moody's Investment Grade (MIG). A two-component rating is assigned to
variable rate demand obligations. The first component represents an
evaluation of the degree of risk associated with scheduled principal
repayment and interest payments and is designated by a long-term rating ,
e.g., "Aaa" or "A." The second component represents an evaluation of the
degree of risk associated with the demand feature and is designated
"VMIG."
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature are
assigned a dual rating. The first rating addresses the likelihood of
repayment of principal and payment of interest due and for short-term
obligations is designated by a note rating symbol. The second rating
addresses only the demand feature, and is designated by a commercial paper
rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest quality).
Those bonds within the Aa through B categories that Moody's believes
possess the strongest credit attributes within those categories are
designated by the symbol "1."
AAA - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds that are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds that are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds that are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Municipal notes maturing in three years or less will likely receive a
"note" rating system. Notes that have a put option or demand feature are
assigned a dual rating. The first rating addresses the likelihood of
repayment of principal and payment of interest due and for short-term
obligations is designated by a note rating symbol. The second rating
addresses only the demand feature, and is designated by a commercial paper
voting symbol, e.g., "A-1" or "A-2."
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB" through
"D"). While speculative grade debt will likely haves some quality and
protective characteristics, these are outweighed by larges uncertainties or
major exposures to adverse conditions. Ratings from AA through CCC may be
modified by the addition of a plus sign (+) or minus sign (-) to show
relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highe st 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.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
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 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; Doing
Business with Fidelity; Charter
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. *
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 ............................. Charter
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 ............................ Description 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 ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Contracts with FMR Affiliates
17 a ............................ Portfolio Transactions
b ............................ *
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ Performance
b ............................ *
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
each fund's most recent financial report and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated February 24, 1997.
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is available along with other related materials on the SEC's Internet
Web site (http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either
document, call Fidelity at 1-800-544-8888.
Investments in the money market fund are neither insured nor guaranteed by
the U.S. government, and there can be no assurance that the fund will
maintain a stable $1.00 share price.
THE SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS IN THE SECURITIES OF A SINGLE ISSUER
AND THEREFORE MAY BE RISKIER THAN OTHER TYPES OF MONEY MARKET FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, Federal
Reserve Board, or any other agency, and are subject to investment risks,
including possible loss of principal amount invested.
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
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-0297
Each fund seeks a high level of current income free from federal income tax
and Pennsylvania personal income tax.
SPARTAN(REGISTERED TRADEMARK)
PENNSYLVANIA
MUNICIPAL
FUNDS
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
invests in high-quality, short-term municipal money market securities and
is designed to maintain a stable $1.00 share price.
(fund number 401, trading symbol FPTXX)
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
seeks to provide higher yields by investing in a broader range of municipal
securities.
(fund number 402, trading symbol FPXTX)
PROSPECTUS
FEBRUARY 2 8 , 1997(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. (FMR Texas), a
subsidiary of FMR, chooses investments for Spartan Pennsylvania Municipal
Money Market.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
SPARTAN PA MUNI MONE Y
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, 1996, the fund had over $ 242 million in
assets.
SPARTAN PA MUNI INCOME
STRATEGY: Invests normally in investment grade municipal securities whose
interest is free from federal income tax and Pennsylvania personal income
tax.
SIZE: As of December 31, 1996, the fund had over $270 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 Spartan Pennsylvania Municipal Income, 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 SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Spartan
Pennsylvania Municipal
Money Market is in the
MONEY MARKET category, and
Spartan Pennsylvania
Municipal Income is in the
INCOME category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy,
sell, or exchange shares of a fund. In addition, you may be charged an
annual account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page 30, for an explanation of how and when
these charges apply.
<TABLE>
<CAPTION>
<S> <C>
Maximum sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions None
Redemption fee (as a % of amount redeemed
on shares held less than 180 days)
for Spartan PA Municipal Money Market None
for Spartan PA Municipal Income .50%
Exchange and wire transaction fees $5.00
Checkwriting fee, per check written (available for Spartan PA Municipal $2.00
Money Market)
Account closeout fee $5.00
Annual account maintenance fee (for accounts under $2,500) $12.0
0
</TABLE>
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 figures are based on historical expenses, and are calculated
as a percentage of average net assets. FMR has entered into arrangements
on behalf of each fund with the fund's custodian and transfer agent whereby
interest earned on uninvested cash balances is used to reduce fund
expenses. Including these reductions, the total operating expenses
presented in the table would have been .48 % for Spartan Pennsylvania
Municipal Money Market and .53 % for Spartan Pennsylvania Municipal
Income.
SPARTAN PA MUNI MONEY
Management fee .50 %
12b-1 fee None
Other expenses .00 %
Total fund operating expenses .50 %
SPARTAN PA MUNI 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:
SPARTAN PA MUNI MONEY
Account Account
open closed
After 1 year $ 5 $ 10
After 3 years $ 16 $ 21
After 5 years $ 28 $ 33
After 10 years $ 63 $ 68
SPARTAN PA MUNI 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 have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The funds' financial highlights, financial
statements, and reports of the auditor are included in the funds' annual
report and are incorporated by reference into (are legally a part of) the
fund's SAI. Contact Fidelity for a free copy of the Annual Report or the
SAI.
SPARTAN PA MUNI MONEY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
79.Selected
Per-Share Data 80. 81. 82. 83. 84. 85. 86. 87.
and Ratios
88.Years ended 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
December 31
89.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
90.Income from .032 .035 .026 .022 .029 .045 .059 .062 .049 .042
Investment
Operations
Net interest
income
91.Less (.032) (.035 (.026 (.022 (.029) (.045) (.059) (.062) (.049) (.042)
Distributions ) ) )
From net
interest
income
92.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
93.Total return
A 3.21% 3.56 2.61 2.21 2.90% 4.55% 6.05% 6.35% 5.05% 4.27%
% % %
94.Net assets, $242 $ 243 $ 258 $ 241 $ 243 $ 290 $ 320 $ 177 $ 117 $ 64
end of period
(In millions)
95.Ratio of .50% .50% .50% .50% .47%B .34%B .13%B .28%B .30%B .50%B
expenses to
average net
assets
96.Ratio of .48%C .50% .50% .50% .47% .34% .13% .28% .30% .50%
expenses to
average net
assets after
expense
reductions
97.Ratio of net 3.17% 3.50 2.58 2.19 2.88% 4.47% 5.92% 6.17% 5.02% 4.26%
interest income to % % %
average net
assets
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE. THE TOTAL RETURNS
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN.
B FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
SPARTAN PA MUNI INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
98.Selected Per-Share Data and 99. 100. 101. 102. 103. 104. 105.
Ratios
106.Years ended 1996 1995 1994 1993D 1992 1991 1990 1989 1988 1987
December 31
107.Net asset $ 10.6 $ 9.62 $ 11.13 $ 10.5 $ 10.3 $ 9.88 $ 9.900 $ 9.660 $ 9.07 $ 10.35
value, beginning 70 0 0 90 70 0 0 0
of period
108.Income from .520 .590 .652 .679 .693 .701 .701 .676 .661 .695
Investment
Operations
Net interest
income
109. Net (.109) 1.049 (1.201) .679 .219 .489 (.020) .240 .590 (1.280)
realized and
unrealized gain
(loss)
110. Total from .411 1.639 (.549) 1.358 .912 1.190 .681 .916 1.251 (.585)
investment
operations
111.Less (.520) (.590) (.652) (.679) (.693) (.701) (.701) (.676) (.661) (.695)
Distributions
From net
interest
income
112. From net (.071) -- (.310) (.140) -- -- -- -- -- --
realized gain
113. Total (.591) (.590) (.962) (.819) (.693) (.701) (.701) (.676) (.661) (.695)
distributions
114. Redemptio -- .001 .001 .001 .001 .001 -- -- -- --
n fees added
to paid in
capital
115.Net asset $ 10.4 $ 10.6 $ 9.620 $ 11.1 $ 10.5 $ 10.3 $ 9.880 $ 9.900 $ 9.66 $ 9.070
value, end of 90 70 30 90 70 0
period
116.Total returnA4.02% 17.44 (5.04) 13.18 9.11% 12.49 7.20% 9.80% 14.21 (5.73)
% % % % % %
117.Net assets, $ 271 $ 288 $ 242 $ 306 $ 242 $ 199 $ 143 $ 104 $ 63 $ 42
end of period (In
millions)
118.Ratio of .55% .55% .55% .55% .55% .55% .60%B .78%B .84%B .63%B
expenses to
average net
assets
119.Ratio of .53%C .55% .55% .55% .55% .55% .60% .78% .84% .63%
expenses to
average net
assets after
expense
reductions
120.Ratio of net 4.98% 5.73 6.33% 6.13 6.65 6.96 7.22% 6.90% 7.05% 7.28%
interest income % % % %
to average net
assets
121.Portfolio 53% 49% 26% 38% 8% 6% 8% 23% 31% 54%
turnover rate
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE. THE TOTAL
RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING
THE PERIODS SHOWN.
B FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
D 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 year s , compared
to different measures, including a comparative index and a competitive
funds average for the bond fund and a measure of inflation for the money
market fund . Data for the comparative index for Spartan Pennsylvania
Municipal Income is available only from June 30, 1993 to the present. The
charts on page present calendar year performance for the bond fund and do
not include the effect of the $5 account closeout fee.
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)
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1996 year years years
Spartan PA Municipal Money Market 3.21 % 2.90 % 4.07 %
Consumer Price Index 3.32 % 2.84 % 3.68 %
Spartan PA Municipal Income 4.02 % 7.45 % 7.40 %
Lehman Bros. PA Municipal Bond 4.54 % n/a n/a
Index
Lipper PA Municipal Debt Funds 3.52 % 6.98 % 7.20 %
Average
</TABLE>
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1996 year years years
Spartan PA Municipal Money Market 3.21 % 15.37 % 49.00 %
Consumer Price Index 3.32 % 15.01 % 43.53 %
Spartan PA Municipal Income 4.02 % 43.26 % 104.24 %
Lehman Bros. PA Municipal Bond 4.54 % n/a n/a
Index
Lipper PA Municipal Debt Funds 3.52 % 40.13 % 100.46%
Average
</TABLE>
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given period,
assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time. An
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as
actual year-by-year results.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
SPARTAN PA MUNI INCOME -5.73% 14.21% 9.80% 7.20% 12.49% 9.11% 13.18% -5.04%
17.44% 4.02%
Lehman Bros. PA Muni. Bond Index n/a n/a n/a n/a n/a n/a n/a -4.81
% 16.83% 4.54%
Lipper PA Muni Debt. Funds Avg. -2.42% 12.73% 9.88% 6.18% 12.07% 9.30%
12.68%
- -6.63% 17.15 % 3.52%
Consumer Price Index 4.43% 4.42% 4.65% 6.11% 3.06% 2. 90 %
2. 75 % 2.67% 2.54% 3.32
%
Percentage (%)
Row: 1, Col: 1, Value: -5.71
Row: 2, Col: 1, Value: 14.21
Row: 3, Col: 1, Value: 9.800000000000001
Row: 4, Col: 1, Value: 7.2
Row: 5, Col: 1, Value: 12.49
Row: 6, Col: 1, Value: 9.109999999999999
Row: 7, Col: 1, Value: 13.18
Row: 8, Col: 1, Value: -5.04
Row: 9, Col: 1, Value: 17.44
Row: 10, Col: 1, Value: 4.02
(LARGE SOLID BOX) Spartan PA
Muni Income
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond fund
are calculated according to a standard that is required for all stock and
bond funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders.
LEHMAN BROTHERS PENNSYLVANIA MUNICIPAL BOND INDEX is a total return
performance benchmark for Pennsylvania investment-grade municipal bonds
with maturities of at least one year.
Unlike the fund's returns, the total returns of the comparative index do
not include the effect of any brokerage commissions, transaction fees, or
other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Pennsylvania
Municipal Debt Funds Average, which currently reflect the
performance of over 66 mutual funds with similar investment
objectives. The average, published by Lipper Analytical Services, Inc.,
excludes the effect of sales charges.
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. Spartan Pennsylvania Municipal
Money Market Fund is a non-diversified fund of Fidelity Municipal Trust II,
and Spartan Pennsylvania Municipal Income Fund is a non-diversified fund of
Fidelity Municipal Trust. Both trusts are open-end management investment
companies. Fidelity Municipal Trust II was organized as a Delaware business
trust on June 20, 1991. Fidelity Municipal Trust was organized as a
Massachusetts business trust on June 22, 1984. There is a remote
possibility that one fund might become liable for a misstatement in the
prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review the funds' performance. The 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 225
(solid bullet) Assets in Fidelity mutual
funds: over $432 billion
(solid bullet) Number of shareholder
accounts: over 29 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 270
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FMR Texas, located in Irving, Texas, has primary
responsibility for providing investment management services for Spartan
Pennsylvania Municipal Money Market.
Steven Harvey is manager of Spartan Pennsylvania Municipal Income, which he
has managed since October 1993. He also manages several other
Fidelity funds. Since joining Fidelity in 1986, Mr. Harvey has
worked as a senior bond analyst and manager.
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 mpany, Inc . (FSC) performs
transfer agent servicing functions for each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members of
the Edward C. Johnson 3d family are the predominant owners of a class of
shares of common stock representing approximately 49% of the voting power
of FMR Corp. Under the Investment Company Act of 1940 (the 1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for each fund. UMB is located at 1010 Grand Avenue,
Kansas City, Missouri.
A broker-dealer may use a portion of the commissions paid by a fund
to reduce custodian or transfer agent fees for the fund. FMR may use
its broker-dealer affiliates and other firms that sell fund shares to carry
out a fund's transactions, provided that the fund receives brokerage
services and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
EACH FUND'S INVESTMENT APPROACH
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will change
daily based on changes in interest rates and market conditions. Money
market funds are designed to be conservative investment vehicles and do not
seek the higher yields or capital appreciation that more aggressive
investments provide. Money market funds follow industry-standard guidelines
on the quality, maturity, and diversification of their investments, which
are designed to help maintain a stable $1.00 share price. Of course, there
is no guarantee that a money market fund will be able to maintain a stable
$1.00 share price. It is possible that a major change in interest rates or
a default on the fund's investments could cause its share price (and the
value of your investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn income
at current money market rates. In managing money market funds, FMR stresses
preservation of capital, liquidity, and income. The fund will purchase only
high-quality securities that FMR believes present minimal credit risks and
will observe maturity restrictions on securities it buys.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET 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.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types and
maturities of the securities a bond fund purchases and the credit quality
of their issuers will impact a bond fund's reaction to these events.
INTEREST RATE RISK: In general, bond prices rise when interest rates fall
and fall when interest rates rise. Longer-term bonds are usually more
sensitive to interest rate changes. In other words, the longer the maturity
of a bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or in
the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to changes in
long-term interest rates.
ISSUER RISK: The price of a bond is affected by the credit quality of its
issuer. Changes in the financial condition of an issuer, changes in general
economic conditions and changes in specific economic conditions that affect
a particular type of issuer can impact the credit quality of an issuer.
Lower quality bonds generally tend to be more sensitive to these changes
than higher quality bonds.
MUNICIPAL MARKET RISK: Municipal securities are backed by the entity that
issued them and/or other revenue streams. Municipal security values may be
significantly affected by political changes, as well as uncertainties in
the municipal market related to taxation of municipal securities or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond includes
both income and price gains or losses. In selecting investments for a bond
fund, FMR considers a bond's expected income together with its potential
for price gains or losses. While income is the most important component of
bond returns over time, a bond fund's emphasis on income does not mean the
fund invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
FMR focuses on assembling a portfolio of income-producing bonds that it
believes will provide the best balance between risk and return within the
ranges of eligible investments for the fund. FMR's evaluation of a
potential investment includes an analysis of the credit quality of the
issuer, its structural features, its current price compared to FMR's
estimate of its long-term value, and any short-term trading opportunities
resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different market
sectors (for example, general obligation bonds of a state or bonds
financing a specific project) and different maturities based on its view of
the relative value of each sector or maturity. The performance of the fund
will depend on how successful FMR is in pursuing this approach.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND seeks high current income that
is free from federal income tax and Pennsylvania personal income tax by
investing in investment-grade municipal securities under normal conditions.
Although the fund does not maintain an average maturity within a specified
range, FMR seeks to manage the fund so that it generally reacts to changes
in interest rates similarly to municipal bonds with maturities between
eight and 18 years.
EACH FUND normally invests in municipal securities. FMR normally invests at
least 65% of the money market fund's total assets in state municipal
securities and so that at least 80% of the fund's income distributions are
free from federal income tax. FMR normally invests the bond fund's assets
so that at least 80% of the fund's income distributions are free from both
federal and Pennsylvania personal income taxes. In addition, FMR may invest
all of each fund's assets in municipal securities issued to finance private
activities. The interest from these securities is a tax-preference item for
purposes of the fe deral alternative minimum tax.
Each fund's performance is affected by the economic and political
conditions within the state of Pennsylvania. Historically, Pennsylvania has
been identified as a heavy industry state, although that reputation has
changed over the last thirty years , as the industrial composition of
the Commonwealth diversified when the coal, steel, and railroad industries
began to decline. Currently, t he major sources of growth in the
Commonwealth are in the service sector, including trade, medical and health
services, education, and financial institutions.
The funds differ primarily with respect to the level of income provided and
the stability of their share price. The money market fund seeks to provide
income while maintaining a stable share price. The bond fund seeks to
provide a higher level of income by investing in a broader range of
securities. As a result, the bond fund does not seek to maintain a stable
share price. As of December 31, 1996, the dollar-weighted average maturity
for the bond fund was approximately 12.7 years. In addition, since
the money market fund concentrates its investments in Pennsylvania
municipal securities, an investment in the money market fund may be riskier
than an investment in other types of money market funds.
FMR may use various techniques to hedge a portion of the bond fund's risks,
but there is no guarantee that these strategies will work as intended. When
you sell your shares of the bond fund, they may be worth more or less than
what you paid for them.
FMR normally invest 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 federally taxable obligations
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each fund's investments are contained in a fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Fund holdings and recent investment strategies are detailed in each fund's
financial reports, which are sent to shareholders twice a year. For a free
SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer generally pays the investor a
fixed, variable, or floating rate of interest, and must repay the amount
borrowed at maturity. Other debt securities, such as zero coupon bonds, do
not pay interest, but are sold at a discount from their face values.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of credit quality. In general, bond prices rise
when interest rates fall, and fall when interest rates rise. Longer-term
bonds and zero coupon bonds are generally more sensitive to interest rate
changes.
In addition, the credit quality of a debt security impacts its price.
Investment-grade debt securities are medium- and high-quality securities.
Some, however, may possess speculative characteristics and may be more
sensitive to economic changes and to changes in the financial condition of
issuers.
RESTRICTIONS: The bond fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service, Standard & Poor's, Duff &
Phelps Credit Rating Co., or Fitch Investor Services, L.P., or is unrated
but judged to be of equivalent quality by FMR. The fund may not invest in
securities judged by FMR to be of equivalent quality to those rated lower
than B by Moody's Investors Services or Standard and Poor's.
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.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state of Pennsylvania or its counties, municipalities, authorities, or
other subdivisions. The ability of issuers to repay their debt can be
affected by many factors that impact the economic vitality of either the
state or a region within the state.
Other state municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will be affected
by the strength of the U.S. dollar, interest rates, the price stability of
oil imports, and the continued existence of favorable tax incentives.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be fully or partially backed by the local government, or by the credit
of a private issuer or the current or anticipated revenues from specific
projects or assets. Because many municipal securities are issued to finance
similar types of projects, especially those relating to education, health
care, housing, transportation, and utilities, the municipal markets can be
affected by conditions in those industries. In addition, all municipal
securities may be affected by uncertainties regarding their tax status,
legislative changes, or rights of municipal securities holders. A municipal
security may be owned directly or through a participation interest.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of credit
and liquidity enhancement, including letters of credit, guarantees, puts
and demand features, and insurance, provided by foreign or domestic
entities such as banks and other financial institutions. These arrangements
expose a fund to the credit risk of the entity providing the credit or
liquidity support. Changes in the credit quality of the provider could
affect the value of the security and a fund's share price. In addition, in
the case of foreign providers of credit or liquidity support, extensive
public information about the provider may not be available, and unfavorable
political, economic, or governmental developments could affect its ability
to honor its commitment.
ASSET BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by a municipal issuer.
The value of these securities depends on many factors, including changes in
market interest rates, the availability of information concerning the pool
and its structure, prepayment expectations, the credit quality of the
underlying assets, the market's perception of the servicer of the loan
pool, and any credit enhancement provided.
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, often making the security's market
value more volatile.
MUNICIPAL LEASE OBLIGATIONS are used by municipal issuers to acquire land,
equipment, or facilities. If the issuer stops making payments or transfers
its obligations to a private entity, the obligation could lose value or
become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. In exchange for this benefit, a fund may accept a lower
interest rate. Demand features and standby commitments are types of put
features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, entering into swap agreements and purchasing indexed
securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with a
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of a fund and may involve a small investment of
cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading practices
in which payment and delivery for the security take place at a later date
than is customary for that type of security. The price of the security
could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR or
its affiliates, whose goal is to seek a high level of current income exempt
from federal income tax while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
RESTRICTIONS: Spartan Pennsylvania Municipal Income does not currently
intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
changes in the market value of a single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, each fund
does not invest more than 25% of its total assets in any one issuer and,
with respect to 50% of total assets, does not invest more than 5% of its
total assets in any issuer. These limitations do not apply to U.S.
Government securities or to securities of other investment companies. Each
fund may invest more than 25% of its total assets in tax-free securities
that finance similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET seeks as high a level of
current income, exempt from federal income tax and Pennsylvania personal
income tax, as is consistent with preservation of capital. The fund will
normally invest so that at least 80% of its income distributions are exempt
from federal income tax.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME seeks as high a level of current
income, exempt from federal income tax and Pennsylvania personal income
tax, as is consistent with its investment characteristics. The fund will
normally invest so that at least 80% of its income is exempt from federal
and Pennsylvania income taxes. FMR anticipates that the fund ordinarily
will be fully invested in obligations whose interest is exempt from federal
income tax and Pennsylvania personal income tax. The fund invests primarily
in municipal bonds judged by FMR to be of investment-grade quality,
although it may invest up to one-third of its assets in lower quality
bonds. The fund may not purchase bonds that are judged by FMR to be of
equivalent quality to those rated lower than B.
Each fund may borrow only for temporary or emergency purposes, but not in
an amount exceeding 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 Spartan Pennsylvania Municipal Money
Market.
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 Texas is Spartan Pennsylvania Municipal Money Market's sub-adviser
and has primary responsibility for managing its investments. FMR is
responsible for providing other management services. FMR pays FMR Texas 50%
of its management fee (before expense reimbursements) for FMR Texas's
services. FMR paid FMR Texas a fee equal to .25% of Spartan Pennsylvania
Municipal Money Market's averages net assets for the fiscal year ended
December 1996.
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 the fiscal year ended December 1996, these
fees amounted to $1,970, $964, $260, and $4,164, respectively,
for Spartan Pennsylvania Municipal Money Market and $1,665,
$1,275, and $225, respectively, for Spartan Pennsylvania
Municipal Income .
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 the fiscal year ended December 1996, the portfolio turnover rate for
Spartan Pennsylvania Municipal Income was 53%. 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.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee for
this service. If you invest through FBSI, another financial institution, or
an investment professional, read their program materials for any special
provisions, additional service features or fees that may apply to your
investment in a fund. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
EACH FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. Spartan Pennsylvania Municipal Money Market 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 Spartan Pennsylvania
Municipal Money Market $25,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans* $500
MINIMUM BALANCE $5,000
For Spartan Pennsylvania
Municipal Money Market $10,000
* FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE 26.
These minimums may vary for investments through Fidelity Portfolio Advisory
Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (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.
</TABLE>
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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.
</TABLE>
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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
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
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 Spartan Pennsylvania Municipal
Money Market, you may write an unlimited number of checks. Do not, however,
try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOU SELL SHARES OF THE 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.
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
names appear on the
account.
Trust (small solid bullet) The trustee must sign the
letter indicating capacity as
trustee. If the trustee's name
is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
Business or (small solid bullet) At least one person
Organization authorized by corporate
resolution to act on the
account must sign the letter.
Executor, (small solid bullet) Include a corporate
Administrator, resolution with corporate seal
Conservator, or a signature guarantee.
Guardian (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 and
accepted 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.
</TABLE>
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more than
one account in the fund. Call 1-800-544-6666 if you need copies of
financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. 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.
</TABLE>
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY
FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (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.
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (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.
</TABLE>
A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THAT FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains, if any, to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains earned by the bond fund are
normally distributed in February and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. Each fund offers four
options (three for Spartan Pennsylvania Municipal Money Market):
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 Spartan Pennsylvania
Municipal Money Market.
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
Pennsylvania state tax-free securities, they will be free from the
Pennsylvania personal income tax. Capital gain distributions from the funds
will be fully taxable for purposes of the Pennsylvania personal income tax.
Distributions from the fund will also be exempt from the Philadelphia
School District investment income tax for individuals who are residents of
the City of Philadelphia to the extent that such distributions are derived
from interest on Pennsylvania state tax-free securities, or to the extent
that such distributions are designated as capital gain dividends for
federal income tax purposes. Investments in the funds will be free from the
Pennsylvania county personal property taxes to the extent that the funds'
assets are comprised of Pennsylvania state tax-free securities (or certain
other qualifying tax-free securities) on the an annual assessment date.
During the fiscal year ended December 1996, 100% of each fund's income
dividends was free from federal income tax and Pennsylvania personal
income taxes. 48.36% of Spartan Pennsylvania Municipal Money Market's and
8.28% of Spartan Pennsylvania Municipal Income's income dividends were
subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to
other Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but not yet
distributed capital gains, you will pay the full price for the shares and
then receive a portion of the price back in the form of a taxable
distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. 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) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your 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) 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 Spartan Pennsylvania Municipal Income, 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 $ 24 .00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for that
year. The fee, which is payable to the transfer agent, is designed to
offset in part the relatively higher costs of servicing smaller accounts.
Th is fee will not be deducted from Fidelity brokerages accounts,
retirement accounts (except non-prototype retirement accounts),
accounts using regular investment plans, or if total assets with
Fidelity exceed $ 3 0,000. Eligibility for the $ 3 0,000 waiver
is determined by aggregating Fidelity accounts maintained by FSC or FBSI
which are registered under the same social security number or which list
the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($10,000 for Spartan
Pennsylvania Municipal Money Market), you will be given 30 days' notice to
reestablish the minimum balance. If you do not increase your balance,
Fidelity reserves the right to close your account and send the proceeds to
you. Your shares will be redeemed at the NAV 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
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each fund reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
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 28, 1997
This Statement of Additional Information (SAI) is not a prospectus
but should be read in conjunction with the funds' current Prospectus (dated
February 28, 1997 ). Please retain this document for future
reference. The funds' Annual Report is a separate document supplied with
this SAI . To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Pennsylvania
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation 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. (F MR Texas ) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
PFR-ptb-0297
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.
Each 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,
the investment 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) In order to qualify as a " regulated investment company "
under Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (4)). The fund will not
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.
(i ii ) The fund does not currently intend to purchase any security
if, as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to legal
or contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
( i v) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to purchases
of debt securities.
( v ) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than 5% of
the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of other
investment companies. These tax requirements are generally applied at the
end of each quarter of the fund's taxable year.
For the money market fund's policies on quality and maturity, see the
section entitled "Quality and Maturity" on page .
For purposes of limitation (6) , FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
(BOND FUND)
THE FOLLOWING ARE THE BOND FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this 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) In order to qualify as a " regulated investment company "
under Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(i ii ) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
( i 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.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than 5% of
the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of other
investment companies. These tax requirements are generally applied at the
end of each quarter of the fund's taxable year.
For purposes of limitation , (4) FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For the bond fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" on
page .
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that doing so will help the fund achieve its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The bond
fund may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond fund's standards for high-quality, taxable obligations
are essentially the same as those described by Moody's Investors Service,
Inc. (Moody's) in rating corporate obligations within its two highest
ratings of Prime-1 and Prime-2, and those described by Standard & Poor's
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2. The money market fund will purchase taxable obligations only if
they meet its quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before the Pennsylvania
legislature would affect the state tax treatment of the funds'
distributions. If such proposals were enacted, the availability of
municipal obligations and the value of the funds' holdings would be
affected and the Trustees would reevaluate the funds' investment objectives
and policies.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, OTC Options, Purchasing Put and Call Options, and
Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The bond fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the fund can
commit assets to initial margin deposits and option premiums.
In addition, the bond fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of the
fund's total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this SAI, may be changed as regulatory agencies
permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
For the money market fund, FMR may determine some restricted securities and
municipal lease obligations to be illiquid.
For the bond fund, investments currently considered to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments for the money
market fund are valued for purposes of monitoring amortized cost valuation,
and for the bond fund are priced at fair value as determined in good faith
by a committee appointed by the Board of Trustees. If through a change in
values, net assets, or other circumstances, a fund were in a position where
more than 10% of its net assets was invested in illiquid securities, it
would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. A fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Indexed securities may
have principal payments as well as coupon payments that depend on the
performance of one or more interest rates. Their coupon rates or principal
payments may change by several percentage points for every 1% interest rate
change. One example of indexed securities is inverse floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, each fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates, but each
fund currently intends to participate in this program only as a borrower.
Interfund borrowings normally extend overnight, but can have a maximum
duration of seven days. A fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and a fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. The bond fund may invest a portion of
its assets in lower-quality municipal securities as described in the
Prospectus.
While the market for Pennsylvania municipals is considered to be adequate,
adverse publicity and changing investor perceptions may affect the ability
of outside pricing services used by a fund to value its portfolio
securities, and the fund's ability to dispose of lower-quality bonds. The
outside pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be affected
by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the funds.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the funds will not
hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
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 purchase securities on a when-issued basis
in connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts require the issuer to sell and the fund to buy refunded
municipal obligations at a stated price and yield on a settlement date that
may be several months or several years in the future. A fund generally will
not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). A fund may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract. When required by
SEC guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or other entity in determining whether to purchase a
security supported by a letter of credit guarantee, put or demand feature,
insurance or other source of credit or liquidity. In evaluating the credit
of a foreign bank or other foreign entities, FMR will consider whether
adequate public information about the entity is available and whether the
entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
SPECIAL CONSIDERATIONS AFFECTING PENNSYLVANIA
The following highlights only some of the more significant financial trends
and problems affecting Pennsylvania, and is based on information drawn from
official statements and prospectuses relating to securities offerings of
the Commonwealth of Pennsylvania, its agencies and instrumentalities, as
available on the date of this Statement of Additional Information. FMR has
not independently verified any of the information contained in such
official statements and other publicly available documents, but is not
aware of any fact which would render such information inaccurate.
OVERVIEW. Because the funds concentrate their investments in Pennsylvania,
there are risks associated with the funds that would not exist if the
funds' investments were more widely diversified. These risks include the
possible enactment of new legislation in Pennsylvania that could affect
obligations of the state or its political subdivisions, municipalities or
agencies, economic factors that could affect such obligations, and varying
levels of supply and demand for obligations of the Commonwealth and its
political subdivisions, municipalities, and agencies.
CONSTITUTIONAL AND STATUTORY REVENUE LIMITATIONS. The Constitution of
Pennsylvania requires that all taxes shall be uniform, upon the same class
of subjects, within the territorial limits of the authority levying the
tax, and shall be levied and collected under the general laws of the
Commonwealth of Pennsylvania.
The Constitution of Pennsylvania provides that the General Assembly may
exempt from taxation certain persons and property. For instance, the
General Assembly may establish exemption or special tax treatment for
classes based on age, disability, infirmity, or poverty.
Local taxes (other than Philadelphia) are generally authorized under the
Local Tax Enabling Act. This statute generally authorizes, and imposes
limits on, the ability of political subdivisions to impose taxes.
Pennsylvania's political subdivisions consist of counties, municipalities,
and school districts. The Local Tax Enabling Act does not apply to counties
whose taxing authority is limited for the most part to real estate and
personal property taxes. Most Philadelphia taxes (other than real estate
and personal property taxes) are imposed pursuant to the general authority
of the Sterling Act and the Little Sterling Act, applicable to the City and
School District, respectively. Each of these statutes grants broad taxing
powers, but generally prohibits taxing what the Commonwealth taxes. The
Philadelphia business privilege tax is imposed under the authority of the
First Class City Tax Reform Act.
The Pennsylvania Intergovernmental Cooperation Authority Act for cities of
the first class authorizes Philadelphia to enact a combination of a sales
tax, a realty transfer tax or a wage and net profits tax for the benefit of
the Pennsylvania Intergovernmental Cooperation Authority ("PICA"). The PICA
tax on wages and net profits reduces the amount of wage and net profits
taxes imposed under the Sterling Act (prior to the imposition of the PICA
tax), so that the combined rate of tax remains the same. Other local taxes
are specially enacted or authorized for certain classes of localities,
including Philadelphia and Pittsburgh.
The Pennsylvania General Assembly has in the past, and may again in the
future, considered legislation which would give local governments the
option of reducing property taxes and simplifying their local tax system by
collecting an earned income tax.
PENNSYLVANIA TAXES. Although Pennsylvania state taxes had, in general, been
lowered during the 1980s, the fiscal 1992 budget for the Commonwealth
included in excess of $2.7 billion of tax increases, consisting largely of
tax-rate increases and expansion of the existing tax base.
The fiscal 1995 budget included tax reductions totalling an estimated
$173.4 million. Some of the more significant changes included an increase
in the Pennsylvania personal income tax dependent exemption for low income
working families; a reduction in the Pennsylvania corporate net income tax
rate from 12.25% to 9.99% to be phased-in over a period of four years; and
reinstatement of a Pennsylvania corporate net income tax net operating loss
carryover to be phased-in over a period of three years with an annual cap
of $500,000. Several other changes to the Pennsylvania sales tax, the
Pennsylvania inheritance tax and the Pennsylvania capital stock/franchise
tax were also enacted.
Tax changes (generally reductions) enacted with the fiscal 1996 budget
totalled an estimated $283.4 million. The largest dollar value
changes were in the corporate net income tax where the scheduled 1997
reduction of the tax rate to 9.99% was accelerated to the 1995 tax year.
Some of the other more significant changes include a double weighting for
the sales factor of the corporate net income apportionment
calculation ; an increase in the maximum allowance for the
corporate net income tax net operating loss deduction from $500,000 to
$1,000,000; an increase in the capital stock/ franchise tax exemption
amount to $100,000; the repeal of the tax on annuities; and acceleration of
the phase-out of the inheritance tax on transfers of certain property to a
surviving spouse. In addition, a 90-day tax amnesty program was authorized
and implemented from mid-October 1995 through mid-January 1996.
The enacted fiscal 1997 budget includes a provision for a $15 million
tax credit program for businesses creating new jobs.
GENERAL ECONOMIC CONDITIONS IN PENNSYLVANIA. Historically, the key
industries in Pennsylvania were in the areas of manufacturing and mining,
with steel and coal industries of national importance. These industries
have made Pennsylvania vulnerable not only to cyclical economic
fluctuations, but also to pronounced long-term changes in the nation's
economic structure. In recent years, the state has experienced growth in
the services sector, including trade, medical and health services,
education, and financial institutions. Manufacturing has fallen behind both
the services sector and the trade sector as the largest single source of
employment within the Commonwealth. This growth in the services and trade
sector has helped diversify Pennsylvania's economy and reduce the state's
unemployment rate.
For the five year period fiscal 1991 through fiscal 1995, total revenues
and other sources rose at a 9.1% average annual rate while expenditures and
other uses grew by 7.4% annually. Over two-thirds of the increase in total
revenues and other sources during this period occurred during fiscal 1992
when a $2.7 billion tax increase was enacted to address a fiscal 1991
budget deficit and to fund increased expenditures for fiscal 1992. For the
four year period fiscal 1992 through fiscal 1995, total revenues and other
sources increased at an annual average of 3.3%, less than one-half the rate
of increase for the five year period beginning with fiscal 1991. This
slower rate of growth was due, in part, to tax reductions and other tax law
revisions that restrained the growth of tax receipts for the fiscal years
1993, 1994 and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal years 1991
through 1995. Program areas having the largest increase in costs for the
fiscal years 1991 through 1995 were for protection of persons and property,
due to an expansion of state prisons, and for public health and welfare,
due to rising caseloads, program utilization and increased prices. Recent
efforts to restrain the rapid expansion of public health and welfare
program costs have resulted in expenditure increases at or below the total
rate of increase for total expenditures in each fiscal year.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in the fiscal year-end unappropriated balance. The
fiscal 1995 unappropriated surplus (prior to reserves for transfers to the
Tax Stabilization Reserve Fund) was $540 million, an increase of $204.2
million over the fiscal 1994 closing unappropriated surplus (prior to
transfers). Commonwealth revenues were $459.4 million (2.9%) above
the estimate of revenues used at the time the budget was enacted. The
higher than estimated revenues from tax sources were due to faster economic
growth in the national and state economy than had been projected when the
budget was adopted. Expenditures (excluding pooled financing expenditures
but including $65.5 million of supplemental appropriations) totalled
$15,674.7 million, representing a 5% increase in spending over fiscal 1994.
For GAAP purposes, the General Fund recorded a $49.8 million deficit for
fiscal 1995, leading to a decline in the fund balance to $688.3 million at
June 30, 1995. The two items which predominantly contributed to the decline
in the fund balance were (i) the use of a more comprehensive procedure to
compute the liabilities for certain public welfare programs, leading to an
increase for the year-end accruals, and (ii) a change to the methodology to
calculate the year-end accrual for corporate tax payables which increased
the tax refund liability by $72 million for the 1995 fiscal year when
compared to the previous fiscal year.
The fiscal 1996 unappropriated surplus (prior to transfer to the Tax
Stabilization Reserve Fund) was $183.8 million, $65.5 million above
estimate. Net expenditures and encumbrances from Commonwealth revenues,
including $113 million of supplemental appropriations (but excluding pooled
financing expenditures) totalled $16,162.9 million. Expenditures exceeded
available revenues and lapses by $253.2 million. The difference was funded
from a planned partial drawdown of the $437 million fiscal year adjusted
beginning unappropriated surplus.
Commonwealth revenues (prior to tax refunds) for fiscal 1996 increased by
$113.9 million over the prior year to $16,338.5 million (representing a
growth rate of .7 percent). Tax rate reductions and other tax law changes
substantially reduced the amount and rate of revenue growth for the fiscal
year.
The enacted fiscal 1997 budget provides for expenditures from Commonwealth
revenues of $16,375.8 million, an increase of .6 percent over appropriated
amounts from Commonwealth revenues for fiscal 1996. The fiscal 1997 budget
is based on anticipated Commonwealth revenues (before refunds) of $16,744.5
million, an increase over actual fiscal 1996 revenues of 2.5 percent. The
revenue estimate includes provision for a $15 million tax credit program
enacted with the fiscal 1997 budget for businesses creating new jobs.
Staggered corporation tax years cause fiscal 1997 revenues to continue to
be affected by the business tax reductions enacted during the two prior
completed fiscal years. Those reductions, together with the new jobs
creation tax credit, cause revenue growth comparisons between fiscal 1996
and 1997 to be understated. When these tax changes are taken into account,
revenues in the fiscal 1997 budget are anticipated to increase at the rate
of 3 percent. The fiscal 1997 revenue estimate is based on a forecast of
the national economy for real gross domestic product to slow to a growth
rate of 2 percent for 1996 and below 1.5 percent for 1997. This is based on
the assumption that the Federal Reserve Board does not cut interest rates
and that foreign economic growth is weak. The consequence of this economic
scenario is a U.S. economy with very low growth, slow gains and consumer
spending, declining inflation rates, but increasing unemployment.
Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and probation and payroll programs. The
fiscal 1997 budget contains an appropriation increase in excess of $110
million for these programs. The fiscal 1997 budget also contains some
departmental restructurings.
The fiscal 1997 budget assumes a drawdown of the $153.3 million fiscal year
beginning unappropriated surplus to fund the enacted level of
appropriations within the current estimate of revenues.
A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States for
certain counties in the Commonwealth for a blizzard and subsequent flooding
in January, 1996. Substantial damage to public and private facilities
occurred and many municipalities' financial resources have been strained by
the costs of responding to these weather-related conditions. A special
session of the General Assembly was convened by the Governor to consider
legislation to respond to these needs. Legislation was enacted that
authorized $110 million of general obligation debt to provide for the
state's share of the required match for federal public assistance and
disaster mitigation funds. The legislation also appropriated $13 million
from tax amnesty receipts to fund the state match for the federal
individual assistance program, and authorized the use of current Motor
License Fund revenues for capital projects to repair flood damaged state
highways and bridges.
The following table shows the average annual unemployment rate for
Pennsylvania and the nation for the periods indicated. This information is
drawn from official statements and prospectuses relating to securities
offerings of the state of Pennsylvania, its agencies, and
instrumentalities. No independent verification of the information contained
in such official statements and other publicly available documents has been
made.
Period Pennsylvania United States
1987 5.7% 6.2%
1988 5.1% 5.5%
1989 4.5% 5.3%
1990 5.4% 5.6%
1991 6.9% 6.8%
1992 7.5% 7.5%
1993 7.1% 6.9%
1994 6.2% 6.1%
1995 5.9% 5.6%
As of August, 1996, the seasonally adjusted unemployment rate for the
Commonwealth was 5.3%, compared to 5.1% for the United States.
Certain Pennsylvania municipalities and political subdivisions have also
experienced economic downturns. For example, the financial condition of the
City of Philadelphia had impaired its ability to borrow and resulted in its
obligations being downgraded by the major rating services to below
investment grade. (However, these obligations have since been upgraded to
Baa/BBB by Moody's and S&P, respectively).
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority (PICA) to assist Philadelphia in
remedying fiscal emergencies was enacted by the General Assembly and
approved by the Governor in June 1991. PICA is designed to provide
assistance through the issuance of funding debt and to make factual
findings and recommendations to Philadelphia concerning its
budgetary and fiscal affairs. At this time Philadelphia is operating under
a five-year fiscal plan approved by PICA on April 30, 1996.
PICA has issued $1.76 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain city general
obligation bonds, funding of capital projects and the liquidation of the
cumulative General Fund balance deficit as of June 30, 1992 of $224.9
million. The audited General Fund balance as of June 30, 1995 shows a
surplus of approximately $80.5 million, up from approximately $15.4 million
as of June 30, 1994.
No further bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of
financing a cash flow deficit expires on December 31, 1996. Its ability to
refund existing outstanding debt is unrestricted. PICA had $1,146,175,000
million in special revenue bonds outstanding as of June 30, 1996.
There is various litigation pending against the Commonwealth, its officers,
and employees. In 1978, the Pennsylvania General assembly approved a
limited waiver of sovereign immunity. Damages for any loss are limited to
$250,000 for each person and $1 million for each accident. The Supreme
Court held that this limitation is constitutional. Approximately 3,500
suits against the Commonwealth are pending, some of which, if decided
adversely to the Commonwealth, could have a material adverse impact on
governmental operations.
All of the foregoing factors could affect the outstanding obligations of
the Commonwealth and its municipalities and political subdivisions,
including obligations held by the funds. Further, there can be no assurance
that the same factors that adversely affect the economy of the Commonwealth
generally will not also adversely affect the market value or marketability
of obligations issued by local units of government or local authorities in
the Commonwealth, or the ability of the obligators to pay the principal of
or interest on such obligations. In November 1995, Pennsylvania General
Obligation Bonds were rated A1 by Moody's and AA- by Fitch and S&P.
SPECIAL FACTORS AFFECTING PUERTO RICO
The following highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the Commonwealth or
Puerto Rico) and is based on information drawn from official statements and
prospectuses relating to the securities offerings of Puerto Rico, its
agencies and instrumentalities, available as of the date of this SAI. FMR
has not independently verified any of the information contained in such
official statements, prospectuses, and other publicly available documents,
but it is not aware of any fact which would render such information
materially inaccurate.
The economy of Puerto Rico is closely integrated with that of the United
States. 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, Puerto Rico experienced a $4.3 billion positive
adjusted merchandise trade balance in fiscal 1994.
Since fiscal 1985, personal income, both aggregate and per capita, have
increased consistently each fiscal year. In fiscal 1994, aggregate personal
income was $25.7 billion and personal income per capita was $7,047. Gross
domestic product in fiscal year 1991, 1992, 1993, 1994, and 1995 was $22.8
billion, $23.7 billion, $25.2 billion, $26.6 billion, and $28.3 billion,
respectively. For fiscal 1996, an increase in gross product of 2.7% over
fiscal 1995 is forecasted. However, actual growth in the Puerto Rico
economy will depend on several factors, including the state of the U.S.
economy, the exchange rate for the U.S. dollar, increases in exports and
visitors to the Commonwealth, the price stability of oil imports, the level
of federal transfers, and the cost of borrowing. Due to uncertainties with
respect 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 1990 through fiscal 1994. While trends in the Puerto Rico
economy generally follow those of the United States, Puerto Rico did not
experience a recession in 1991. This was primarily because of low oil
prices, low interest rates, and Puerto Rico's strong manufacturing base,
which has a large component of non-cyclical industries. Other factors in
the continued expansion included Commonwealth-sponsored economic
development programs, stable prices of oil imports, low exchange rates for
the U.S. dollar, the level of federal transfers, and the relatively low
cost of borrowing funds during that period.
Puerto Rico has made marked improvements in fighting unemployment.
Nonetheless, although unemployment is at relatively low historical levels
for the Commonwealth, it remains above the U.S. average. The unemployment
rate declined from 16.0% to 13.8% from fiscal 1994 to fiscal 1995. As of
October 1995, the unemployment rate stood at 15.0%. Despite this relative
downturn, there is a possibility that the unemployment rate will increase
if there are changes in factors that directly impact the economy of Puerto
Rico.
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 and accounted 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 wage, high
technology industries such as pharmaceuticals, electronics, computers,
microprocessors, scientific instruments, and high technology machinery. The
service sector, which includes wholesale and retail trade, finance and real
estate, ranks second in its contribution to gross domestic product and is
the economic sector that employs the greatest number of people. In fiscal
1994, the service sector generated $15 billion in gross domestic product
and employed over 478,000 people. The government sector of the Commonwealth
also plays an important role in the economy of the island. In fiscal 1994,
the government accounted for $4.1 billion of Puerto Rico's gross domestic
product and provided 22.2% of total employment. Tourism also contributed
significantly to the island economy and total visitor expenditures amounted
to $1.8 billion in fiscal 1995.
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 (the Section 936 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 business income) or from the sale or exchange of substantially
all of the assets used in the active conduct of such trade or business and
(ii) qualified possession source investment 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 amendments to the Internal Revenue Code (the Code) for taxable
years commencing after 1993, two alternative limitations apply to the
Section 936 credit against active business income and sale of assets
income, as previously described. The first option limits the credit against
such income to 40% of the credit allowable previous to the amendments of
1993, with a five-year phase-in period starting at 60% of the current
allowable credit (the Percentage Limitation). The second option limits 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
(the Economic Activity Limitation).
On November 17, 1995, the U.S. Congress adopted, as part of its larger
federal income tax legislative package, a ten-year phase-out of the current
Section 936 credit for companies that are existing credit claimants and the
elimination of the credit for companies establishing new operations in
Puerto Rico and for existing companies that add a substantial new line of
business. The Section 936 credit based on the Economic Activity Limitation
will continue as under current law without change until tax years beginning
in 2002, during which years a corporation's possession business income will
be subject to a cap based on its possession income for an average adjusted
base period. The credit based on the Percentage Limitation will continue as
under current law until tax years beginning in 1998. In that year and
thereafter, the credit based on the Percentage Limitation will be 40%, but
the possession business income will be subject to a cap based on a
corporation's possession income for an average adjusted base period. The
Section 936 credit is eliminated entirely for taxable years beginning in
2006. However, the credit granted to qualified possession source investment
income is eliminated for taxable years beginning after December 31, 1995.
President Clinton vetoed the legislation submitted by the U.S. Congress on
December 7, 1995. The Administration has proposed a modification to the
Section 936 credit that would phase out the credit based on the Percentage
Limitation over a five year period beginning in 1997, retain the credit
based upon the Economic Activity Limitation under current law, allow a
five-year carry forward of excess Section 936 credit based upon the
Economic Activity Limitation, and retain the Section 936 credit granted to
qualified possession source investment income under current law.
The Governor of Puerto Rico has proposed to the U.S. Congress a
modification of the total elimination of the Section 936 credit by offering
qualifying companies the option of the existing Section 936 credit, as
amended by the U.S. House of Representatives proposal, or a new incentive
program, to be available throughout the United States, including Puerto
Rico. The proposal would provide such companies a credit based on
qualifying wages paid, other wage-related expenses such as fringe benefits,
depreciation expenses for certain tangible assets, research and development
expenses, and passive investment income from qualifying investments in the
subject jurisdiction, so long as the company's employees are in an
"economically developing" jurisdiction in which prevailing per capita
income is substantially below the national average, among other things. The
credit granted to qualifying companies would continue in effect until the
jurisdiction shows, among other things, substantial economic improvement in
terms of the specified economic parameters. The Governor's proposal is not
currently included in either the legislation adopted by the U.S. Congress
on November 17, 1995 or in the Administration's proposal. It is not
possible at this time to determine the final legislative changes that may
be made to Section 936 or the effect that this will have on the long-term
outlook for the economy of 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
management contract. In the case of the money market fund, FMR has granted
investment management authority to the sub-adviser (see the section
entitled "Management Contracts"), and the sub-adviser is authorized to
place orders for the purchase and sale of portfolio securities, and will do
so in accordance with the policies described below. FMR is also responsible
for the placement of transaction orders for other investment companies and
accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by the money market fund generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
fund are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with 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, 1996 and 1995, the bond fund's
portfolio turnover rates were 53 % and 49 %,
respectively .
For fiscal 199 6 , 199 5 , and 199 4 , Spartan Pennsylvania
Municipal Money Market paid no brokerage commissions and Spartan
Pennsylvania Municipal Income 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
TAX-FREE BOND FUND
Fidelity Service Company, Inc. (FSC) normally determines the fund's net
asset value per share (NAV) as of the close of the New York Stock Exchange
(NYSE) (normally 4:00 p.m. Eastern time). The valuation of portfolio
securities is determined as of this time for purposes of computing the
fund's NAV.
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Fixed-income securities are valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Use of pricing services has been
approved by the Board of Trustees. A number of pricing services are
available, and the fund may use various pricing services or discontinue the
use of any pricing service.
Futures contracts and options are valued on the basis of market quotations,
if available.
Securities and other assets for which there are no readily available market
values are valued in good faith by a committee appointed by the Board of
Trustees. The procedures set forth above need not be used to determine the
value of the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more accurately
reflect the fair market value of such securities.
MONEY MARKET FUND
FSC normally determines the fund's NAV at 4:00 p.m. Eastern time. The
valuation of portfolio securities is determined as of this time for the
purpose of computing NAV.
For Spartan Pennsylvania Municipal Money Market, portfolio securities and
other assets are valued on the basis of amortized cost. This technique
involves initially valuing an instrument at its cost as adjusted for
amortization of premium or accretion of discount rather than its current
market value. The amortized cost value of an instrument may be higher or
lower than the price the money market fund would receive if it sold the
instrument.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund used
market valuations to determine its NAV. The converse would apply during
periods of rising interest rates.
Valuing the Spartan Pennsylvania Municipal Money Market Fund's investments
on the basis of amortized cots and use of the term "money market fund" are
permitted pursuant to Rule 2a-7 under the 1940 Act. Spartan Pennsylvania
Municipal Money Market Fund must adhere to certain conditions under Rule
2a-7, as summarized in the section entitled "Quality and Maturity" on page
.
The Board of Trustees oversees FMR's adherence to the provisions of Rule
2a-7 and has established procedures designed to stabilize Spartan
Pennsylvania Municipal Money Market Fund's NAV at $1.00. At such intervals
as they deem appropriate, the Trustees consider the extent to which NAV
calculated by using market valuations would deviate from $1.00 per share.
If the Trustees believe that a deviation from the money market fund's
amortized cost per share may result in material dilution or other unfair
results to shareholders, the Trustees have agreed to take such corrective
action, if any, as they deem appropriate to eliminate or reduce, to the
extent reasonably practicable, the dilution or unfair results. Such
corrective action could include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; establishing NAV
by using available market quotations; and such other measures as the
Trustees may deem appropriate.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. A bond fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of a bond fund's shares when redeemed may
be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market fund
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields are computed by dividing the fund's interest
income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive dividends during the period,
dividing this figure by the fund's net asset value per share (NAV) at the
end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Yields do not
reflect the 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 calculated for the purposes of determining the bond fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the bond fund's yield may not equal
its distribution rate, the income paid to your account, or the income
reported in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a fund's yield by
the result of one minus a stated federal or combined federal and state and
city income tax rate. If only a portion of a fund's yield is tax-exempt,
only that portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
effective yield under federal and state income tax laws for 1997. The
second table shows the approximate yield a taxable security must provide at
various income brackets to produce after-tax yields equivalent to those of
hypothetical tax-exempt obligations yielding from 3.0% 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, state and local taxes for 1997.
1997 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income Federal Pennsylvania Philadelphia Combined Combined
Marginal State School Federal Federal,
Rate Marginal District and State State, and
Rate Marginal Effective Local
Rate Rate** Effective
Rate**
Single Return* Joint Return*
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24,651-$59,750 $41,201-$99,600 28 % 2.8 % 4.84 % 30.02 % 33.50 %
$ 59,751-$124,650 $ 99,601-$151,750 31 % 2.8 % 4.84 % 32.93 % 36.27 %
$124,651-$271,050 $151,751-$271,050 36 % 2.8 % 4.84 % 37.79 % 40.89 %
$271,051-+ $271,051-+ 39.6% 2.8% 4.84% 41.29% 44.21%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the appropriate table
below to determine the tax-equivalent yield for a given tax-free yield.
CITY OF PHILADELPHIA RESIDENTS - TRIPLE TAXES - 1997
If your combined federal, state and local effective tax rate in 1997 is:
33.50% 36.27% 40.89% 44.21%
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3.00% 4.51% 4.71% 5.08% 5.38%
4.00% 6.02% 6.28% 6.77% 7.17%
5.00% 7.52% 7.85% 8.46% 8.96%
6.00% 9.02% 9.41% 10.15% 10.76%
7.00% 10.53% 10.98% 11.84% 12.55%
8.00% 12.03% 12.55% 13.53% 14.34%
</TABLE>
PENNSYLVANIA RESIDENTS (OUTSIDE PHILADELPHIA) - DOUBLE TAXES - 1997
If your combined federal, state and local effective tax rate in 1997 is:
30.02% 32.93% 37.79% 41.29%
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3.00% 4.29% 4.47% 4.82% 5.11%
4.00% 5.72% 5.96% 6.43% 6.81%
5.00% 7.14% 7.46% 8.04% 8.52%
6.00% 8.57% 8.95% 9.65% 10.22%
7.00% 10.00% 10.44% 11.25% 11.92%
8.00% 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. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis 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 bond 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 yields, the bond fund's 30-day yields, each fund's tax-equivalent
yields, and total returns for periods ended December 31, 1996. 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,
1996, none of the fund's income was subject to state taxes. Note
that each fund may invest in securities whose income is subject to the
federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yield Tax- One Five Ten One Five Ten
Equivalent Year Years Years Year Years Years
Yield
Money
Market Fund 3.56% 5.72% 3.21 % 2.90 % 4.07 % 3.21 % 15.36 % 48.99 %
Bond Fund 4.81% 7.73% 4.01 % 7.45 % 7.40 % 4.01 % 43.25 % 104.23 %
</TABLE>
The following tables show the growth in value of a hypothetical $10,000
investment in each fund during the 10-year period ended December 31, 1996,
assuming all distributions were reinvested. The figures below reflect the
fluctuating interest rates and bond prices of the specified periods and
should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in a fund today. Tax
consequences of different investments have not been factored into the
figures below.
During the 10-year period ended December 31, 1996, a hypothetical $10,000
investment in Spartan Municipal Money Market would have grown to
$ 14,900 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 10,000 $ 4,900 $ 0 $ 14,900 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,000 $ 4,437 $ 0 $ 14,437 $ 33,750 $ 35,882 $ 13,891
1994 $ 10,000 $ 3,940 $ 0 $ 13,940 $ 24,531 $ 26,244 $ 13,548
1993 $ 10,000 $ 3,585 $ 0 $ 13,585 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,000 $ 3,291 $ 0 $ 13,291 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,000 $ 2,916 $ 0 $ 12,916 $ 20,434 $ 19,916 $ 12,480
1990 $ 10,000 $ 2,353 $ 0 $ 12,353 $ 15,660 $ 16,018 $ 12,109
1989 $ 10,000 $ 1,649 $ 0 $ 11,649 $ 16,164 $ 16,104 $ 11,412
1988 $ 10,000 $ 953 $ 0 $ 10,953 $ 12,275 $ 12,222 $ 10,905
1987 $ 10,000 $ 427 $ 0 $ 10,427 $ 10,526 $ 10,543 $ 10,443
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Money Market on January 1, 1987, the net amount
invested in fund shares was $10,000. The cost of the initial investment
($10,000) together with the aggregate cost of the reinvested dividends and
capital gain distributions for the period covered (their cash value at the
time they were reinvested) amounted to $ 14,900 . If distributions had
not been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would have
amounted to $ 3,995 for dividends. The fund did not distribute any
capital gains during the period. The figures in the table do not include
the effect of the fund's $5.00 account closeout fee.
During the 10-year period ended December 31, 1996, a hypothetical $10,000
investment in Spartan Pennsylvania Municipal Income would have grown to
$ 20,424 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1996 $ 10,135 $ 9,409 $ 880 $ 20,424 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,309 $ 8,570 $ 756 $ 19,635 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,295 $ 6,743 $ 682 $ 16,720 $ 24,531 $ 26,244 $ 13,548
1993 $ 10,754 $ 6,634 $ 219 $ 17,607 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,232 $ 5,324 $ 0 $ 15,556 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,019 $ 4,238 $ 0 $ 14,257 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,546 $ 3,128 $ 0 $ 12,674 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,565 $ 2,257 $ 0 $ 11,822 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,333 $ 1,434 $ 0 $ 10,767 $ 12,275 $ 12,222 $ 10,905
1987 $ 8,763 $ 664 $ 0 $ 9,427 $ 10,526 $ 10,543 $ 10,443
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Income, on January 1, 1987, 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 $ 19,960 . 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 $ 6,347 for dividends and $ 503 for capital gain
distributions. The figures in the table do not include the effect of the
fund's $5.00 account closeout fee or its .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. Generally, Lipper rankings are based on total
return, assume reinvestment of distributions, do not take sales charges or
redemption fees into consideration, and are prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to the
mutual fund rankings, a fund's performance may be compared to stock, bond,
and money market mutual fund performance indices prepared by Lipper or
other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest. The
total return of a benchmark index reflects reinvestment of all dividends
and capital gains paid by securities included in the index. Unlike a fund's
returns, however, the index returns do not reflect brokerage commissions,
transaction fees, or other costs of investing directly in the securities
included in the index.
The bond fund may compare to the Lehman Brothers Municipal Bond Index, a
total return performance benchmark for investment-grade municipal bonds
with maturities of at least one year. In addition, Spartan Pennsylvania
Municipal Income may compare its performance to that of the Lehman Brothers
Pennsylvania Municipal Bond Index, a total return performance benchmark
o f Pennsylvania investment-grade municipal bonds with maturities of
at least one year. Issues included in each index have been issued after
December 31, 1990 and have an outstanding par value of at least $50
million. Subsequent to December 31, 1995, zero coupon bonds and issues
subject to the alternative minimum tax are included in each index.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI) and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA Financial Data, Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. IBC's MONEY FUND REPORT AVERAGES(trademark)/All Tax-Free,
which is reported in IBC'S MONEY FUND REPORT(registered trademark), covers
over 416 tax-free money market 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, invest in longer-term instruments and
their share prices change 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, 1996, FMR advised over $ 28 billion in tax-free
fund assets, $ 96 billion in money market fund assets, $ 303
billion in equity fund assets, $ 61 billion in international fund
assets, and $ 25 billion in Spartan fund assets. The funds may
reference the growth and variety of money market mutual funds and the
adviser's innovation and participation in the industry. The equity funds
under management figure represents the largest amount of equity fund assets
under management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1997: New Year's
Day, Presidents' 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 occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
A fund purchases municipal securities whose interest FMR believes is free
from federal income tax. Generally, issuers or other parties have entered
into covenants requiring continuing compliance with federal tax
requirements to preserve the tax-free status of interest payments over the
life of the security. If at any time the covenants are not complied with,
or if the IRS otherwise determines that the issuer did not comply with
relevant tax requirements, interest payments from a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, the tax status of the pass-through
of tax-free income may also be based on the federal and state tax treatment
of the structure.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the bond fund's policy of investing
so that at least 80% of its income is free from federal income tax and the
money market fund's policy of investing so that at least 80% of its income
distributions are free from federal income tax. Interest from private
activity securities is a tax preference item for the purposes of
determining whether a taxpayer is subject to the AMT and the amount of AMT
to be paid, if any. Private activity securities issued after August 7, 1986
to benefit a private or industrial user or to finance a private facility
are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by each fund are taxable
to shareholders as dividends, not as capital gains. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased with market discount after April 30, 1993 are not considered
income for purposes of the bond fund's policy of investing so that at least
80% of its income is free from federal income tax and the money market
fund's policy of investing so that at least 80% of its income distributions
are free from federal income tax. The money market fund may distribute any
net realized short-term capital gains and taxable market discount once a
year or more often, as necessary, to maintain its net asset value at $1.00
per share.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
PENNSYLVANIA TAXES. To the extent that each fund's distributions are
derived from interest on Pennsylvania state tax-free securities, its
income dividends will be exempt from the Pennsylvania personal income tax.
However, distributions attributable to capital gains (whether or not from
state tax-free securities) are not exempt from the Pennsylvania personal
income tax. Distributions of interest earned from non-exempt obligations
are not exempt from the Pennsylvania personal income tax. The funds'
dividends may or may not be exempt from current or future taxes of certain
Pennsylvania municipalities.
To the extent a fund's investments on the annual assessment date consist of
(i) municipal obligations of the Commonwealth of Pennsylvania and its
political subdivisions or municipal authorities, and (ii) obligations of
the United States, including certain obligations of Puerto Rico, the Virgin
Islands and Guam, and any U.S. territories or possessions whose obligations
are immune from state and local taxation under federal law, collectively
referred to as exempt obligations, shares purchased as an investment in
either of the funds will not be taxable for purposes of the Pennsylvania
county personal property tax. Any holdings other than exempt obligations
may result in shares of the funds being wholly or partially subject to the
taxes described above.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a 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 199 6 , the bond fund hereby designates
approximately $ 256,917 as a capital gain dividend for the purpose of
the dividend-paid deduction.
As of December 199 6 , the money market fund had a
capital loss carryforward aggregating approximately $ 65,000 . This
loss carryforward, of which $ 5,000 , $ 5,000 , $19,000,
$10,000, and $26,000 will expire on December 31, 199 7 ,
1998 , 2002, 2003 , and 2004 , respectively, is
available to offset future capital gains.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" 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
tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
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 personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of the
trust are listed below. Except as indicated, each individual has held the
office shown or other offices in the same company for the last five years.
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 and Members of the Advisory Board 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. The business address of all the other Trustees and
Members of the Advisory Board 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 (66), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (55), 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 (64), Trustee (1991), is a management consultant (1994). Prior
to February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). Until March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Sanifill Corporation
(non-hazardous waste, 1993), CH2M Hill Companies (engineering), Rio Grande,
Inc. (oil and gas production), and Daniel Industries (petroleum measurement
equipment manufacturer). In addition, he is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (65), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores), and previously served as a
Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
E. BRADLEY JONES (69), Trustee. Prior to his retirement in 1984, Mr. Jones
was Chairman and Chief Executive Officer of LTV Steel Company. He is a
Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products), and
he previously served as a Director of NACCO Industries, Inc. (mining and
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 (64), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Chairman of the Board of Trustees of the Greenwich
Hospital Association, a Member of the Public Oversight Board of the
American Institute of Certified Public Accountants' SEC Practice Section
(1995), and as a Public Governor of the National Association of Securities
Dealers, Inc. (1996).
*PETER S. LYNCH (53), Trustee, is Vice Chairman and Director of FMR (1992).
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). 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.
WILLIAM O. McCOY (63), Trustee (199 7 ) , or Member of the
Advisory Board (1996) , is the Vice President of Finance for the
University of North Carolina (16-school system, 1995). Prior to his
retirement in December 1994, Mr. McCoy was Vice Chairman of the Board of
BellSouth Corporation (telecommunications) and President of BellSouth
Enterprises. He is currently a Director of Liberty Corporation (holding
company), Weeks Corporation of Atlanta (real estate, 1994), and Carolina
Power and Light Company (electric utility, 1996). Previously, he was a
Director of First American Corporation (bank holding company, 1979-1996).
In addition, Mr. McCoy serves as a member of the Board of Visitors for the
University of North Carolina at Chapel Hill (1994) and for the Kenan Flager
Business School (University of North Carolina at Chapel Hill). Mr. McCoy
currently serves as a Trustee for Fidelity Municipal Trust. Mr. McCoy
currently serves as a Member of the Advisory Board for Fidelity Municipal
Trust II.
GERALD C. McDONOUGH (67), Trustee and Vice-Chairman of the non-interested
Trustees, 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 Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration),
Commercial Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products, 1996), and
Associated Estates Realty Corporation (a real estate investment trust,
1993). Mr. McDonough served as a Director of ACME-Cleveland Corp. (metal
working, telecommunications, and electronic products) from 1987-1996.
MARVIN L. MANN (63), 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.
THOMAS R. WILLIAMS (68), 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. (57), Vice President, is Vice President of Fidelity's
fixed-income funds (1995) and Senior Vice President of FMR (1995).
SARAH H. ZENOBLE (47), Vice President, is Vice President of Fidelity's
money market funds (1996) and Vice President of FMR Texas Inc.
DEBORAH F. WATSON (37), is Vice President of Spartan Pennsylvania Municipal
Money Market (1989) and an employee of FMR (1982).
ARTHUR S. LORING (49), 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 (49), 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 (51), Assistant Vice President, is Assistant Vice President
of Fidelity's municipal bond funds (1996) and of Fidelity's money
market funds and Vice President and Associate General Counsel of FMR Texas
Inc.
JOHN H. COSTELLO (50), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (50), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994) and Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993).
THOMAS J. SIMPSON (38), Assistant Treasurer, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money
market funds (1996) and an employee of FMR (1996). Prior to joining
FMR, Mr. Simpson was Vice President and Fund Controller of Liberty
Investment Services (1987-1995).
The following table sets forth information describing the compensation of
each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Aggregate Aggregate Total
Compensation Compensation Compensation
from Spartan PA from Spartan PA from the Fund
Muni Money Muni Income A,C Complex*A
Market A,B
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox 81 96 137,700
Phyllis Burke Davis 79 94 134,700
Richard J. Flynn*** 99 117 168,000
Edward C. Johnson 3d** 0 0 0
E. Bradley Jones 79 94 134,700
Donald J. Kirk 80 95 136,200
Peter S. Lynch** 0 0 0
William O. McCoy**** 49 56 85,333
Gerald C. McDonough 80 95 136,200
Edward H. Malone*** 80 94 136,200
Marvin L. Mann 79 94 134,700
Thomas R. Williams 80 95 136,200
</TABLE>
* Information is as of December 31, 1996 for 235 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of Trustees
through December 31, 1996.
**** During the period from May 1, 1996 through the present, William McCoy
has served as a Member of the Advisory Board of Fidelity Municipal Trust
II.
A Compensation figures include cash, a pro rata portion of benefits accrued
under the retirement program for the period ended December 30, 1996 and
required to be deferred, and may include amounts deferred at the election
of Trustees.
B The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $3 Phyllis
Burke Davis, $3, Richard J. Flynn, $0, E. Bradley Jones, $3, Donald J.
Kirk, $3, William O McCoy, $0, Gerald C. McDonough, $3, Edward H. Malone,
$3, Marvin L. Mann, $3, and Thomas R. Williams, $3.
C The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $4, Phyllis
Burke Davis, $4, Richard J. Flynn, $0, E. Bradley Jones, $4, Donald J.
Kirk, $4, William O. McCoy, $0, Gerald C. McDonough, $4 Edward H. Malone,
$4, Marvin L. Mann, $4, and Thomas R. Williams, $4.
Under a retirement program adopted in July 1988 and modified in November
1995 and November 1996, each non-interested Trustee who retired before
December 30, 1996 may receive payments from a Fidelity fund during his or
her lifetime based on his or her basic trustee fees and length of service.
The obligation of a fund to make such payments is neither secured nor
funded. A Trustee becomes eligible to participate in the program at the end
of the calendar year in which he or she reaches age 72, provided that, at
the time of retirement, he or she has served as a Fidelity fund Trustee for
at least five years.
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 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 funds to retain the services of any
Trustee or to pay any particular level of compensation to the Trustee. The
funds may invest in such designated securities under the Plan without
shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In connection
with the termination of the retirement program, each existing
non-interested Trustee received a credit to his or her Plan account equal
to the present value of the estimated benefits that would have been payable
under the retirement program. The amounts credited to the non-interested
Trustees' Plan accounts are subject to vesting. The termination of the
retirement program and related crediting of estimated benefits to the
Trustees' Plan accounts did not result in a material cost to the funds.
As of December 31, 1996 the Trustees, Members of the Advisory Board, and
officers of the funds 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 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 rate of .50% and
.55%, respectively, of average net assets throughout the month. Fees
received by FMR for the last three fiscal years are shown in the table
below.
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year s Ended December 31 Management Fees Paid to FMR
Money Market Fund 1996 $ 1,180,152
1995 $ 1,133,238
1994 $ 1,140,476
Bond Fund 1996 $ 1,516,877
1995 $ 1,494,332
1994 $ 1,507,849
</TABLE>
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
each fund's $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for
wire purchases and redemptions, and the money market fund's $2.00
checkwriting charge. Shareholder transaction fees and charges collected by
FMR are indicated in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended Account Checkwriting
December 31 Exchange Fees Closeout Fees Wire Fees Charges
MONEY MARKET FUND 1996 $ 1,970 $ 964 $ 260 $ 4,164
1995 2,420 1,228 220 4,830
1994 3,060 1,357 3 55 5,548
</TABLE>
Fiscal Year Ended Account
December 31 Exchange Fees Closeout Fees Wire Fees
BOND FUND 1996 $ 1,665 $ 1,275 225
1995 1,605 1,120 230
1994 3,969 1,805 310
SUB-ADVISER. On behalf of the money market fund, FMR has entered into a
sub-advisory agreement with FMR Texas pursuant to which FMR
Texas has primary responsibility for providing portfolio investment
management services to the fund.
The fees paid to FMR Texas are not reduced by any voluntary or
mandatory expense reimbursements that may be in effect from time to time.
On behalf of the money market fund, for fiscal 1996, 1995, and 1994, FMR
paid FMR Texas fees of $ 590,076 , $566,619 and $570,238,
respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved a Distribution and Service Plan on behalf of the
fund (the Plan) 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 Plan, as approved
by the Trustees, allows the fund and FMR to incur certain expenses that
might be considered to constitute indirect payment by the fund of
distribution expenses.
Under 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.
Currently, the Board of Trustees has not authorized such payments.
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 Plan 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
fund[s] 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 an annual account fee and an asset-based fee
each based on account size and fund type for each retail account and
certain institutional accounts. With respect to certain institutional
retirement accounts, FSC receives an annual account fee and an asset-based
fee based on account type or fund type. These annual account fees are
subject to increase based on postal rate changes. FSC also collects small
account fees from certain accounts with balances of less than $2,500. UMB
has additional sub-contracts with FSC, pursuant to which FSC performs the
calculations necessary to determine each fund's NAV and dividends and
maintains each fund's accounting records. For pricing and bookkeeping
services, FSC receives a fee based on each fund's average net assets. UMB
is entitled to reimbursement from FMR for fees paid to FSC because 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
Advisor Municipal Bond Fund; Fidelity Aggressive Municipal Fund:
Fidelity Insured Municipal Income Fund; Fidelity Ohio Municipal Income
Fund; Fidelity Michigan Municipal 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 a 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 Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is
custodian of the assets of the funds. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of any subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR. 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, 1996 and report s of the auditor , are
included in the funds ' Annual Report, which is a separate report
supplied with this SAI . The funds ' financial
statements , including the financial highlights , and
report s of the auditor are incorporated herein by reference. For
a free additional copy of the funds' Annual Report, contact Fidelity at
1-800-544-8888, 82 Devonshire Street, Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS :
Moody's ratings for short-term municipal obligations will be
designated Moody's Investment Grade ( " MIG "). A two-component
rating is assigned to variable rate demand obligations. The first component
represents an evaluation of the degree of risk associated with scheduled
principal repayment and interest payments and is designated by a long-term
rating, e.g., "Aaa" or "A." The second component represents an evaluation
of the degree of risk associated with the demand feature and is designated
"VMIG."
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
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 MUNICIPAL NOTES:
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature are
assigned a dual rating. The first rating addresses the likelihood of
repayment of principal and payment of interest due and for short-term
obligations is designated by a note rating symbol. The second rating
addresses only the demand feature, and is designated by a commercial paper
rating symbol, e.g., "A-1" or A-2."
SP-1 - Strong capacity to pay principal and interest. I ssue s
determined to possess a very strong characteristics are given a plus
(+) designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
DESCRIPTION OF MOODY'S INVESTORS SERVICE MUNICIPAL OBLIGATIONS :
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest quality).
Those bonds within the Aa through B categories that Mood's believes possess
the strongest credit attributes within those categories are designated by
the symbol "1."
AAA - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT :
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB" through
"D"). While speculative grade debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Ratings from AA through CCC may be
modified by the addition of a plus sign (+) or minus sign (-) to show
relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highe st 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 d BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
FIDELITY MUNICIPAL TRUST II
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) Financial Statements and Financial Highlights included in the
Annual Report, for Fidelity Michigan Municipal Money Market Fund (formerly
Fidelity Michigan Municipal Money Market Portfolio) for the fiscal year
ended December 31, 1996 are incorporated by reference into the fund's
Statement of Additional Information and were filed on February 25, 1997 for
Fidelity Municipal Trust II (File No. 811-6454) pursuant to Rule 30d-1
under the Investment Company Act of 1940 and are incorporated herein by
reference.
(2) Financial Statements and Financial Highlights included in the Annual
Report, for Fidelity Ohio Municipal Money Market Fund (formerly Fidelity
Ohio Municipal Money Market Portfolio) for the fiscal year ended December
31, 1996 are incorporated by reference into the fund's Statement of
Additional Information and were filed on February 25, 1997 for Fidelity
Municipal Trust II (File No. 811-6454) pursuant to Rule 30d-1 under the
Investment Company Act of 1940 and are incorporated herein by reference.
(3) Financial Statements and Financial Highlights included in the Annual
Report, for Spartan Pennsylvania Municipal Money Market Fund (formerly
Spartan Pennsylvania Municipal Money Market Portfolio) for the fiscal year
ended December 31, 1996 are incorporated by reference into the fund's
Statement of Additional Information and were filed on February 25, 1997 for
Fidelity Municipal Trust II (File No. 811-6454) pursuant to Rule 30d-1
under the Investment Company Act of 1940 and are incorporated herein by
reference.
(b) Exhibits
(1) Trust Instrument dated June 20, 1991 is incorporated herein by
reference to Exhibit 1 of Post-Effective Amendment No. 11.
(2) Bylaws of the Trust, as amended, are incorporated herein by reference
to Exhibit 2(a) of Fidelity Union Street Trust II's (File No. 33-43757)
Post-Effective Amendment No. 10.
(3) Not applicable
(4) Not applicable
(5) (a) Management Contract, dated February 28, 1992, between Fidelity
Ohio Municipal Money Market Portfolio (currently Fidelity Ohio Municipal
Money Market Fund) and Fidelity Management & Research Company, is
incorporated herein by reference to Exhibit 5(a) of Post-Effective
Amendment No. 8.
(b) Management Contract, dated February 28, 1992, between Fidelity
Michigan Municipal Money Market Portfolio (currently Fidelity Michigan
Municipal Money Market Fund) and Fidelity Management & Research Company, is
incorporated herein by reference to Exhibit 5(b) of Post-Effective
Amendment No. 8.
(c) Management Contract, dated February 28, 1992, between Spartan
Pennsylvania Municipal Money Market Portfolio (currently Spartan
Pennsylvania Municipal Money Market Fund) and Fidelity Management &
Research Company, is incorporated herein by reference to Exhibit 5(c) of
Post-Effective Amendment No.11.
(d) Sub-Advisory Agreement, dated February 28, 1992, between FMR Texas
Inc. and Fidelity Management & Research Company on behalf of Fidelity Ohio
Municipal Money Market Portfolio (currently Fidelity Ohio Municipal Money
Market Fund), is incorporated herein by reference to Exhibit 5(d) of
Post-Effective Amendment No.11.
(e) Sub-Advisory Agreement, dated February 28, 1992, between FMR Texas
Inc. and Fidelity Management & Research Company on behalf of Fidelity
Michigan Municipal Money Market Portfolio (currently Fidelity Michigan
Municipal Money Market Fund), is incorporated herein by reference to
Exhibit 5(e) of Post-Effective Amendment No.11.
(f) Sub-Advisory Agreement, dated February 28, 1992, between FMR Texas
Inc. and Fidelity Management & Research Company on behalf of Spartan
Pennsylvania Municipal Money Market Portfolio (currently Spartan
Pennsylvania Municipal Money Market Fund), is incorporated herein by
reference to Exhibit 5(f) of Post-Effective Amendment No.11.
(6) (a) General Distribution Agreement, dated February 28, 1992, between
Fidelity Ohio Municipal Money Market Portfolio (currently Fidelity Ohio
Municipal Money Market Fund) and Fidelity Distributors Corporation, is
incorporated herein by reference to Exhibit 6(a) of Post-Effective
Amendment No.11.
(b) General Distribution Agreement, dated February 28, 1992, between
Fidelity Michigan Municipal Money Market Portfolio (currently Fidelity
Michigan Municipal Money Market Fund) and Fidelity Distributors
Corporation, is incorporated herein by reference to Exhibit 6(b) of
Post-Effective Amendment No.11.
(c) General Distribution Agreement, dated February 29, 1992, between
Spartan Pennsylvania Municipal Money Market Portfolio (currently Spartan
Pennsylvania Municipal Money Market Fund) and Fidelity Distributors
Corporation, is incorporated herein by reference to Exhibit 6(c) of
Post-Effective Amendment No.11.
(d) Amendments to the General Distribution Agreement between Fidelity
Municipal Trust II on behalf of Fidelity Ohio Municipal Money Market Fund
and Fidelity Distributors Corporation, dated March 14, 1996 and July 15,
1996, are incorporated herein by reference to Exhibit 6(a) of Fidelity
Court Street Trust's Post-Effective Amendment No.61 (File No. 2-58774).
(e) Amendments to the General Distribution Agreement between Fidelity
Municipal Trust II on behalf of Fidelity Michigan Municipal Money Market
Fund and Fidelity Distributors Corporation, dated March 14, 1996 and July
15, 1996, are incorporated herein by reference to Exhibit 6(a) of Fidelity
Court Street Trust's Post-Effective Amendment No.61 (File No. 2-58774).
(f) Amendments to the General Distribution Agreement between Fidelity
Municipal Trust II on behalf of Spartan Pennsylvania Municipal Money Market
Fund and Fidelity Distributors Corporation, dated March 14, 1996 and July
15, 1996, are incorporated herein by reference to Exhibit 6(a) of Fidelity
Court Street Trust's Post-Effective Amendment No.61 (File No. 2-58774).
(7) (a) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, as amended on November 16, 1995, is incorporated herein
by reference to Exhibit 7(a) of Fidelity Select Portfolios' (File No.
2-69972) Post-Effective Amendment No. 54.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of December 1, 1995, is
incorporated herein by reference to Exhibit 7(b) of Fidelity School Street
Trust's (File No. 2-57167) Post-Effective Amendment No. 47.
(8) (a) Custodian Agreement, Appendix B, and Appendix C, dated December 1,
1994, between UMB Bank, n.a. and the Registrant is incorporated herein by
reference to Exhibit 8 of Fidelity California Municipal Trust's
Post-Effective Amendment No. 28 (File No. 2-83367).
(b) Appendix A, dated October 17, 1996, to the Custodian Agreement, dated
December 1, 1994, between UMB Bank, n.a. and the Registrant is incorporated
herein by reference to Exhibit 8(a) of Fidelity Court Street Trust's
Post-Effective Amendment No. 61 (File No. 2-58774).
(9) Not applicable.
(10) Not applicable.
(11) Consent of Coopers & Lybrand L.L.P. is filed herein as Exhibit 11.
(12) Not applicable.
(13) Not applicable.
(14) (a) Fidelity Individual Retirement Account Custodial Agreement and
Disclosure Statement, as currently in effect, is incorporated herein by
reference to Exhibit 14(a) of Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
(b) Fidelity Institutional Individual Retirement Account Custodial
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(d) of Fidelity Union Street Trust's (File
No. 2-50318) Post-Effective Amendment No. 87.
(c) National Financial Services Corporation Individual Retirement Account
Custodial Agreement and Disclosure Statement, as currently in effect, is
incorporated herein by reference to Exhibit 14(h) of Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(d) Fidelity Portfolio Advisory Services Individual Retirement Account
Custodial Agreement and Disclosure Statement, as currently in effect, is
incorporated herein by reference to Exhibit 14(i) of Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(e) Fidelity 403(b)(7) Custodial Account Agreement, as currently in
effect, is incorporated herein by reference to Exhibit 14(e) of Fidelity
Union Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(f) National Financial Services Corporation Defined Contribution
Retirement Plan and Trust Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(k) of Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(g) The CORPORATEplan for Retirement Profit Sharing/401K Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(l)
of Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(h) The CORPORATEplan for Retirement Money Purchase Pension Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(m)
of Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(i) Fidelity Investments Section 403(b)(7) Individual Custodial Account
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(f) of Fidelity Commonwealth Trust's (File
No. 2-52322) Post-Effective Amendment No. 57.
(j) Plymouth Investments Defined Contribution Retirement Plan and Trust
Agreement, as currently in effect, is incorporated herein by reference to
Exhibit 14(o) of Fidelity Commonwealth Trust's (File No. 2-52322)
Post-Effective Amendment No. 57.
(k) The Fidelity Prototype Defined Benefit Pension Plan and Trust Basic
Plan Document and Adoption Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(d) of Fidelity Securities
Fund's (File No. 2-93601) Post-Effective Amendment No. 33.
(l) The Institutional Prototype Plan Basic Plan Document, Standardized
Adoption Agreement, and Non-Standardized Adoption Agreement, as currently
in effect, is incorporated herein by reference to Exhibit 14(o) of Fidelity
Securities Fund's (File No. 2-93601) Post-Effective Amendment No. 33.
(m) The CORPORATEplan for Retirement 100SM Profit Sharing/401(k) Basic
Plan Document, Standardized Adoption Agreement, and Non-Standardized
Adoption Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(f) of Fidelity Securities Fund's (File No. 2-93601)
Post-Effective Amendment No. 33.
(n) The Fidelity Investments 401(a) Prototype Plan for Tax-Exempt
Employers Basic Plan Document, Standardized Profit Sharing Plan Adoption
Agreement, Non-Standardized Discretionary Contribution Plan No. 002
Adoption Agreement, and Non-Standardized Discretionary Contribution Plan
No. 003 Adoption Agreement, as currently in effect, is incorporated herein
by reference to Exhibit 14(g) of Fidelity Securities Fund's (File No.
2-93601) Post-Effective Amendment No. 33.
(o) Fidelity Investments 403(b) Sample Plan Basic Plan Document and
Adoption Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(p) of Fidelity Securities Fund's (File No. 2-93601)
Post-Effective Amendment No. 33.
(p) Fidelity Defined Contribution Retirement Plan and Trust Agreement, as
currently in effect, is incorporated herein by reference to Exhibit 14(c)
of Fidelity Securities Fund's (File No. 2-93601) Post-Effective Amendment
No. 33.
(15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Ohio Municipal Money Market Portfolio (currently Fidelity Ohio Municipal
Money Market Fund) is incorporated herein by reference to Exhibit 15(a) of
Post-Effective Amendment No. 11.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Michigan Municipal Money Market Portfolio (currently Fidelity Michigan
Municipal Money Market Fund) is incorporated herein by reference to Exhibit
15(b) of Post-Effective Amendment No. 11.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Pennsylvania Municipal Money Market Portfolio (currently Spartan
Pennsylvania Municipal Money Market Fund) is incorporated herein by
reference to Exhibit 15(c) of Post-Effective Amendment No. 11.
(16) (a) Schedule for computation of performance calculations and the
7-day yields for Fidelity Ohio Municipal Money Market Fund (formerly
Fidelity Ohio Municipal Money Market Portfolio) is incorporated herein by
reference to Exhibit 16(a) of Post-Effective Amendment No. 12.
(17) Financial Data Schedules for the funds are filed herein as Exhibit
27.
(18) Not applicable.
Item 25. Persons Controlled by or under Common Control with Registrant
The Board of Trustees of the Registrant is substantially the same as the
boards of other funds advised by FMR, each of which has Fidelity Management
& Research Company as its investment adviser. In addition, the officers of
these funds are substantially identical. Nonetheless, Registrant takes the
position that it is not under common control with these other funds since
the power residing in the respective boards and officers arises as the
result of an official position with the respective funds.
Item 26. Number of Holders of Securities
January 31, 1997
Title of Class: Shares of Beneficial Interest
Title of Series Number of Record Holders
Fidelity Ohio Municipal Money Market Fund 9,002
Fidelity Michigan Municipal Money Market Fund 8,163
Spartan Pennsylvania Municipal Money Market Fund 3,060
Item 27. Indemnification
Pursuant to Del. Code Ann. title 12 (sub-section) 3817, a Delaware
business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all
claims and demands whatsoever. Article X, Section 10.02 of the Trust
Instrument states that the Registrant shall indemnify any present trustee
or officer to the fullest extent permitted by law against liability, and
all expenses reasonably incurred by him or her in connection with any
claim, action, suit or proceeding in which he or she is involved by virtue
of his or her service as a trustee, officer, or both, and against any
amount incurred in settlement thereof. Indemnification will not be provided
to a person adjudged by a court or other adjudicatory body to be liable to
the Registrant or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties
(collectively, "disabling conduct"), or not to have acted in good faith in
the reasonable belief that his or her action was in the best interest of
the Registrant. In the event of a settlement, no indemnification may be
provided unless there has been a determination, as specified in the Trust
Instrument, that the officer or trustee did not engage in disabling
conduct.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against any
loss, liability, claim, damages or expense arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information, shareholder
reports or other information filed or made public by the Registrant
included a materially misleading statement or omission. However, the
Registrant does not agree to indemnify the Distributor or hold it harmless
to the extent that the statement or omission was made in reliance upon, and
in conformity with, information furnished to the Registrant by or on behalf
of the Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of their own
disabling conduct.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("Service") is appointed sub-transfer agent, the Transfer Agent agrees to
indemnify Service for Service's losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) (losses) to the
extent that the Transfer Agent is entitled to and receives indemnification
from the Portfolio for the same events. Under the Transfer Agency
Agreement, the Registrant agrees to indemnify and hold the Transfer Agent
harmless against any losses, claims, damages, liabilities, or expenses
(including reasonable counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other than the
Registrant, including by a shareholder which names the Transfer Agent
and/or the Registrant as a party and is not based on and does not result
from the Transfer Agent's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with the
Transfer Agent's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent contributed to
by the Transfer Agent's willful misfeasance, bad faith or negligence or
reckless disregard of duties) which results from the negligence of the
Registrant, or from the Transfer Agent's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of the Transfer
Agent's acting in reliance upon advice reasonably believed by the Transfer
Agent to have been given by counsel for the Registrant, or as a result of
the Transfer Agent's acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR Corp.;
Chairman of the Board and Director of FMR, FMR
Corp., FMR Texas Inc., FMR (U.K.) Inc., and FMR
(Far East) Inc.; Chairman of the Board and
Representative Director of Fidelity Investments Japan
Limited; President and Trustee of funds advised by
FMR.
J. Gary Burkhead President and Director of FMR, FMR Texas Inc., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Managing
Director of FMR Corp.; Senior Vice President and
Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
Dwight D. Churchill Vice President of FMR.
John D. Crumrine Assistant Treasurer of FMR, FMR (U.K.) Inc., FMR
(Far East) Inc., and FMR Texas Inc.; Vice President
and Treasurer of FMR Corp.
William Danoff Vice President of FMR and of a fund advised by FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Larry A. Domash Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of
FMR Texas Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Vice President of FMR.
Bart Grenier Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of
Equity funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical
Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Vice President of FMR and of a fund advised by FMR.
Stephen P. Jonas Vice President of FMR; Treasurer of FMR, FMR
(U.K.) Inc., FMR (Far East) Inc., and FMR Texas Inc.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR; Vice President of High
Income funds advised by FMR.
Alan Leifer Vice President of FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Arthur S. Loring Senior Vice President, Clerk, and General Counsel of
FMR; Vice President/Legal, and Assistant Clerk of
FMR Corp.; Secretary of funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Malcolm W. MacNaught II Vice President of FMR and of a fund advised by FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Vice President of FMR; Senior Vice President and
Director of Operations and Compliance of FMR (U.K.)
Inc.
Robert E. Stansky Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR.
</TABLE>
(2) FMR TEXAS INC. (FMR Texas)
FMR Texas provides investment advisory services to Fidelity Management &
Research Company. The directors and officers of the Sub-Adviser have held
the following positions of a substantial nature during the past two fiscal
years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR
Texas, FMR, FMR Corp., FMR (Far East) Inc.,
and FMR (U.K.) Inc.; Chairman of the
Executive Committee of FMR; President and
Chief Executive Officer of FMR Corp.;
Chairman of the Board and Representative
Director of Fidelity Investments Japan Limited;
President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Texas, FMR,
FMR (Far East) Inc., and FMR (U.K.) Inc.;
Managing Director of FMR Corp.; Senior Vice
President and Trustee of funds advised by FMR.
Robert H. Auld Vice President of FMR Texas.
Leland C. Barron Vice President of FMR Texas and of funds
advised by FMR.
Robert K. Duby Vice President of FMR Texas and of funds
advised by FMR.
Robert Litterst Vice President of FMR Texas and of funds
advised by FMR.
Thomas D. Maher Vice President of FMR Texas and Assistant Vice
President of Money Market funds advised by
FMR.
Scott A. Orr Vice President of FMR Texas and of funds
advised by FMR.
Burnell R. Stehman Vice President of FMR Texas and of funds
advised by FMR.
John J. Todd Vice President of FMR Texas and of funds
advised by FMR.
Sarah H. Zenoble Vice President of FMR Texas and of Money
Market funds advised by FMR.
Stephen P. Jonas Treasurer of FMR Texas, FMR (U.K.) Inc.,
FMR (Far East) Inc., and FMR; Vice President
of FMR.
John D. Crumrine Assistant Treasurer of FMR Texas, FMR (U.K.)
Inc., FMR (Far East) Inc., and FMR; Vice
President and Treasurer of FMR Corp.
Jay Freedman Secretary of FMR Texas; Clerk of FMR (U.K.)
Inc., FMR (Far East) Inc., and FMR Corp.;
Assistant Clerk of FMR.
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
Mark Peterson Director None
Paul Hondros President None
Arthur S. Loring Vice President and Clerk Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
* 82 Devonshire Street, Boston, MA
(c) Not applicable
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity Service
Company, Inc., 82 Devonshire Street, Boston, MA 02109, or the funds'
custodian UMB Bank, n.a., 1010 Grand Avenue, Kansas City, MO.
Item 31. Management Services
Not applicable
Item 32. Undertakings
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for the effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 16 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and the Commonwealth of Massachusetts, on the 24th
day of February 1997.
FIDELITY MUNICIPAL TRUST II
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d (dagger) President and Trustee February 24, 1997
Edward C. Johnson 3d (Principal Executive Officer)
/s/Kenneth A. Rathgeber * Treasurer February 24, 1997
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee February 24, 1997
J. Gary Burkhead
/s/Ralph F. Cox ** Trustee February 24, 1997
Ralph F. Cox
/s/Phyllis Burke Davis ** Trustee February 24, 1997
Phyllis Burke Davis
/s/E. Bradley Jones ** Trustee February 24, 1997
E. Bradley Jones
/s/Donald J. Kirk ** Trustee February 24, 1997
Donald J. Kirk
/s/Peter S. Lynch ** Trustee February 24, 1997
Peter S. Lynch
/s/Marvin L. Mann ** Trustee February 24, 1997
Marvin L. Mann
/s/Gerald C. McDonough ** Trustee February 24, 1997
Gerald C. McDonough
/s/Thomas R. Williams ** Trustee February 24, 1997
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated January 3, 1997 and filed herewith.
* Signature affixed by John H. Costello pursuant to a power of attorney
dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 19, 1996 and filed herewith.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Plans Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Union Street Trust II
Fidelity Exchange Fund Fidelity Yen Performance Portfolio, L.P.
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as President and Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and appoint
J. Gary Burkhead my true and lawful attorney-in-fact, with full power of
substitution, and with full power to him to sign for me and in my name in
the appropriate capacity, all Registration Statements of the Funds on Form
N-1A, Form N-8A, Form N-8B-2, or any successor thereto, any and all
subsequent Amendments, Pre-Effective Amendments, or Post-Effective
Amendments to said Registration Statements on Form N-1A or any successor
thereto, any Registration Statements on Form N-14, and any supplements or
other instruments in connection therewith, and generally to do all such
things in my name and behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company Act of
1940, and all related requirements of the Securities and Exchange
Commission. I hereby ratify and confirm all that said attorney-in-fact or
his substitutes may do or cause to be done by virtue hereof. This power of
attorney is effective for all documents filed on or after January 3, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d January 3, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Treasurer and principal financial and accounting
officer of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as President and Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and appoint
John H. Costello and John E. Ferris each of them singly my true and lawful
attorneys-in-fact, with full power of substitution, and with full power to
each of them to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration Statements on
Form N-1A or any successor thereto, any Registration Statements on Form
N-14, and any supplements or other instruments in connection therewith, and
generally to do all such things in my name and behalf in connection
therewith as said attorneys-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorneys-in-fact or their substitutes may do or cause to be done by virtue
hereof. This power of attorney is effective for all documents filed on or
after January 1, 1997.
WITNESS my hand on the date set forth below.
/s/Kenneth A. Rathgeber__________ December 19, 1996
Kenneth A. Rathgeber
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as Directors, Trustees, or General Partners
(collectively, the "Funds"), hereby constitute and appoint Arthur J. Brown,
Arthur C. Delibert, Stephanie A. Djinis, Robert C. Hacker, Thomas M.
Leahey, Richard M. Phillips, and Dana L. Platt, each of them singly, our
true and lawful attorneys-in-fact, with full power of substitution, and
with full power to each of them, to sign for us and in our names in the
appropriate capacities, all Registration Statements of the Funds on Form
N-1A, Form N-8A or any successor thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements on Form N-1A or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact
deems necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all that said attorneys-in-fact or their substitutes may
do or cause to be done by virtue hereof. This power of attorney is
effective for all documents filed on or after January 1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Prospectuses
and Statements of Additional Information in Post-Effective Amendment No. 16
to the Registration Statement on Form N-1A of Fidelity Municipal Trust II:
Fidelity Michigan Municipal Money Market Fund (formerly Fidelity Michigan
Municipal Money Market Portfolio), Fidelity Ohio Municipal Money Market
Fund (formerly Fidelity Ohio Municipal Money Market Portfolio), and Spartan
Pennsylvania Municipal Money Market Fund (formerly Spartan Pennsylvania
Municipal Money Market Portfolio) of our reports dated February 4, 1997 on
the financial statements and financial highlights included in the December
31, 1996 Annual Reports to Shareholders of Fidelity Michigan Municipal
Money Market Fund (formerly Fidelity Michigan Municipal Money Market
Portfolio), Fidelity Ohio Municipal Money Market Fund (formerly Fidelity
Ohio Municipal Money Market Portfolio), and Spartan Pennsylvania Municipal
Money Market Fund (formerly Spartan Pennsylvania Municipal Money Market
Portfolio).
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Auditor" in the Statements
of Additional Information.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880799
<NAME> Fidelity Municipal Trust II
<SERIES>
<NUMBER> 11
<NAME> Spartan Pennsylvania Municipal Money Market Fund
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 245,406
<INVESTMENTS-AT-VALUE> 245,406
<RECEIVABLES> 6,524
<ASSETS-OTHER> 1,583
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 253,513
<PAYABLE-FOR-SECURITIES> 11,001
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 126
<TOTAL-LIABILITIES> 11,127
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 242,451
<SHARES-COMMON-STOCK> 242,449
<SHARES-COMMON-PRIOR> 241,679
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (65)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 242,386
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,644
<OTHER-INCOME> 0
<EXPENSES-NET> 1,132
<NET-INVESTMENT-INCOME> 7,512
<REALIZED-GAINS-CURRENT> (27)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,485
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,512
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 168,791
<NUMBER-OF-SHARES-REDEEMED> 175,218
<SHARES-REINVESTED> 7,197
<NET-CHANGE-IN-ASSETS> 743
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (38)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,180
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,186
<AVERAGE-NET-ASSETS> 237,114
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .032
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .032
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880799
<NAME> Fidelity Municipal Trust II
<SERIES>
<NUMBER> 21
<NAME> Fidelity Ohio Municipal Money Market Fund
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 327,549
<INVESTMENTS-AT-VALUE> 327,549
<RECEIVABLES> 2,167
<ASSETS-OTHER> 3,897
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 333,613
<PAYABLE-FOR-SECURITIES> 5,812
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 208
<TOTAL-LIABILITIES> 6,020
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,672
<SHARES-COMMON-STOCK> 327,672
<SHARES-COMMON-PRIOR> 296,250
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (79)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 327,593
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,295
<OTHER-INCOME> 0
<EXPENSES-NET> 1,834
<NET-INVESTMENT-INCOME> 9,461
<REALIZED-GAINS-CURRENT> (50)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,411
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,461
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 616,078
<NUMBER-OF-SHARES-REDEEMED> 593,825
<SHARES-REINVESTED> 9,169
<NET-CHANGE-IN-ASSETS> 31,372
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (30)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,861
<AVERAGE-NET-ASSETS> 311,820
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .030
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000880799
<NAME> Fidelity Municipal Trust II
<SERIES>
<NUMBER> 31
<NAME> Fidelity Michigan Municipal Money Market Fund
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> YEAR
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