-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ev/ZRLLXasV1xTIGsP4Kyq41DsVtEFuwM+u3KHW6/od9ezsmTke175rvG6b8QYaO lwYu6gtEL7H+WeLG74wYSg== 0000035330-96-000044.txt : 19960910 0000035330-96-000044.hdr.sgml : 19960910 ACCESSION NUMBER: 0000035330-96-000044 CONFORMED SUBMISSION TYPE: N14EL24 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960906 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY UNION STREET TRUST CENTRAL INDEX KEY: 0000035330 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046343201 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N14EL24 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11479 FILM NUMBER: 96626500 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174391706 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE ST. STREET 2: MAIL ZONE ZH1 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY DAILY INCOME TRUST DATE OF NAME CHANGE: 19900626 N14EL24 1 As filed with the Securities and Exchange Commission on September 6, 1996 Registration No. 33-___________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [ ] Post-Effective Amendment No. [ ]
Fidelity Union Street Trust (Exact Name of Registrant as Specified in Charter) 82 Devonshire St., Boston, MA 02109 (Address Of Principal Executive Offices) Registrant's Telephone Number (617) 563-7000 Arthur S. Loring, Secretary 82 Devonshire Street Boston, MA 02109 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. The Registrant has registered an indefinite amount of securities under the Securities Act of 1933 pursuant to Section 24(f) under the Investment Company Act of 1940; accordingly, no fee is payable herewith because of reliance upon Rule 24f-2. A Rule 24f-2 Notice for the Registrant's most recent fiscal year ended August 31, 1996 will be filed with the Commission on or before October 30, 1996. Pursuant to Rule 429, this Registration Statement relates to shares previously registered on Form N-1A. It is proposed that this filing will become effective on October 5, 1996, pursuant to Rule 488. SPARTAN MUNICIPAL INCOME FUND CONTENTS OF REGISTRATION STATEMENT This Registration Statement contains the following papers and documents: Facing Page Contents of Registration Statement Cross Reference Sheet Letter to Shareholders Form of Proxy Card Notice of Special Meeting Part A - Prospectus/Proxy Statement Part B- Statement of Additional Information Part C - Other Information Signature Pages Exhibits FIDELITY UNION STREET TRUST: SPARTAN MUNICIPAL INCOME FUND FORM N-14 CROSS REFERENCE SHEET PART A
Form N-14 Item Number and Caption Prospectus/Proxy Statement Caption 1. Beginning of Registration Statement and Out- Cover Page side Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Pro- Table of Contents spectus 3. Fee Table, Synopsis Information and Risk Synopsis; Comparative Fee Tables; Comparison of Factors Principal Risk Factors; The Proposed Transaction 4. Information About the Transactions Synopsis; The Proposed Transaction; Exhibit 1 5. Information About the Registrant Synopsis; Comparison of Principal Risk Factors; Miscellaneous; Additional Information About Spartan Municipal Income Fund; Prospectus of Spartan Municipal Income Fund 6. Information About the Company Being Acquired Cover Page; Comparison of Principal Risk Factors; Miscellaneous; Prospectuses of Spartan Bond Strategist 7. Voting Information Voting Information 8. Interest of Certain Persons and Experts Not Applicable 9. Additional Information Required for Reoffering Not Applicable by Persons Deemed to be Underwriters
PART B Item Number and Caption Statement of Additional Information Caption
10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. Additional Information ABout the Registrant Prospectus and Statement of Additional Information of Spartan Municipal Income Fund 13. Additional Information About the Company Be- Not applicable ing Acquired 14. Financial Statements Annual Report of Spartan Municipal Income Fund for the Fiscal Year Ended August 31, 995; Annual Report of Spartan Bond Strategist for the Fiscal Year Ended December 31, 1995. Semiannual Report of Spartan Municipal Income Fund for the Fiscal Period Ended February 29, 1996; Semiannual Report of Spartan Bond Strategist for the Fiscal Period Ended June 30, 1996. Part C Information required to be included in Part C is set forth under the appropriate item so numbered in Part C of this Registration Statement.
SPARTAN(registered trademark) BOND STRATEGISTTM Dear Shareholder: I am writing to let you know about an important proposal to merge Spartan Bond Strategist with another Spartan bond fund, and to ask you to send in your vote. A shareholder meeting will be held in December, and the votes submitted in time to be counted at the meeting will decide whether the merger takes place. This package contains information about the proposal and includes all the materials you will need to vote by mail. Please take the time to read the enclosed materials and cast your vote on the yellow proxy card. PLEASE VOTE PROMPTLY. YOUR VOTE IS EXTREMELY IMPORTANT, NO MATTER HOW MANY SHARES YOU OWN. HERE IS A BRIEF SUMMARY OF THE PROPOSAL. The Trustees of Spartan Bond Strategist are recommending that the fund merge with Spartan Municipal Income Fund, a larger bond fund also managed by Fidelity Management & Research Company (FMR). The Trustees, most of whom are not affiliated with Fidelity, are responsible for protecting your interests as a shareholder. The Trustees believe that the merger is in shareholders' best interest, and recommend that you vote for the proposal. But the final decision is up to you. (medium solid bullet) The merger would be a tax-free reorganization, with no gain or loss to you as a shareholder. If shareholders vote to approve the merger, Spartan Bond Strategist will cease to exist and you will become a shareholder of Spartan Municipal Income Fund instead. (medium solid bullet) As part of Fidelity's "Spartan" family of mutual funds, each fund has a management contract under which FMR bears substantially all fund expenses. However, Spartan Municipal Income Fund has significantly lower operating expenses than Spartan Bond Strategist, and represents a lower-cost option for Spartan Bond Strategist shareholders. Spartan Municipal Income Fund's management fee rate is .15% lower, or approximately 21% less, than Spartan Bond Strategist's management fee rate (.55% vs. .70% of average net assets). Therefore, if the merger is approved, as a Spartan Municipal Income Fund shareholder, Spartan Bond Strategist shareholders would enjoy a management fee rate that is significantly lower than what they currently bear as a shareholder of Spartan Bond Strategist. (medium solid bullet) Spartan Bond Strategist has an unusual investment strategy: it seeks maximum total return after the effect of federal income taxes by allocating its assets between taxable and municipal securities. Spartan Municipal Income is a conventional municipal bond fund, and seeks tax-exempt income by investing primarily in municipal securities. In practice, the funds have had relatively comparable total returns before and after taxes. However, because Municipal Income does not normally invest in taxable securities, a larger portion of its return has been federally tax-free. The merger would give shareholders of Spartan Bond Strategist the opportunity to participate in a fund with a similar investment portfolio and strategy, and a 0.15% lower all-inclusive management fee rate. The enclosed materials include a detailed description of the funds and the proposed merger. VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED. We encourage you to exercise your right as a shareholder and to vote promptly. To cast your vote, simply complete the yellow proxy card enclosed in this package. Be sure to sign the card before mailing it in the postage-paid envelope provided. If you have any questions before you vote, please call us at 1-800-544-8888. We'll be glad to help you get your vote in quickly. Thank you for your participation in this important initiative for your fund. Sincerely, /s/Edward C. Johnson 3d Edward C. Johnson 3d President SBS-PXL-1096 Vote this proxy card TODAY! Your prompt response will save the expense of additional mailings. Return the proxy card in the enclosed envelope or mail to: FIDELITY INVESTMENTS Proxy Department P.O. Box 9107 Hingham, MA 02043-9848 PLEASE DETACH AT PERFORATION BEFORE MAILING. - --------------------------------------------------------------------------- FIDELITY SCHOOL STREET TRUST: SPARTAN BOND STRATEGIST PROXY SOLICITED BY THE TRUSTEES The undersigned, revoking previous proxies, hereby appoint(s) Edward C. Johnson 3d, Arthur S. Loring, and Edward H. Malone, or any one or more of them, attorneys, with full power of substitution, to vote all shares of Fidelity School Street Trust: Spartan Bond Strategist which the undersigned is entitled to vote at the Special Meeting of Shareholders of the Fund to be held at the office of the trust at 82 Devonshire St., Boston, MA 02109, on December 18, 1996 at 9:00 a.m. Eastern time and at any adjournments thereof. All powers may be exercised by a majority of said proxy holders or substitutes voting or acting or, if only one votes and acts, then by that one. This Proxy shall be voted on the proposal described in the Proxy Statement as specified on the reverse side. Receipt of the Notice of the Meeting and the accompanying Proxy Statement is hereby acknowledged. NOTE: Please sign exactly as your name appears on this Proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. Date _____________, 1996 _______________________________________ _______________________________________ Signature(s) (Title(s), if applicable) PLEASE SIGN, DATE, AND RETURN PROMPTLY IN ENCLOSED ENVELOPE [cusip # __________/fund# ___] Please refer to the Proxy Statement discussion of this matter. IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSAL. As to any other matter, said attorneys shall vote in accordance with their best judgment. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING: - --------------------------------------------------------------------------- ___________________________________________________________________________
1. To approve an Agreement and Plan of Reorganization FOR [ ] AGAINST [ ] ABSTAIN [ ] 1. between Spartan Bond Strategist and Spartan Municipal Income Fund.
PXC-1096 [cusip # 31638R105/fund# 447] SPARTAN BOND STRATEGIST A FUND OF FIDELITY SCHOOL STREET TRUST 82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109 1-800-544-8888 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To the Shareholders of Spartan Bond Strategist: NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the Meeting) of Spartan Bond Strategist (the Fund), will be held at the office of the Fidelity School Street Trust, 82 Devonshire Street, Boston, Massachusetts 02109 on Wednesday, December 18, 1996, at 9:00 a.m. Eastern time. The purpose of the Meeting is to consider and act upon the following proposal, and to transact such other business as may properly come before the Meeting or any adjournments thereof. (1) To approve an Agreement and Plan of Reorganization (the Agreement) between the Fund and Spartan Municipal Income Fund. The Agreement provides for the transfer of all of the assets of the Fund to Spartan Municipal Income Fund in exchange solely for shares of beneficial interest of Spartan Municipal Income Fund and the assumption by Spartan Municipal Income Fund of the Fund's liabilities, followed by the distribution of Spartan Municipal Income Fund shares to Fund shareholders. The Board of Trustees has fixed the close of business on October 21, 1996 as the record date for the determination of shareholders of the Fund entitled to notice of, and to vote at, such Meeting and any adjournments thereof. By order of the Board of Trustees, ARTHUR S. LORING, Secretary October 21, 1996 YOUR VOTE IS IMPORTANT - PLEASE RETURN YOUR PROXY CARD PROMPTLY. SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE ASK YOUR COOPERATION IN MAILING YOUR PROXY CARD PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. INSTRUCTIONS FOR EXECUTING PROXY CARD The following general rules for executing proxy cards may be of assistance to you and help you avoid the time involved in validating your vote if you fail to execute your proxy card properly. 1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears in the registration on the proxy card. 2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing should conform exactly to a name shown in the registration. 3. ALL OTHER ACCOUNTS should show the capacity of the individual signing. This can be shown either in the form of the account registration itself or by the individual executing the proxy card. For example: REGISTRATION VALID SIGNATURE A. 1) ABC Corp. John Smith, Treasurer 2) ABC Corp. John Smith, Treasurer c/o John Smith, Treasurer B. 1) ABC Corp. Profit Sharing Plan Ann B. Collins, Trustee 2) ABC Trust Ann B. Collins, Trustee 3) Ann B. Collins, Trustee Ann B. Collins, Trustee u/t/d 12/28/78 C. 1) Anthony B. Craft, Cust. Anthony B. Craft f/b/o Anthony B. Craft, Jr. UGMA SPARTAN BOND STRATEGIST A FUND OF FIDELITY SCHOOL STREET TRUST 82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109 1-800-544-8888 PROXY STATEMENT AND PROSPECTUS OCTOBER 21, 1996 This Proxy Statement and Prospectus (Proxy Statement) is being furnished to shareholders of Spartan Bond Strategist (Bond Strategist or the Fund), a fund of Fidelity School Street Trust (the trust), in connection with the solicitation of proxies by the trust's Board of Trustees for use at the Special Meeting of Shareholders of the Fund and at any adjournments thereof (the Meeting). The Meeting will be held on Wednesday, December 18, 1996, at 9:00 a.m. Eastern time at 82 Devonshire Street, Boston, Massachusetts 02109, the principal executive office of the trust. As more fully described in the Proxy Statement, the purpose of the Meeting is to vote on a proposed reorganization (the Reorganization). Pursuant to an Agreement and Plan of Reorganization (the Agreement), Bond Strategist would transfer all of its assets to Spartan Municipal Income Fund (Municipal Income), a fund of Fidelity Union Street Trust, in exchange solely for shares of beneficial interest of Municipal Income and the assumption by Municipal Income of Bond Strategist's liabilities. The number of shares to be issued in the proposed Reorganization will be based upon the relative net asset values of the funds at the time of the exchange. As provided in the Agreement, Bond Strategist will distribute shares of Municipal Income to its shareholders on the closing date (defined below) so that each shareholder receives the number of full and fractional shares of Municipal Income equal in value to the aggregate net asset value of the shares of Bond Strategist held by such shareholder on December 30, 1996, or such other date as the parties may agree (the Closing Date). Following the distribution, Bond Strategist will have neither assets, liabilities, nor shareholders, and it is expected that the trust's Board of Trustees will liquidate Bond Strategist as soon as practicable thereafter. Municipal Income, a bond fund, is a non-diversified fund of Fidelity Union Street Trust, an open-end management investment company organized as a Massachusetts business trust on March 1, 1974. Municipal Income's investment objective is to seek high current income by investing primarily in municipal securities. Municipal Income seeks to achieve its investment objective by investing in investment-grade quality municipal bonds of any maturity under normal conditions. However, the Fund is managed so that it generally reacts to changes in interest rates similarly to municipal bonds with maturities between eight and 18 years. The Fund normally invests so that at least 80% of its income is free from federal income tax. This Proxy Statement is accompanied by the Prospectus of Municipal Income (dated October 25, 1995) as supplemented on June 26, 1996, which is incorporated herein by reference and should be retained for future reference. These documents set forth concisely the information about the Reorganization, Bond Strategist, and Municipal Income that a shareholder should know before voting on the proposed Reorganization. A Prospectus and Statement of Additional Information for Bond Strategist, both dated February 20, 1996, a supplement to Bond Strategist's Prospectus dated July 19, 1996, and a Statement of Additional Information dated October 25, 1995 for Municipal Income have been filed with the Securities and Exchange Commission and are incorporated herein by reference. Copies of these documents may be obtained without charge by contacting Fidelity Distributors Corporation at 82 Devonshire Street, Boston, Massachusetts 02109 or by calling 1-800-544-8888. 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 PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS VOTING INFORMATION 1 SYNOPSIS 2 COMPARISON OF PRINCIPAL RISK FACTORS 11 THE PROPOSED TRANSACTION 12 ADDITIONAL INFORMATION ABOUT SPARTAN MUNICIPAL INCOME FUND 18 MISCELLANEOUS 19 EXHIBIT 1. AGREEMENT AND PLAN OF REORGANIZATION 20 SPARTAN(registered trademark) BOND STRATEGIST (A FUND OF FIDELITY SCHOOL STREET TRUST) 82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109 PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS OF FIDELITY SCHOOL STREET TRUST: SPARTAN BOND STRATEGIST TO BE HELD ON DECEMBER 18, 1996 VOTING INFORMATION This Proxy Statement and Prospectus (Proxy Statement) is furnished in connection with a solicitation of proxies made by, and on behalf of, the Board of Trustees of Fidelity School Street Trust (the trust) to be used at the Special Meeting of Shareholders of Spartan Bond Strategist (Bond Strategist) and at any adjournments thereof (the Meeting), to be held on Wednesday, December 18, 1996 at 9:00 a.m. Eastern time at 82 Devonshire Street, Boston, Massachusetts 02109, the principal executive office of the trust and Fidelity Management & Research Company (FMR), Bond Strategist's investment adviser. The purpose of the Meeting is set forth in the accompanying Notice. The solicitation is made primarily by the mailing of this Proxy Statement and the accompanying proxy card on or about October 21, 1996. Supplementary solicitations may be made by mail, telephone, telegraph, or by personal interview by representatives of the trust. In addition, D.F. King may be paid on a per-call basis to solicit shareholders on behalf of Bond Strategist at an anticipated cost of approximately $2,100.00. The expenses in connection with preparing this Proxy Statement and its enclosures and of all solicitations will be borne by FMR. FMR will reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation material to the beneficial owners of shares. If a quorum is not present at the Meeting, or if a quorum is present but sufficient votes to approve the proposal are not received, or if other matters arise requiring shareholder attention, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of a majority of those shares present at the Meeting or represented by proxy. When voting on a proposed adjournment, the persons named as proxies will vote FOR the proposed adjournment all shares that they are entitled to vote, unless directed to vote AGAINST the item, in which case such shares will be voted against the proposed adjournment with respect to that item. A shareholder vote may be taken on the items in this Proxy Statement or on any other business properly presented at the meeting prior to such adjournment if sufficient votes have been received and it is otherwise appropriate. If the enclosed proxy card is executed and returned, it may nevertheless be revoked at any time prior to its use by written notification received by the trust, by the execution of a later-dated proxy card, or by attending the Meeting and voting in person. All proxy cards solicited by the Board of Trustees that are properly executed and received by the Secretary prior to the Meeting, and which are not revoked, will be voted at the Meeting. Shares represented by such proxies will be voted in accordance with the instructions thereon. If no specification is made on a proxy card, it will be voted FOR the matters specified on the proxy card. Only proxies voted will be counted towards establishing a quorum. Broker non-votes are not considered voted for this purpose. Shareholders should note that while votes to ABSTAIN will count toward establishing a quorum, passage of any proposal being considered at the Meeting will occur only if a sufficient number of votes are cast FOR the proposal. Accordingly, votes to ABSTAIN and votes AGAINST will have the same effect in determining whether the proposal is approved. Bond Strategist may also choose to have votes recorded by telephone. D.F. King may be paid on a per-call basis for vote-by-phone solicitations on behalf of Bond Strategist at an anticipated cost of approximately $450.00. If the Fund records votes by telephone, it will use procedures designed to authenticate shareholders' identities, to allow shareholders to authorize the voting of their shares in accordance with their instructions, and to confirm that their instructions have been properly recorded. Proxies given by telephone may be revoked at any time before they are voted in the same manner that proxies voted by mail may be revoked. On July 31, 1996 , there were 53,184,044 shares of Spartan Municipal Income Fund (Municipal Income) issued and outstanding. On July 31, 1996, there were 880,642 shares of Bond Strategist issued and outstanding. Shareholders of record of Bond Strategist at the close of business on October 21, 1996 will be entitled to vote at the Meeting. Each such shareholder will be entitled to one vote for each dollar value of net asset value held on that date. As of July 31, 1996, the Trustees and officers of the funds owned, in the aggregate, less than 1% of each fund's total outstanding shares. VOTE REQUIRED: APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION (THE AGREEMENT) REQUIRES THE AFFIRMATIVE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF BOND STRATEGIST. UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE 1940 ACT), A "MAJORITY VOTE OF THE OUTSTANDING VOTING SECURITIES" MEANS THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE VOTING SECURITIES PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE HOLDERS OF MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE PRESENT OR REPRESENTED BY PROXY, OR (B) MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED "PRESENT" FOR THIS PURPOSE. SYNOPSIS The following is a summary of certain information contained elsewhere in this Proxy Statement, in the Agreement, and in the Prospectuses of Bond Strategist and Municipal Income, which are incorporated herein by this reference. Shareholders should read the entire Proxy Statement and the enclosed Prospectus of Municipal Income carefully for more complete information. The proposed Reorganization would merge Spartan Bond Strategist into Spartan Municipal Income Fund, a larger bond fund also managed by FMR. If the Reorganization is approved, Bond Strategist will cease to exist and its current shareholders will become shareholders of Municipal Income instead. As discussed more fully below, the Board of Trustees believes that the Reorganization will benefit Bond Strategist shareholders. Bond Strategist has an unusual investment strategy: it seeks maximum total return after the effect of federal income taxes by allocating its assets between taxable and municipal securities. Municipal Income is a conventional municipal bond fund, and seeks tax-exempt income by investing primarily in municipal securities. Historically, the Funds have had relatively comparable total returns before and after taxes (see page 7). However, because Municipal Income does not normally invest in taxable securities, a larger portion of its return has been federally tax-free. FMR proposed the merger because Bond Strategist's unique investment strategy has not been successful in attracting a high level of assets. With approximately $8.3 million in net assets as of July 31, 1996, Bond Strategist is Fidelity's smallest municipal bond fund. Municipal Income's more mainstream approach has appealed to a broader variety of investors accumulating over $545 million in assets as of the same date. As part of Fidelity's "Spartan" family of mutual funds, each fund has a management contract under which FMR bears substantially all fund expenses. However, Municipal Income has a significantly lower operating expense ratio than Bond Strategist, and represents a lower-cost option for Bond Strategist shareholders. Municipal Income 's management fee rate is .15% lower or approximately 21% less than Bond Strategist's management fee rate (.55% vs. .70% of average net assets). Bond Strategist and Municipal Income share identical service features, including purchase and exchange provisions, redemption procedures, automatic reinvestment policies, and dividend policies. In sum, the merger would give shareholders of Bond Strategist the opportunity to participate in a fund with a similar investment portfolio, a comparable performance record, and a 0.15% lower all-inclusive management fee rate. THE PROPOSED REORGANIZATION Shareholders of Bond Strategist will be asked at the Meeting to vote upon and approve the Reorganization and the Agreement, which provides for the acquisition by Municipal Income of all of the assets of Bond Strategist in exchange solely for shares of Municipal Income and the assumption by Municipal Income of the liabilities of Bond Strategist. Bond Strategist will then distribute the shares of Municipal Income to its shareholders, so that each shareholder will receive the number of full and fractional shares of Municipal Income equal in value to the aggregate net asset value of the shareholder's shares of Bond Strategist on the Closing Date (defined below). The exchange of Bond Strategist's assets for Municipal Income's shares will occur at 4:00 p.m. Eastern time on December 30, 1996, or such other date as the parties may agree (the Closing Date). Bond Strategist will then be liquidated as soon as practicable thereafter. The rights and privileges of the former shareholders of Bond Strategist will be effectively unchanged by the Reorganization. COMPARATIVE FEE TABLES Each Fund's management fee is calculated and paid to FMR every month. Bond Strategist and Municipal Income pay FMR a management fee at an annual rate of .70% and .55%, respectively, of its average net assets. This all-inclusive fee represents each Fund's total operating expenses. FMR not only provides the Funds with investment advisory and research services, but also pays all of the Funds' expenses, with the exception of fees and expenses of all Trustees of each trust who are not "interested persons" of the trust or FMR; 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. The management fee that each Fund pays FMR is reduced by an amount equal to the fees and expenses paid by the Fund to the non-interested Trustees. If the Reorganization is approved, former Bond Strategist shareholders will enjoy a .15% lower all-inclusive management fee rate beginning with the first business day after the effective date of the Reorganization. To help offset shareholder service costs, both Funds have the same fees for individual transactions. FMR affiliates collect the Funds' $5.00 exchange fees, $5.00 account closeout fees, and $5.00 fees for wire purchases and redemptions. These fees are waived if a shareholder's account balance at the time of the transaction is $50,000 or more. Fidelity also reserves the right to deduct an annual maintenance fee of $12.00 from accounts with a value of less than $2,500, subject to an annual maximum charge of $60.00 per shareholder. Each Fund also imposes a redemption fee equal to 0.50% of the amount redeemed on shares held less than 180 days. In each case, this fee is payable to the Fund to help offset the costs associated with short-term trading by shareholders. These fees will not be affected by the Reorganization. For more information about the Funds' fees, refer to their Prospectuses, which are incorporated by reference herein (and, in the case of Municipal Income, which accompanies this Proxy Statement). The following table shows the current fees and expenses of Bond Strategist and Municipal Income for the 12 months ended February 29, 1996 and pro forma fees for the combined fund based on the same period after giving effect to the Reorganization. ANNUAL FUND OPERATING EXPENSES Annual fund operating expenses are paid out of each Fund's assets. Expenses are factored into the Fund's share price or dividends and are not charged directly to shareholder accounts. The following are projections based on historical expenses and are calculated as a percentage of average net assets. Pro Forma Bond Strategist Municipal Expenses Income Combined Fund Management Fees 0.70% 0.55% 0.55% Other Expenses 0.00% 0.00% 0.00% Total Fund 0.70% 0.55% 0.55% Operating Expenses EXAMPLES OF EFFECT OF FUND EXPENSES The following table illustrates the expenses on a hypothetical $1,000 investment in each Fund under the current and pro forma (combined fund) expenses calculated at the rates stated above, assuming a 5% annual return and including the effect of the $5.00 account closeout fee. After 1 Year After 3 After 5 After 10 Years Years Years Bond $ 12 $ 27 $ 44 $ 92 Strategist Municipal $ 11 $ 23 $ 36 $ 74 Income Combined $ 11 $ 23 $ 36 $ 74 Fund This example assumes that all dividends and other distributions are reinvested and that the percentage amounts listed under Annual Fund Operating Expenses remain the same in the years shown. These examples illustrate the effect of expenses, but are not meant to suggest actual or expected costs, which may vary. The assumed return of 5% is not a prediction of, and does not represent, actual or expected performance of any fund. FORMS OF ORGANIZATION Bond Strategist is a non-diversified fund of Fidelity School Street Trust, an open-end management investment company organized as a Massachusetts business trust on September 10, 1976. Municipal Income is a non-diversified fund of Fidelity Union Street Trust, an open-end management investment company organized as a Massachusetts business trust on March 1, 1974. Both trusts are authorized to issue an unlimited number of shares of beneficial interest. Because Bond Strategist and Municipal Income are series of Massachusetts business trusts, organized under substantially similar Declarations of Trust, the rights of the security holders of Bond Strategist under state law and the governing documents are expected to remain unchanged after the Reorganization. For more information regarding shareholder rights, refer to the section of the Funds' Statements of Additional Information called "Description of the Trust." INVESTMENT OBJECTIVE AND POLICIES The investment objectives and policies of the Funds are set forth below. There can be no assurance that either Fund will achieve its objective. The principal difference between the Funds is that Bond Strategist invests in both taxable and tax-exempt debt securities, while Municipal Income invests solely in municipal (tax-exempt) securities. Bond Strategist seeks maximum total return after the effect of federal income taxes, by investing primarily in taxable and tax-exempt debt instruments. Municipal Income seeks high current income free from federal income tax by investing in municipal securities under normal conditions. Whereas Bond Strategist can and does invest in both taxable and tax-exempt securities, Municipal Income, although permitted to invest in taxable securities under certain conditions, currently has no intention of investing in such instruments. However, Bond Strategist generally has invested mainly in municipal securities and, during the past year, has limited its taxable investments to repurchase agreements, which represent less than 10% of its assets. Additionally, the Funds have identical policies regarding the credit quality of their investments, and the maturity and interest rate sensitivity of their portfolios. Therefore, despite the differences in each Fund's investments objective and permissible investments, both Funds are currently investing nearly exclusively in municipal securities. The following table highlights the percentage of each Fund's income dividends that was free from federal income tax since Bond Strategist's commencement of operations on September 9, 1993. PERIOD ENDED DECEMBER 31, BOND STRATEGIST MUNICIPAL INCOME 1993 76.18% 100.00% 1994 79.25% 100.00% 1995 90.31% 100.00% 1996* 91.70% 100.00% * Period ended June 30, 1996. The investment objective of each Fund is fundamental and may not be changed without the approval of at least a majority of the outstanding voting securities of the Fund. With the exception of fundamental policies, investment policies of the Funds can be changed without shareholder approval. The differences between the Funds discussed below, except as noted, could be changed without a vote of shareholders. PERFORMANCE COMPARISON OF THE FUNDS The following table compares the one-year average annual total returns of both Funds from Bond Strategist's commencement of operations (September 9, 1993) through December 31, 1995, the six-month total return for the period ending June 30, 1996, and each Fund's cumulative total return from September 9, 1993 through June 30, 1996, on both a pre-tax and after-tax basis. Overall, the Funds have experienced relatively comparable returns, with Municipal Income outperforming Bond Strategist on a pre-tax basis. Please note that total returns are based on past results and are not an indication of future performance. Figures shown for pre-tax total returns and account closed after-tax total returns include the effect of the $5.00 account closeout fee on an average size account. AVERAGE ANNUAL AVERAGE ANNUAL PRE-TAX TOTAL RETURNS AFTER-TAX TOTAL RETURNS1 Account Open Account Closed BOND STRATEGIST 1993* 1.22% 1.12% 1.22% 1994 -7.67% -8.00% -3.75% 1995 16.51% 16.34% 11.87% 1996 -0.63% -0.69% 0.39% Life of Fund* 8.26% 7.64% 9.31% MUNICIPAL INCOME 1993* 1.22% -1.98% -0.31% 1994 -8.11% -8.31% -3.12% 1995 18.58% 18.52% 14.10% 1996 -0.45% -0.44% 0.62% Life of Fund* 9.81% 6.10% 10.25% 1 Assumes taxes paid each year from monies held in the account at a 36% tax rate for taxable income and short-term capital gains, and a 28% tax rate for long-term capital gains. * From the inception date of Bond Strategist (September 9, 1993). As the table above shows, on an after-tax basis, Bond Strategist provided higher returns for shareholders who continued to hold their investment through the end of the period. For shareholders who redeemed their shares, however, Municipal Income provided a slightly better cumulative after-tax total return. After-tax total returns were higher for shareholders who closed their accounts because both Funds' share prices declined over the period. As a result, redeeming shareholders realized capital losses that improved returns on an after-tax basis. The following graph shows the value of a hypothetical $10,000 investment in each Fund made on September 9, 1993, assuming the accounts remain open and all distributions are reinvested. The graph compares the cumulative returns of the Funds on a monthly basis from September 1993 through June 1996, and illustrates the short-term volatility of their performance. Bond Strategist Municipal Income Row: 1, Col: 1, Value: 10000.0 Row: 1, Col: 2, Value: 10000.0 Row: 2, Col: 1, Value: 9925.349999999999 Row: 2, Col: 2, Value: 9972.120000000001 Row: 3, Col: 1, Value: 9930.530000000001 Row: 3, Col: 2, Value: 9982.0 Row: 4, Col: 1, Value: 9826.17 Row: 4, Col: 2, Value: 9891.110000000001 Row: 5, Col: 1, Value: 10123.12 Row: 5, Col: 2, Value: 10121.58 Row: 6, Col: 1, Value: 10245.77 Row: 6, Col: 2, Value: 10243.59 Row: 7, Col: 1, Value: 9906.859999999999 Row: 7, Col: 2, Value: 9952.15 Row: 8, Col: 1, Value: 9408.58 Row: 8, Col: 2, Value: 9421.459999999999 Row: 9, Col: 1, Value: 9389.1 Row: 9, Col: 2, Value: 9477.879999999999 Row: 10, Col: 1, Value: 9524.640000000001 Row: 10, Col: 2, Value: 9565.240000000002 Row: 11, Col: 1, Value: 9450.780000000001 Row: 11, Col: 2, Value: 9489.120000000001 Row: 12, Col: 1, Value: 9648.040000000001 Row: 12, Col: 2, Value: 9681.309999999999 Row: 13, Col: 1, Value: 9679.76 Row: 13, Col: 2, Value: 9701.67 Row: 14, Col: 1, Value: 9532.120000000001 Row: 14, Col: 2, Value: 9537.959999999999 Row: 15, Col: 1, Value: 9354.49 Row: 15, Col: 2, Value: 9306.76 Row: 16, Col: 1, Value: 9164.43 Row: 16, Col: 2, Value: 9071.959999999999 Row: 17, Col: 1, Value: 9348.49 Row: 17, Col: 2, Value: 9301.68 Row: 18, Col: 1, Value: 9619.780000000001 Row: 18, Col: 2, Value: 9620.369999999999 Row: 19, Col: 1, Value: 9865.25 Row: 19, Col: 2, Value: 9924.559999999999 Row: 20, Col: 1, Value: 9956.700000000001 Row: 20, Col: 2, Value: 10043.4 Row: 21, Col: 1, Value: 9978.41 Row: 21, Col: 2, Value: 10050.27 Row: 22, Col: 1, Value: 10315.22 Row: 22, Col: 2, Value: 10382.77 Row: 23, Col: 1, Value: 10225.56 Row: 23, Col: 2, Value: 10277.18 Row: 24, Col: 1, Value: 10323.78 Row: 24, Col: 2, Value: 10366.61 Row: 25, Col: 1, Value: 10455.56 Row: 25, Col: 2, Value: 10497.3 Row: 26, Col: 1, Value: 10497.58 Row: 26, Col: 2, Value: 10596.11 Row: 27, Col: 1, Value: 10630.24 Row: 27, Col: 2, Value: 10737.13 Row: 28, Col: 1, Value: 10805.39 Row: 28, Col: 2, Value: 10928.43 Row: 29, Col: 1, Value: 10893.15 Row: 29, Col: 2, Value: 11030.31 Row: 30, Col: 1, Value: 10959.14 Row: 30, Col: 2, Value: 11130.3 Row: 31, Col: 1, Value: 10897.62 Row: 31, Col: 2, Value: 11068.94 Row: 32, Col: 1, Value: 10771.82 Row: 32, Col: 2, Value: 10925.47 Row: 33, Col: 1, Value: 10712.63 Row: 33, Col: 2, Value: 10886.43 Row: 34, Col: 1, Value: 10723.93 Row: 34, Col: 2, Value: 10881.07 Row: 35, Col: 1, Value: 10825.75 Row: 35, Col: 2, Value: 10981.34 $ $10,981 $ $10,826 $ $ 9/93 3/94 10/94 5/95 12/95 6/96 COMPARISON OF OTHER POLICIES OF THE FUNDS DEBT SECURITIES. The Funds have identical policies regarding the credit quality of their investments, and the maturity and interest rate sensitivity of their portfolios. Each Fund seeks to achieve its investment objective by investing in investment-grade debt securities, but reserves the right to invest up to 5% of its assets in below investment-grade debt securities. Each Fund may also invest in securities of any maturity, but is generally managed so that it reacts to changes in interest rates similarly to bonds with maturities between eight and 18 years. Most bond funds focus on income, which is one component of total return, and invest in either taxable or tax-exempt debt securities. While Municipal Income invests primarily in tax-exempt securities, Bond Strategist has the flexibility to invest in both taxable and tax-exempt securities. Bond Strategist invests in both types of securities in varying proportions in pursuit of high after-tax total return, which is a combination of income and changes in value after the effect of federal income tax. Bond Strategist's investments are selected after giving consideration to expected federal tax rates on income and capital gains and the potential effect of taxes, assuming a high tax bracket. The federal alternative minimum tax (described below) and state and local taxes are not considered. Although Bond Strategist's strategy allows the Fund to invest in either the taxable or tax-exempt bond market, like Municipal Income, in order to distribute its tax-free income to shareholders on a tax-free basis, Bond Strategist must invest at least 50% of its total assets in municipal securities as of the end of each calendar quarter. This requirement may cause Bond Strategist to miss investment opportunities in the taxable bond market. Since the beginning of 1995, Bond Strategist has invested primarily in municipal securities, and during the past year has limited its taxable investments to repurchase agreements, which represent less than 10% of its assets. Of course, the past performance of the bond markets is no indication of future performance. If Bond Strategist shareholders approve the Agreement, they will no longer be in a Fund that has the ability to shift assets out of the tax-exempt bond market to take advantage of potentially profitable investment opportunities in the taxable bond market. In addition, they will be invested in a fund that seeks high current income rather than high total return. Each Fund may invest all of its assets in municipal securities issued to finance private activities. The interest from these investments is a tax-preference item for purposes of the federal alternative minimum tax. For the 12 months ended June 30, 1996, 7.09% of Bond Strategist's income dividends was subject to the federal alternative minimum tax and 16.65% of Municipal Income's income dividends was subject to the federal alternative minimum tax. LENDING. As a matter of fundamental policy, each Fund may not lend any security or make any other loan, except through the purchase of debt securities or repurchase agreements, if more than 33 1/3% of its total assets would be lent to other parties. Bond Strategist may lend securities to broker-dealers and institutions, including Fidelity Brokerage Services Inc., (FBSI), an affiliate of FMR, or to other funds advised by FMR, as a means of earning income and may also acquire loans, loan participations, or other forms of direct debt instruments. With the exception of purchasing debt securities, Municipal Income does not currently intend to make loans or enter into repurchase agreements and may not acquire any form of direct debt instruments. As a practical matter, Bond Strategist's lending ability does not create a significant distinction between the Funds because during the past year Bond Strategist's lending has been limited to the use of repurchase agreements which have represented less than 10% of its assets. OTHER INVESTMENT POLICIES. Each Fund may borrow from banks or other funds advised by FMR, or through reverse repurchase agreements. As a matter of fundamental policy, each Fund may borrow only for temporary or emergency purposes in an amount not equal to more than 33 1/3% of its total assets. Unlike Municipal Income, Bond Strategist can invest in foreign securities, currency exchange contracts, mortgage securities, stripped securities, convertible bonds, preferred stocks, and warrants and enter into swap agreements. As a practical matter, Bond Strategist's ability to invest in these securities does not represent a significant distinction between the Funds because Bond Strategist has historically not held significant amounts of these types of securities and currently holds none. FMR normally invests each Fund's assets according to its investment strategy. However, each Fund reserves the right to invest without limitation in short-term instruments or to hold a substantial amount of uninvested cash, and Bond Strategist reserves the right to invest without limitation in investment-grade money market instruments, for temporary defensive purposes. Additionally, although Municipal Income does not expect to invest in federally taxable obligations, it reserves the right to invest more than normally permitted in federally taxable obligations for temporary, defensive purposes. Both Funds may also enter into when-issued and delayed delivery transactions, invest in asset-backed securities, variable and floating rate securities, municipal lease obligations, put features, and illiquid and restricted securities. As stated above, for more information about the risks and restrictions associated with these polices see each Fund's Prospectus, and for a more detailed discussion of the Funds' investments, see their Statements of Additional Information, which are incorporated herein by reference. OPERATIONS OF MUNICIPAL INCOME FOLLOWING THE REORGANIZATION FMR does not expect Municipal Income to revise its investment policies as a result of the Reorganization. In addition, FMR does not anticipate significant changes to the Fund's management or to agents that provide the Fund with services. Specifically, the Trustees and officers, the investment adviser, distributor, and other agents will continue to serve Municipal Income in their current capacities. Municipal Income's current portfolio manager, David Murphy, will continue to be responsible for Municipal Income's portfolio management after the Reorganization. As explained above, Bond Strategist may invest in federally taxable securities. Therefore, if the Reorganization is approved, it is anticipated that Bond Strategist will sell any taxable holdings prior to the Closing Date so that the portfolio of the combined fund will be consistent with Municipal Income's current portfolio. Any transaction costs associated with such adjustment to the portfolio of Bond Strategist will be borne by Bond Strategist, or by Municipal Income after the Reorganization takes place. PURCHASES AND REDEMPTIONS The purchase and redemption policies for both Funds are substantially the same and will remain unchanged after the Reorganization. Both Funds' share price, or net asset value per share (NAV), is calculated every business day. Shares of both Funds are sold without a sales charge. Shares are purchased at the next share price calculated after an investment is received and accepted. Share price is normally calculated at 4:00 p.m. Eastern time. Refer to a Fund's Prospectus for more information regarding how to buy shares. Shares of both Funds may be redeemed on any business day at their NAV. Shares of both Funds are redeemed at the next share price calculated after an order is received and accepted, normally 4:00 p.m. Eastern time. Each Fund's 0.50% redemption fee on shares held less than 180 days, if applicable, will be deducted from the amount of your redemption. On or about September 16, 1996, Bond Strategist was closed to all new and subsequent purchases except for reinvestment of dividends or other distributions pending the Reorganization. Shareholders may redeem shares through the Closing Date. EXCHANGES The exchange privilege currently offered by both Funds is the same and is not expected to change after the Reorganization. Shareholders of the Funds may exchange their shares of a Fund for shares of any other Fidelity fund registered in a shareholder's state. Exchanges are subject to a $5.00 exchange fee and a 0.50% redemption fee on shares held less than 180 days. Refer to each Fund's Prospectus for restrictions governing exchanges. DIVIDENDS AND OTHER DISTRIBUTIONS Each Fund distributes substantially all of its net investment income and capital gains to shareholders each year. Each Fund declares income dividends daily and pays them monthly. Bond Strategist normally distributes capital gains in February and December. Municipal Income normally distributes capital gains in October and December. On or before the Closing Date, Bond Strategist will distribute substantially all of its investment company taxable income and net realized capital gain, if any, in order to maintain its tax status as a regulated investment company. Bond Strategist will be required to recognize gain or loss on Section 1256 contracts held by the Fund on the last day of its taxable year which typically is December 31. If the Reorganization is approved, gains or losses on Section 1256 contracts held on the Closing Date will be recognized on the Closing Date. FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION Each Fund has received an opinion of its counsel, Kirkpatrick & Lockhart LLP, that the Reorganization will constitute a tax-free reorganization within the meaning of Section 368 (a)(1)(C) of the Internal Revenue Code of 1986, as amended (the Code). Accordingly, except with respect to Section 1256 contracts, no gain or loss will be recognized by the Funds or their shareholders as a result of the Reorganization. Please see the section entitled "Federal Income Tax Considerations" for more information. Bond Strategist and Municipal Income have capital loss carryforwards for federal tax purposes of $1,755,144 and $2,187,954 as of December 31, 1995 and August 31, 1995, respectively. Under current federal tax law, Municipal Income may be limited to using only a portion, if any, of the capital loss carryforward transferred by Bond Strategist at the time of the Reorganization. There is no assurance that Municipal Income will be able to realize sufficient capital gains to use its capital loss carryforward as well as a portion, if any, of Bond Strategist's capital loss carryforward, before they expire. The capital loss carryforward attributable to Bond Strategist will expire between August 31, 2001 and August 31, 2003. The capital loss carryforward attributable to Municipal Income will expire on August 31, 2003. COMPARISON OF PRINCIPAL RISK FACTORS Both Funds are subject to the risks normally associated with bond funds. The principal difference between the Funds is that Bond Strategist invests in taxable bonds, while Municipal Income does not. As described more fully below, Bond Strategist's ability to invest in a broader range of debt securities provides a potential for higher returns, but also carries a higher degree of risk than Municipal Income. INVESTMENT STRATEGY. Municipal Income invests primarily in municipal securities and focuses on income, which is one component of total return. Bond Strategist has the flexibility to invest in either taxable or tax-exempt (municipal) debt securities and focuses on after-tax total return, which is a combination of income and changes in value after the effect of federal income tax. Although Bond Strategist's strategy allows it to invest in both the taxable and tax-exempt bond markets, since the Fund's inception in September 1993, the Fund has not invested significantly in taxable securities. Additionally, during the past year, Bond Strategist has invested primarily in municipal securities and has limited its taxable investments to repurchase agreements, which comprised less than 10% of its assets. REPURCHASE AGREEMENTS. A repurchase agreement, which may be deemed a loan, is an arrangement whereby a fund buys a security at one price and simultaneously agrees to sell it back at a higher price. The difference between the two prices is taxable income to a fund and its shareholders. Since Municipal Income is currently managed so as not to produce federally taxable income, it does not engage in repurchase agreements. Repurchase agreements also carry the risk that the original seller will not fulfill its obligation to repurchase the agreement at the agreed upon price, at the agreed upon time. Therefore, a fund such as Bond Strategist that engages in repurchase agreements assumes this risk, which may result in delays or losses to the Fund. Accordingly, investing in Bond Strategist may involve a slightly higher degree of risk than investing in Municipal Income. OTHER INVESTMENTS. As described above, unlike Municipal Income, Bond Strategist can invest in foreign securities, currency exchange contracts, mortgage securities, stripped securities, convertible bonds, preferred stocks, and warrants, and enter into swap agreements. Bond Strategist's ability to invest in these securities offers the potential for higher returns and allows the Fund to respond to changing economic conditions in the U.S. and abroad. However, it also exposes the Fund to additional interest rate and market risk. Bond Strategist's ability to invest in these securities does not represent a significant practical distinction between the Funds because Bond Strategist historically has not invested significantly in these types of securities and currently holds none. THE PROPOSED TRANSACTION TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN BOND STRATEGIST AND SPARTAN MUNICIPAL INCOME FUND REORGANIZATION PLAN The terms and conditions under which the Reorganization may be consummated are set forth in the Agreement. Significant provisions of the Agreement are summarized below; however, this summary is qualified in its entirety by reference to the Agreement, a copy of which is attached as Exhibit I to this Proxy Statement. The Agreement contemplates (a) Municipal Income acquiring on the Closing Date all of the assets of Bond Strategist in exchange solely for shares of Municipal Income and the assumption by Municipal Income of Bond Strategist's liabilities; and (b) the distribution of shares of Municipal Income to the shareholders of Bond Strategist as provided for in the Agreement. The assets of Bond Strategist to be acquired by Municipal Income include all cash, cash equivalents, securities, receivables (including interest or dividends receivables), claims, choses in action, and other property owned by Bond Strategist, and any deferred or prepaid expenses shown as an asset on the books of Bond Strategist on the Closing Date. Municipal Income will assume from Bond Strategist all liabilities, debts, obligations, and duties of Bond Strategist of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable on the Closing Date, and whether or not specifically referred to in the Agreement; provided, however, that Bond Strategist will use its best efforts, to the extent practicable, to discharge all of its known liabilities prior to the Closing Date. Municipal Income also will deliver to Bond Strategist the number of full and fractional shares of Municipal Income having an aggregate net asset value equal to the value of the assets of Bond Strategist less the liabilities of Bond Strategist on the Closing Date. Bond Strategist shall then distribute the Municipal Income shares PRO RATA to its shareholders. The value of Bond Strategist's assets to be acquired by Municipal Income and the amount of its liabilities to be assumed by Municipal Income will be determined as of the close of business (4:00 p.m. Eastern time) of Bond Strategist on the Closing Date, using the valuation procedures set forth in Bond Strategist's then-current Prospectus and Statement of Additional Information. The net asset value of a share of Municipal Income will be determined as of the same time using the valuation procedures set forth in its then-current Prospectus and Statement of Additional Information. Upon the Closing Date, Bond Strategist will distribute to its shareholders of record the shares of Municipal Income it received, so that each Bond Strategist shareholder will receive the number of full and fractional shares of Municipal Income equal in value to the aggregate net asset value of shares of Bond Strategist held by such shareholder on the Closing Date; Bond Strategist will be liquidated as soon as practicable thereafter. Such distribution will be accomplished by opening accounts on the books of Municipal Income in the names of the Bond Strategist shareholders and by transferring thereto shares of Municipal Income. Each Bond Strategist shareholder's account shall be credited with the respective PRO RATA number of full and fractional shares (rounded to the third decimal place) of Municipal Income due that shareholder. Municipal Income shall not issue certificates representing its shares in connection with such exchange. Accordingly, immediately after the Reorganization, each former Bond Strategist shareholder will own shares of Municipal Income equal in value to the aggregate net asset value of that shareholder's shares of Bond Strategist immediately prior to the Reorganization. The net asset value per share of Municipal Income will be unchanged by the transaction. Thus, the Reorganization will not result in the dilution of any shareholder interest. Any transfer taxes payable upon issuance of shares of Municipal Income in a name other than that of the registered holder of the shares on the books of Bond Strategist as of that time shall be paid by the person to whom such shares are to be issued as a condition of such transfer. Any reporting responsibility of Bond Strategist is and will continue to be its responsibility up to and including the Closing Date and such later date on which Bond Strategist is liquidated. Pursuant to its management contract with Bond Strategist and its all-inclusive management fee, FMR will bear the cost of the Reorganization, including professional fees, expenses associated with the filing of registration statements, and the cost of soliciting proxies for the Meeting, which will consist principally of printing and mailing prospectuses and proxy statements, together with the cost of any supplemental solicitation. However, there may be some transaction costs associated with Bond Strategist's portfolio adjustments due to the Reorganization which will be borne by Bond Strategist. Bond Strategist may recognize a taxable gain or loss on the disposition of securities pursuant to these portfolio adjustments. See the section entitled "Reasons for the Reorganization." The consummation of the Reorganization is subject to a number of conditions set forth in the Agreement, some of which may be waived by a Fund. In addition, the Agreement may be amended in any mutually agreeable manner, except that no amendment that may have a materially adverse effect on the shareholders' interests may be made subsequent to the Meeting. REASONS FOR THE REORGANIZATION The Boards of Trustees (the Boards) of both Funds have determined that the Reorganization is in the best interests of the shareholders of both Funds and that the Reorganization will not result in a dilution of any shareholders' interests. In considering the Reorganization, the Boards considered a number of factors, including the following: (1) a comparison of the Funds' investment objectives and policies; (2) the historical performance of the Funds; (3) the impact of the Reorganization on the expected expense ratio of Municipal Income relative to each Fund's current expense ratio; (4) the costs to be incurred by each Fund as a result of the Reorganization; (5) the tax consequences of the Reorganization; (6) services available to shareholders before and after the Reorganization; and (7) benefit to FMR. FMR recommended the Reorganization to the Boards at a meeting of the Boards on July 18, 1996. In recommending the Reorganization, FMR also advised the Boards that the Funds have generally compatible investment objectives and policies, with the material differences noted, and that the Funds currently have similar investment strategies, with the material differences noted. The Boards further considered the relative risk/return characteristics of the Funds. The Boards specifically weighed the fact that since Bond Strategist's inception in September 1993, the Fund had limited market opportunities to implement its unique investment approach of shifting assets between the taxable and tax-exempt bond markets based on expected after-tax performance. The Boards considered that this unique investment approach had not been successful in attracting assets, making it difficult for Bond Strategist to implement its investment strategy to the fullest extent. The Fund's low asset levels require that it hold relatively small positions in order to remain adequately diversified. These smaller positions make it more difficult for the Fund to take advantage of market changes, a critical aspect of the Fund's investment strategy. Consequently, the Funds experienced comparable returns over Bond Strategist's lifetime, with Municipal Income providing slightly better after-tax total returns for shareholders who redeemed their shares at the end of each period. Accordingly, the Boards considered that if the Reorganization is approved, the former shareholders of Bond Strategist would have the opportunity to earn tax-free income through an investment in a fund with a similar investment portfolio and a relatively comparable performance record. The Boards also considered that former shareholders of Bond Strategist will receive shares of Municipal Income equal to the value of their shares of Bond Strategist. In addition, the Funds will receive an opinion of counsel that, except with respect to Section 1256 contracts, the Reorganization will not result in any gain or loss for federal income tax purposes either to Bond Strategist or Municipal Income or to the shareholders of either Fund. Furthermore, the Boards considered that combining the Funds would result in an immediate benefit to Bond Strategist shareholders by lowering fund expenses, as a percentage of net assets, by .15% following the effective date of the Reorganization. In addition, FMR informed the Boards that it would pay the costs associated with the Reorganization, including professional fees and the costs of proxy solicitation. FMR further informed the Boards that although Bond Strategist would bear any costs (as described above) associated with portfolio adjustments resulting from the Reorganization, FMR believed that such costs would be minimal and would be counterbalanced by the reduction in Bond Strategist's management fee. In addition, the Boards considered that the Funds have the same purchase and exchange provisions, fees, redemption procedures, and automatic reinvestment policies. Finally, FMR advised the Boards that Bond Strategist has not been successful in attracting or retaining assets and that Municipal Income has a wider appeal among investors. While the elimination of funds with lower assets potentially would benefit FMR, it also should benefit shareholders by facilitating increased operational efficiencies. DESCRIPTION OF THE SECURITIES TO BE ISSUED Fidelity Union Street Trust (the trust) is registered with the Securities and Exchange Commission (the Commission) as an open-end management investment company. The trust's Trustees are authorized to issue an unlimited number of shares of beneficial interest of separate series. Municipal Income is one of eight funds of the trust. Each share of Municipal Income represents an equal proportionate interest with each other share of the Fund, and each such share of Municipal Income is entitled to equal voting, dividend, liquidation, and redemption rights. Each shareholder of the Fund is entitled to one vote for each dollar value of net asset value of the Fund that shareholder owns. Shares of Municipal Income have no preemptive or conversion rights. The voting and dividend rights, the right of redemption, and the privilege of exchange are described in the Fund's Prospectus. Shares are fully paid and nonassessable, except as set forth in the Fund's Statement of Additional Information under the heading "Shareholder and Trustee Liability." The trust does not hold annual meetings of shareholders. There will normally be no meetings of shareholders for the purpose of electing Trustees unless less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders meeting for the election of Trustees. Under the 1940 Act, shareholders of record of at least two-thirds of the outstanding shares of an investment company may remove a trustee by votes cast in person or by proxy at a meeting called for that purpose. The Trustees are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any Trustee when requested in writing to do so by the shareholders of record holding at least 10% of the trust's outstanding shares. FEDERAL INCOME TAX CONSIDERATIONS The exchange of Bond Strategist's assets for Municipal Income's shares and the assumption of the liabilities of Bond Strategist by Municipal Income is intended to qualify for federal income tax purposes as a tax-free reorganization under the Code. With respect to the Reorganization, the participating Funds have received an opinion from Kirkpatrick & Lockhart LLP, counsel to Bond Strategist and Municipal Income, substantially to the effect that: (i) The acquisition by Municipal Income of all of the assets of Bond Strategist solely in exchange for Municipal Income shares and the assumption by Municipal Income of Bond Strategist's liabilities, followed by the distribution by Bond Strategist of Municipal Income shares to the shareholders of Bond Strategist pursuant to the liquidation of Bond Strategist and constructively in exchange for their Bond Strategist shares will constitute a reorganization within the meaning of section 368(a)(1)(C) of the Code, and Bond Strategist and Municipal Income will each be "a party to a reorganization" within the meaning of section 368(b) of the Code; (ii) No gain or loss will be recognized by Bond Strategist upon the transfer of all of its assets to Municipal Income in exchange solely for Municipal Income shares and Municipal Income's assumption of Bond Strategist's liabilities, followed by Bond Strategist's subsequent distribution of those shares to shareholders in liquidation of Bond Strategist; (iii) No gain or loss will be recognized by Municipal Income upon the receipt of the assets of Bond Strategist in exchange solely for Municipal Income shares and its assumption of Bond Strategist's liabilities; (iv) The shareholders of Bond Strategist will recognize no gain or loss upon the exchange of their Bond Strategist shares solely for Municipal Income shares; (v) The basis of Bond Strategist's assets in the hands of Municipal Income will be the same as the basis of those assets in the hands of Bond Strategist immediately prior to the Reorganization, and the holding period of those assets in the hands of Municipal Income will include the holding period of those assets in the hands of Bond Strategist; (vi) The basis of Bond Strategist shareholders in Municipal Income shares will be the same as their basis in Bond Strategist shares to be surrendered in exchange therefor; and (vii) The holding period of the Municipal Income shares to be received by the Bond Strategist shareholders will include the period during which the Bond Strategist shares to be surrendered in exchange therefor were held, provided such Bond Strategist shares were held as capital assets by those shareholders on the date of the Reorganization. Shareholders of Bond Strategist should consult their tax advisers regarding the effect, if any, of the proposed Reorganization in light of their individual circumstances. Because the foregoing discussion only related to the federal income tax consequences of the Reorganization, those shareholders also should consult their tax advisers as to state and local tax consequences, if any, of the Reorganization. CAPITALIZATION The following tables show the capitalization of the Funds as of July 31, 1996 (unaudited) and on a pro forma combined basis (unaudited) as of that date giving effect to the Reorganization. Bond Strategist Municipal Pro Forma Income Combined Fund Net Assets $ 8,305,529 $ 545,765,312 $ 554,070,841 Net Asset Value $ 9.43 $ 10.26 $ 10.26 Per Share Shares 880,642 53,184,044 53,993,550 Outstanding CONCLUSION The Agreement and Plan of Reorganization and the transactions provided for therein were approved by the Boards at a meeting held on July 18, 1996. The Boards of Trustees of Fidelity School Street Trust and Fidelity Union Street Trust determined that the proposed Reorganization is in the best interests of shareholders of each Fund and that the interests of existing shareholders of Bond Strategist and Municipal Income would not be diluted as a result of the Reorganization. In the event that the Reorganization is not consummated, Bond Strategist will continue to engage in business as a fund of a registered investment company and the Board of Fidelity School Street Trust will consider other proposals for the reorganization or liquidation of the Fund. ADDITIONAL INFORMATION ABOUT SPARTAN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS
1.Selected Per-Share Data and Ratios 2.Years ended 1996G 1995 1994D 1993 1992 1991 1990E August 31 3.Net asset value, $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 $ 10.000 beginning of period 4.Income from .268 .587 .611 .663 .704 .739 .187 Investment Operations Net interest income 5. Net realized .282 .189 (.752) .727 .387 .463 (.120) and unrealized gain (loss) on investments 6. Total from .550 .776 (.141) 1.390 1.091 1.202 .067 investment operations 7.Less (.268) (.587) (.611) (.663) (.704) (.739) (.187) Distributions From net interest income 8. From net (.002) (.080) (.550) (.070) (.040) -- -- realized gain on investments 9. Total (.270) (.667) (1.161) (.733) (.744) (.739) (.187) distributions 10. Redemption -- .001 .002 .003 .003 .007 .010 fees added to paid in capital 11.Net asset $ 10.460 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 value, end of period 12.Total returnB,C 5.45% 8.20 (1.42) 13.55 10.93 12.65 .76 % % % % % % 13.Net assets, $ 578,225 $ 574,05 $ 680,176 $ 912,71 $ 870,66 $ 550,93 $ 93,118 end of period (000 6 0 4 0 omitted) 14.Ratio of .53% .55 .55 .47 .36 .23 -- expenses to A,F % % % % % average net assets 15.Ratio of net 5.19% 5.99 5.76 6.09 6.68 7.24 7.91 interest income to A % % % % % %A average net assets 16.Portfolio 69% 69 48 50 62 78 116 turnover rate A % % % % % %A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. D EFFECTIVE SEPTEMBER 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. E FOR THE PERIOD JUNE 4, 1990 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1990 F 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. G SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED). MISCELLANEOUS AVAILABLE INFORMATION. Fidelity School Street Trust and Fidelity Union Street Trust are subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith file reports, proxy material, and other information with the Commission. Such reports, proxy material, and other information can be inspected and copied at the Public Reference Room maintained by the Commission at 450 Fifth Street, N.W., Washington D.C. 20549. Copies of such material can also be obtained from the Public Reference Branch Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington D.C. 20549, at prescribed rates. LEGAL MATTERS. Certain legal matters in connection with the issuance of Municipal Income's shares will be passed upon by Kirkpatrick & Lockhart LLP, counsel to the trusts. EXPERTS. The audited financial statements of Municipal Income, incorporated by reference into the Statement of Additional Information, have been audited by Coopers & Lybrand, L.L.P., independent accountants (Coopers), whose report thereon is included in the Annual Report to Shareholders for the fiscal year ended August 31, 1995. The audited financial statements of Bond Strategist, incorporated by reference into the Statement of Additional Information, have been audited by Coopers & Lybrand, L.L.P., whose report thereon is included in the Annual Report to Shareholders for the fiscal year ended December 31, 1995. Unaudited financial statements for Bond Strategist for the six-month period ended June 30, 1996 and unaudited financial statements for Municipal Income for the six-month period ended February 29, 1996 are also incorporated by reference. The financial statements audited by Coopers & Lybrand, L.L.P. have been incorporated by reference in reliance on their reports given on their authority as experts in auditing and accounting. EXHIBIT 1 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of the 18th of October 1996, by and between Fidelity School Street Trust, a Massachusetts business trust, on behalf of its series Spartan Bond Strategist (Bond Strategist), and Fidelity Union Street Trust, a Massachusetts business trust, on behalf of its series Spartan Municipal Income Fund (Municipal Income). Fidelity School Street Trust and Fidelity Union Street Trust may be referred to herein collectively as the "Trusts" or each individually as a "Trust." Bond Strategist and Municipal Income may be referred to herein collectively as the "Funds" or each individually as the "Fund." This Agreement is intended to be, and is adopted as, a plan of reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the Code). The reorganization will comprise: (a) the transfer of all of the assets of Bond Strategist to Municipal Income solely in exchange for shares of beneficial interest in Municipal Income (the Municipal Income Shares) and the assumption by Municipal Income of Bond Strategist's liabilities; and (b) the constructive distribution of such shares by Bond Strategist PRO RATA to its shareholders in complete liquidation and termination of Bond Strategist in exchange for all of Bond Strategist's outstanding shares. Bond Strategist shall receive the number of full and fractional shares of Municipal Income having an aggregate net asset value equal to the value of the assets of Bond Strategist less the liabilities of Bond Strategist on the closing date (as defined below), which Bond Strategist shall then distribute PRO RATA to its shareholders. The foregoing transactions are referred to herein as the "Reorganization." In consideration of the mutual promises and subject to the terms and conditions herein, the parties covenant and agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF BOND STRATEGIST. Bond Strategist represents and warrants to and agrees with Municipal Income that: (a) Bond Strategist is a series of Fidelity School Street Trust, a business trust duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts, and has the power to own all of its properties and assets and to carry out its obligations under this Agreement. It has all necessary federal, state, and local authorizations to carry on its business as now being conducted and to carry out this Agreement; (b) Fidelity School Street Trust is an open-end, management investment company duly registered under the Investment Company Act of 1940, as amended (the 1940 Act), and such registration is in full force and effect; (c) The Prospectus and Statement of Additional Information of Bond Strategist dated February 20, 1996, and the Supplement to the Prospectus dated July 19, 1996, previously furnished to Municipal Income, did not and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (d) There are no material legal, administrative, or other proceedings pending or, to the knowledge of Bond Strategist, threatened against Bond Strategist which assert liability on the part of Bond Strategist. Bond Strategist knows of no facts which might form the basis for the institution of such proceedings; (e) Bond Strategist is not in, and the execution, delivery, and performance of this Agreement will not result in, violation of any provision of its Amended and Restated Declaration of Trust or By-laws, or, to the knowledge of Bond Strategist, of any agreement, indenture, instrument, contract, lease, or other undertaking to which Bond Strategist is a party or by which Bond Strategist is bound or result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment or decree to which Bond Strategist is a party or is bound; (f) The Statement of Assets and Liabilities, the Statement of Operations, the Statement of Changes in Net Assets, Financial Highlights, and the Schedule of Investments (including market values) of Bond Strategist at December 31, 1995, have been audited by Coopers & Lybrand L.L.P., independent accountants, and have been furnished to Municipal Income together with such unaudited financial statements and schedule of investments (including market values) for the six month period ended June 30, 1996. Said Statements of Assets and Liabilities and Schedule of Investments fairly present the Fund's financial position as of such date and said Statement of Operations, Changes in Net Assets, and Financial Highlights fairly reflect its results of operations, changes in financial position, and Financial Highlights for the periods covered thereby in conformity with generally accepted accounting principles consistently applied; (g) Bond Strategist has no known liabilities of a material nature, contingent or otherwise, other than those shown as belonging to it on its statement of assets and liabilities as of June 30, 1996 and those incurred in the ordinary course of Bond Strategist's business as an investment company since June 30, 1996; (h) The registration statement (Registration Statement) filed with the Securities and Exchange Commission (Commission) by Fidelity Unon Street Trust on Form N-14 relating to the shares of Municipal Income issuable hereunder and the proxy statement of Bond Strategist included therein (Proxy Statement), on the effective date of the Registration Statement and insofar as they relate to Bond Strategist (i) comply in all material respects with the provisions of the Securities Act of 1933, as amended (the 1933 Act), the Securities Exchange Act of 1934, as amended (the 1934 Act), and the 1940 Act, and the rules and regulations thereunder, and (ii) do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time of the shareholders' meeting referred to in Section 7 and on the Closing Date, the prospectus contained in the Registration Statement of which the Proxy Statement is a part (the Prospectus), as amended or supplemented, insofar as it relates to Bond Strategist, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (i) All material contracts and commitments of Bond Strategist (other than this Agreement) will be terminated without liability to Bond Strategist prior to the Closing Date (other than those made in connection with redemptions of shares and the purchase and sale of portfolio securities made in the ordinary course of business); (j) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Bond Strategist of the transactions contemplated by this Agreement, except such as have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and state securities or blue sky laws (which term as used herein shall include the District of Columbia and Puerto Rico); (k) Bond Strategist has filed or will file all federal and state tax returns which, to the knowledge of Bond Strategist's officers, are required to be filed by Bond Strategist and has paid or will pay all federal and state taxes shown to be due on said returns or provision shall have been made for the payment thereof, and, to the best of Bond Strategist's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (l) Bond Strategist has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company for all prior taxable years and intends to meet such requirements for its current taxable year ending on the Closing Date (as defined in Section 6); (m) All of the issued and outstanding shares of Bond Strategist are, and at the Closing Date will be, duly and validly issued and outstanding and fully paid and nonassessable as a matter of Massachusetts law (except as disclosed in the Fund's Statement of Additional Information), and have been offered for sale and in conformity with all applicable federal securities laws. All of the issued and outstanding shares of Bond Strategist will, at the Closing Date, be held by the persons and in the amounts set forth in the list of shareholders submitted to Municipal Income in accordance with this Agreement; (n) At both the Valuation Time (as defined in Section 4) and the Closing Date (as defined in Section 6), Bond Strategist will have the full right, power, and authority to sell, assign, transfer, and deliver its portfolio securities and any other assets of Bond Strategist to be transferred to Municipal Income pursuant to this Agreement. At the Closing Date, subject only to the delivery of Bond Strategist's portfolio securities and any such other assets as contemplated by this Agreement, Municipal Income will acquire Bond Strategist's portfolio securities and any such other assets subject to no encumbrances, liens, or security interests (except for those that may arise in the ordinary course and are disclosed to Municipal Income) and without any restrictions upon the transfer thereof; and (o) The execution, performance, and delivery of this Agreement will have been duly authorized prior to the Closing Date by all necessary corporate action on the part of Bond Strategist, and this Agreement constitutes a valid and binding obligation of Bond Strategist enforceable in accordance with its terms, subject to shareholder approval. 2. REPRESENTATIONS AND WARRANTIES OF MUNICIPAL INCOME. Municipal Income represents and warrants to and agrees with Bond Strategist that: (a) Municipal Income is a series of Fidelity Union Street Trust, a business trust duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts, and has the power to own all of its properties and assets and to carry out its obligations under this Agreement. It has all necessary federal, state, and local authorizations to carry on its business as now being conducted and to carry out this Agreement; (b) Fidelity Union Street Trust is an open-end, management investment company duly registered under the 1940 Act, and such registration is in full force and effect; (c) The Prospectus and Statement of Additional Information of Municipal Income, dated October 18, 1996, previously furnished to Bond Strategist did not and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (d) There are no material legal, administrative, or other proceedings pending or, to the knowledge of Municipal Income, threatened against Municipal Income which assert liability on the part of Municipal Income. Municipal Income knows of no facts which might form the basis for the institution of such proceedings; (e) Municipal Income is not in, and the execution, delivery, and performance of this Agreement will not result in, violation of any provision of its Amended and Restated Declaration of Trust or By-laws, or, to the knowledge of Municipal Income, of any agreement, indenture, instrument, contract, lease, or other undertaking to which Municipal Income is a party or by which Municipal Income is bound or result in the acceleration of any obligation or the imposition of any penalty under any agreement, judgment, or decree to which Municipal Income is a party or is bound; (f) The Statement of Assets and Liabilities, the Statement of Operations, the Statement of Changes in Net Assets, Financial Highlights, and the Schedule of Investments (including market values) of Municipal Income at August 31, 1996, have been audited by Coopers & Lybrand L.L.P., independent accountants, and have been furnished to Bond Strategist. Said Statements of Assets and Liabilities and Schedule of Investments fairly present its financial position as of such date and said Statement of Operations, Changes in Net Assets, and Financial Highlights fairly reflect its results of operations, changes in financial position, and Financial Highlights for the periods covered thereby in conformity with generally accepted accounting principles consistently applied; (g) Municipal Income has no known liabilities of a material nature, contingent or otherwise, other than those shown as belonging to it on its statement of assets and liabilities as of August 31, 1996 and those incurred in the ordinary course of Municipal Income's business as an investment company since August 31, 1996; (h) No consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Municipal Income of the transactions contemplated by this Agreement, except such as have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and state securities or blue sky laws (which term as used herein shall include the District of Columbia and Puerto Rico); (i) Municipal Income has filed or will file all federal and state tax returns which, to the knowledge of Municipal Income's officers, are required to be filed by Municipal Income and has paid or will pay all federal and state taxes shown to be due on said returns or provision shall have been made for the payment thereof, and, to the best of Municipal Income's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (j) Municipal Income has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company for all prior taxable years and intends to meet such requirements for its current taxable year ending on August 31, 1997; (k) By the Closing Date, the shares of beneficial interest of Municipal Income to be issued to Bond Strategist will have been duly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable (except as disclosed in the Fund's Statement of Additional Information) by Municipal Income, and no shareholder of Municipal Income will have any preemptive right of subscription or purchase in respect thereof; (l) The execution, performance, and delivery of this Agreement will have been duly authorized prior to the Closing Date by all necessary corporate action on the part of Municipal Income, and this Agreement constitutes a valid and binding obligation of Municipal Income enforceable in accordance with its terms, subject to approval by the shareholders of Bond Strategist; (m) The Registration Statement and the Proxy Statement, on the effective date of the Registration Statement and insofar as they relate to Municipal Income, (i) will comply in all material respects with the provisions of the 1933 Act, the 1934 Act, and the 1940 Act, and the rules and regulations thereunder, and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time of the shareholders' meeting referred to in Section 7 and on the Closing Date, the Prospectus, as amended or supplemented, insofar as it relates to Municipal Income, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (n) The issuance of the Municipal Income Shares pursuant to this Agreement will be in compliance with all applicable federal securities laws; and (o) All of the issued and outstanding shares of beneficial interest of Municipal Income have been offered for sale and sold in conformity with the federal securities laws. 3. REORGANIZATION. (a) Subject to the requisite approval of the shareholders of Bond Strategist and to the other terms and conditions contained herein, Bond Strategist agrees to assign, sell, convey, transfer, and deliver to Municipal Income on the Closing Date (as defined in Section 6) all of the assets of Bond Strategist of every kind and nature existing on the Closing Date. Municipal Income agrees in exchange therefor: (i) to assume all of Bond Strategist's liabilities existing on or after the Closing Date, whether or not determinable on the Closing Date, and (ii) to issue and deliver to Bond Strategist the number of full and fractional shares of Municipal Income having an aggregate net asset value equal to the value of the assets of Bond Strategist transferred hereunder, less the value of the liabilities of Bond Strategist, determined as provided for under Section 4. (b) The assets of Bond Strategist to be acquired by Municipal Income shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest or dividends receivables), claims, choses in action, and other property owned by Bond Strategist, and any deferred or prepaid expenses shown as an asset on the books of Bond Strategist on the Closing Date. Bond Strategist will pay or cause to be paid to Municipal Income any dividend or interest payments received by it on or after the Closing Date with respect to the assets transferred to Municipal Income hereunder, and Municipal Income will retain any dividend or interest payments received by it after the Valuation Time (as defined in Section 4) with respect to the assets transferred hereunder without regard to the payment date thereof. (c) The liabilities of Bond Strategist to be assumed by Municipal Income shall include (except as otherwise provided for herein) all of Bond Strategist's liabilities, debts, obligations, and duties, of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable on the Closing Date, and whether or not specifically referred to in this Agreement. Notwithstanding the foregoing, Bond Strategist agrees to use its best efforts to discharge all of its known liabilities prior to the Closing Date. (d) Pursuant to this Agreement, as soon after the Closing Date as is conveniently practicable (the Liquidation Date), Bond Strategist will constructively distribute PRO RATA to its shareholders of record, determined as of the Valuation Time on the Closing Date, the Municipal Income Shares in exchange for such shareholders' shares of beneficial interest in Bond Strategist and Bond Strategist will be liquidated in accordance with Bond Strategist's Amended and Restated Declaration of Trust. Such distribution shall be accomplished by the Funds' transfer agent opening accounts on Municipal Income's share transfer books in the names of the Bond Strategist shareholders and transferring the Municipal Income Shares thereto. Each Bond Strategist shareholder's account shall be credited with the respective PRO RATA number of full and fractional (rounded to the third decimal place) Municipal Income Shares due that shareholder. All outstanding Bond Strategist shares, including any represented by certificates, shall simultaneously be canceled on Bond Strategist's share transfer records. Municipal Income shall not issue certificates representing the Municipal Income Shares in connection with the Reorganization. (e) Any reporting responsibility of Bond Strategist is and shall remain its responsibility up to and including the date on which it is terminated. (f) Any transfer taxes payable upon issuance of the Municipal Income Shares in a name other than that of the registered holder on Bond Strategist's books of the Bond Strategist shares constructively exchanged for the Municipal Income Shares shall be paid by the person to whom such Municipal Income Shares are to be issued, as a condition of such transfer. 4. VALUATION. (a) The Valuation Time shall be 4:00 p.m. Eastern time on the Closing Date (as defined in Section 6) (the Valuation Time). (b) On the Closing Date, Municipal Income will deliver to Bond Strategist the number of Municipal Income Shares having an aggregate net asset value equal to the value of the assets of Bond Strategist transferred hereunder less the liabilities of Bond Strategist, determined as provided in this Section 4. (c) The net asset value per share of the Municipal Income Shares to be delivered to Bond Strategist, the value of the assets of Bond Strategist transferred hereunder, and the value of the liabilities of Bond Strategist to be assumed hereunder shall in each case be determined as of the Valuation Time. (d) The net asset value per share of the Municipal Income Shares shall be computed in the manner set forth in the then-current Municipal Income Prospectus and Statement of Additional Information, and the value of the assets and liabilities of Bond Strategist shall be computed in the manner set forth in the then-current Bond Strategist Prospectus and Statement of Additional Information. (e) All computations pursuant to this Section shall be made by or under the direction of Fidelity Service Co., a division of FMR Corp., in accordance with its regular practice as pricing agent for Bond Strategist and Municipal Income. 5. FEES; EXPENSES. (a) Pursuant to the Funds' management contracts with Fidelity Management & Research Company (FMR), FMR will pay all fees and expenses, including legal, accounting, printing, filing, and proxy solicitation expenses, portfolio transfer taxes (if any), or other similar expenses incurred in connection with the transactions contemplated by this Agreement (but not including costs incurred in connection with the purchase or sale of portfolio securities). (b) Each of Municipal Income and Bond Strategist represents that there is no person who has dealt with it who by reason of such dealings is entitled to any broker's or finder's or other similar fee or commission arising out of the transactions contemplated by this Agreement. 6. CLOSING DATE. (a) The Reorganization, together with related acts necessary to consummate the same (the Closing), unless otherwise provided herein, shall occur at the principal office of the Trusts, 82 Devonshire Street, Boston, Massachusetts, at the Valuation Time on December 30, 1996, or at some other time, date, and place agreed to by Bond Strategist and Municipal Income (the Closing Date). (b) In the event that on the Closing Date: (i) any of the markets for securities held by the Funds is closed to trading, or (ii) trading thereon is restricted, or (iii) trading or the reporting of trading on said market or elsewhere is disrupted, all so that accurate appraisal of the total net asset value per share of Bond Strategist and the net asset value per share of Municipal Income is impracticable, the Valuation Time and the Closing Date shall be postponed until the first business day after the day when such trading shall have been fully resumed and such reporting shall have been restored, or such other date as the parties may agree. 7. SHAREHOLDER MEETING AND TERMINATION OF BOND STRATEGIST. (a) Bond Strategist agrees to call a meeting of its shareholders after the effective date of the Registration Statement, to consider approving this Agreement. (b) Bond Strategist agrees that as soon as reasonably practicable after distribution of the Municipal Income Shares, Bond Strategist shall be terminated as a series of Fidelity School Street Trust pursuant to its Amended and Restated Declaration of Trust, any further actions shall be taken in connection therewith as required by applicable law, and on and after the Closing Date Bond Strategist shall not conduct any business except in connection with its liquidation and termination. 8. CONDITIONS TO MUNICIPAL INCOME'S OBLIGATIONS. The obligations of Municipal Income hereunder shall be subject to the following conditions: (a) That Bond Strategist furnishes to Municipal Income a statement, dated as of the Closing Date, signed by an officer of Fidelity School Street Trust, certifying that as of the Valuation Time and the Closing Date all representations and warranties of Bond Strategist made in this Agreement are true and correct in all material respects and that Bond Strategist has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such dates; (b) That Bond Strategist furnishes Municipal Income with copies of the resolutions, certified by an officer of Fidelity School Street Trust, evidencing the adoption of this Agreement and the approval of the transactions contemplated herein by the requisite vote of the holders of the outstanding shares of beneficial interest of Bond Strategist; (c) That, on or prior to the Closing Date, Bond Strategist will declare one or more dividends or distributions which, together with all previous such dividends or distributions, shall have the effect of distributing to the shareholders of Bond Strategist substantially all of Bond Strategist's investment company taxable income and all of its net realized capital gain, if any, as of the Closing Date; (d) That Bond Strategist shall deliver to Municipal Income at the Closing a statement of its assets and liabilities, together with a list of its portfolio securities showing each such security's adjusted tax basis and holding period by lot, with values determined as provided in Section 4 of this Agreement, all as of the Valuation Time, certified on Bond Strategist's behalf by its Treasurer or Assistant Treasurer; (e) That Bond Strategist's custodian shall deliver to Municipal Income a certificate identifying the assets of Bond Strategist held by such custodian as of the Valuation Time on the Closing Date and stating that at the Valuation Time: (i) the assets held by the custodian will be transferred to Municipal Income; (ii) Bond Strategist's assets have been duly endorsed in proper form for transfer in such condition as to constitute good delivery thereof; and (iii) to the best of the custodian's knowledge, all necessary taxes in conjunction with the delivery of the assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made; (f) That Bond Strategist's transfer agent shall deliver to Municipal Income at the Closing a certificate setting forth the number of shares of Bond Strategist outstanding as of the Valuation Time and the name and address of each holder of record of any such shares and the number of shares held of record by each such shareholder; (g) That Bond Strategist calls a meeting of its shareholders to be held after the effective date of the Registration Statement, to consider transferring its assets to Municipal Income as herein provided, adopting this Agreement, and authorizing the liquidation and termination of Bond Strategist; (h) That Bond Strategist delivers to Municipal Income a certificate of an officer of Fidelity School Street Trust, dated the Closing Date, that there has been no material adverse change in Bond Strategist's financial position since June 30, 1996, other than changes in the market value of its portfolio securities, or changes due to net redemptions of its shares, dividends paid, or losses from operations; and (i) That all of the issued and outstanding shares of beneficial interest of Bond Strategist shall have been offered for sale and sold in conformity with all applicable state securities laws and, to the extent that any audit of the records of Bond Strategist or its transfer agent by Municipal Income or its agents shall have revealed otherwise, Bond Strategist shall have taken all actions that in the opinion of Municipal Income are necessary to remedy any prior failure on the part of Bond Strategist to have offered for sale and sold such shares in conformity with such laws. 9. CONDITIONS TO OBLIGATIONS OF BOND STRATEGIST. (a) That Municipal Income shall have executed and delivered to Bond Strategist an Assumption of Liabilities, certified by an officer of Fidelity Union Street Trust, dated as of the Closing Date pursuant to which Municipal Income will assume all of the liabilities of Bond Strategist existing at the Valuation Time in connection with the transactions contemplated by this Agreement; (b) That Municipal Income furnishes to Bond Strategist a statement, dated as of the Closing Date, signed by an officer of Fidelity Union Street Trust, certifying that as of the Valuation Time and the Closing Date all representations and warranties of Municipal Income made in this Agreement are true and correct in all material respects, and Municipal Income has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such dates; and (c) That Bond Strategist shall have received an opinion of Kirkpatrick & Lockhart LLP, counsel to Bond Strategist and Municipal Income, to the effect that the Municipal Income Shares are duly authorized and upon delivery to Bond Strategist as provided in this Agreement will be validly issued and will be fully paid and nonassessable by Municipal Income (except as disclosed in Bond Strategist's Statement of Additional Information) and no shareholder of Municipal Income has any preemptive right of subscription or purchase in respect thereof. 10. CONDITIONS TO OBLIGATIONS OF MUNICIPAL INCOME AND BOND STRATEGIST. (a) That this Agreement shall have been adopted and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of beneficial interest of Bond Strategist; (b) That all consents of other parties and all other consents, orders, and permits of federal, state, and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities, including "no action" positions of such federal or state authorities) deemed necessary by Municipal Income or Bond Strategist to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order, or permit would not involve a risk of a material adverse effect on the assets or properties of Municipal Income or Bond Strategist, provided that either party hereto may for itself waive any of such conditions; (c) That all proceedings taken by either Fund in connection with the transactions contemplated by this Agreement and all documents incidental thereto shall be satisfactory in form and substance to it and its counsel, Kirkpatrick & Lockhart LLP; (d) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement; (e) That the Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of Municipal Income and Bond Strategist, threatened by the Commission; and (f) That Municipal Income and Bond Strategist shall have received an opinion of Kirkpatrick & Lockhart LLP satisfactory to Municipal Income and Bond Strategist that for federal income tax purposes: (i) The Reorganization will be a reorganization under section 368(a)(1)(C) of the Code, and Bond Strategist and Municipal Income will each be parties to the Reorganization under section 368(b) of the Code; (ii) No gain or loss will be recognized by Bond Strategist upon the transfer of all of its assets to Municipal Income in exchange solely for the Municipal Income Shares and the assumption of Bond Strategist's liabilities followed by the distribution of those Municipal Income Shares to the shareholders of Bond Strategist in liquidation of Bond Strategist; (iii) No gain or loss will be recognized by Municipal Income on the receipt of Bond Strategist's assets in exchange solely for the Municipal Income Shares and the assumption of Bond Strategist's liabilities; (iv) The basis of Bond Strategist's assets in the hands of Municipal Income will be the same as the basis of such assets in Bond Strategist's hands immediately prior to the Reorganization; (v) Municipal Income's holding period in the assets to be received from Bond Strategist will include Bond Strategist's holding period in such assets; (vi) A Bond Strategist shareholder will recognize no gain or loss on the exchange of his or her shares of beneficial interest in Bond Strategist for the Municipal Income Shares in the Reorganization; (vii) A Bond Strategist shareholder's basis in the Municipal Income Shares to be received by him or her will be the same as his or her basis in the Bond Strategist shares exchanged therefor; and (viii) A Bond Strategist shareholder's holding period for his or her Municipal Income Shares will include the holding period of Bond Strategist shares exchanged, provided that those Bond Strategist shares were held as capital assets on the date of the Reorganization. Notwithstanding anything herein to the contrary, neither Bond Strategist nor Municipal Income may waive the conditions set forth in this subsection 10(f). 11. COVENANTS OF MUNICIPAL INCOME AND BOND STRATEGIST. (a) Municipal Income and Bond Strategist each covenants to operate its respective business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include the payment of customary dividends and distributions; (b) Bond Strategist covenants that it is not acquiring the Municipal Income Shares for the purpose of making any distribution other than in accordance with the terms of this Agreement; (c) Bond Strategist covenants that it will assist Municipal Income in obtaining such information as Municipal Income reasonably requests concerning the beneficial ownership of Bond Strategist's shares; and (d) Bond Strategist covenants that its liquidation and termination will be effected in the manner provided in its Amended and Restated Declaration of Trust in accordance with applicable law and after the Closing Date, Bond Strategist will not conduct any business except in connection with its liquidation and termination. 12. TERMINATION; WAIVER. Municipal Income and Bond Strategist may terminate this Agreement by mutual agreement. In addition, either Municipal Income or Bond Strategist may at its option terminate this Agreement at or prior to the Closing Date because: (i) of a material breach by the other of any representation, warranty, or agreement contained herein to be performed at or prior to the Closing Date; or (ii) a condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met. In the event of any such termination, there shall be no liability for damages on the part of Bond Strategist or Municipal Income, or their respective Trustees or officers. 13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES. (a) This Agreement supersedes all previous correspondence and oral communications between the parties regarding the subject matter hereof, constitutes the only understanding with respect to such subject matter, may not be changed except by a letter of agreement signed by each party hereto and shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts. (b) This Agreement may be amended, modified, or supplemented in such manner as may be mutually agreed upon in writing by the respective President, any Vice President, or Treasurer of Municipal Income or Bond Strategist; provided, however, that following the shareholders' meeting called by Bond Strategist pursuant to Section 7 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of Municipal Income Shares to be paid to Bond Strategist shareholders under this Agreement to the detriment of such shareholders without their further approval. (c) Either Fund may waive any condition to its obligations hereunder, provided that such waiver does not have any material adverse effect on the interests of such Fund's shareholders. The representations, warranties, and covenants contained in the Agreement, or in any document delivered pursuant hereto or in connection herewith, shall survive the consummation of the transactions contemplated hereunder. 14. DECLARATIONS OF TRUST. A copy of the Declaration of Trust of each Fund, as restated and amended, is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of each Fund as trustees and not individually and that the obligations of each Fund under this instrument are not binding upon any of such Fund's Trustees, officers, or shareholders individually but are binding only upon the assets and property of such Fund. Each Fund agrees that its obligations hereunder apply only to such Fund and not to its shareholders individually or to the Trustees of such Fund. 15. ASSIGNMENT. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, or corporation other than the parties hereto and their respective successors and assigns any rights or remedies under or by reason of this Agreement. This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by an appropriate officer. SIGNATURE LINES OMITTED SUPPLEMENT TO THE SPARTAN(registered trademark) MUNICIPAL FUNDS' PROSPECTUS DATED OCTOBER 25, 1995 On February 20, 1996, Spartan Short-Intermediate Municipal Fund changed its name to Spartan Short-Intermediate Municipal Income Fund, Spartan Intermediate Municipal Fund changed its name to Spartan Intermediate Municipal Income Fund, and Spartan Municipal Income Portfolio changed its name to Spartan Municipal Income Fund. Effective February 1, 1996, the following information replaces the similar information found in the "EXPENSES" section beginning on page 6. The operating expenses on page 7 are projections based on historical expenses, and are calculated as a percentage of average net assets. FMR has voluntarily agreed to temporarily limit the total operating expenses of Spartan Municipal Money to .40% of average net assets. If this agreement was not in effect, the management fee, other expenses, and total operating expenses for Spartan Municipal Money would be .50%, .00%, and .50%, respectively. Expenses eligible for reimbursement do not include interest, taxes, brokerage commissions, or extraordinary expenses. SPARTAN INTERMEDIATE MUNICIPAL Operating Expenses Management fee .55% 12b-1 fee None Other expenses .00 % Total fund operating expenses .55% SPARTAN INTERMEDIATE MUNICIPAL Examples Account Account open closed After 1 year $ 6 $11 After 3 years $18 $23 After 5 years $31 $36 After 10 years $69 $74 The following information replaces the similar information found in paragraphs four through seven in the "INVESTMENT PRINCIPLES AND RISKS" section beginning on page 16. SPARTAN SHORT-INTERMEDIATE MUNICIPAL stresses preservation of capital by investing in investment-grade municipal securities under normal conditions. Although the fund can invest in securities of any maturity, the fund, under normal conditions, maintains a dollar-weighted average maturity of between two and five years. The fund normally invests so that 80% or more of its income is free from federal income tax. SPARTAN INTERMEDIATE MUNICIPAL invests in investment-grade municipal securities under normal conditions. Although the fund can invest in securities of any maturity, the fund maintains a dollar-weighted average maturity of between three to 10 years under normal conditions. FMR seeks to manage the fund so that it generally reacts to changes in interest rates similarly to municipal bonds with maturities between seven and 10 years. The fund normally invests so that at least 80% of its assets are invested in municipal securities whose interest is free from federal income tax. SPARTAN MUNICIPAL INCOME invests in investment-grade municipal securities under normal conditions. Although the fund can invest in securities of any maturity, FMR seeks to manage the fund so that it generally reacts to changes in interest rates similarly to municipal bonds with maturities between eight and 18 years. The fund normally invests so that at least 80% of its income is free from federal income tax. SPARTAN AGGRESSIVE MUNICIPAL invests in municipal securities of any quality under normal conditions. Since the fund can emphasize lower-quality securities, FMR's research and analysis are an integral part of choosing the fund's investments. Although the fund can invest in securities of any maturity, FMR seeks to manage the fund so that it generally reacts to changes in interest rates similarly to municipal bonds of comparable quality with maturities between 12 and 20 years. The fund normally invests so that at least 80% of its assets are invested in municipal securities whose interest is free from federal income tax. The following information replaces the similar information found in the "SECURITIES AND INVESTMENT PRACTICES" section on page 19. RESTRICTIONS: Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal, and Spartan Municipal Income 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 "municipal 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 Investors Service, L.P., or is unrated but judged by FMR to be of equivalent quality. Spartan Aggressive Municipal Fund does not currently intend to invest more than 10% of its total assets in bonds that are in default. The following information replaces that found on page 5. FUND STRATEGY RISK AND YIELD POTENTIAL THE RISK LEVEL AND YIELD POTENTIAL OF MONEY MARKET AND BOND FUNDS DEPEND ON THE QUALITY AND MATURITY OF THEIR INVESTMENTS. THE CHART BELOW PRESENTS EACH FUND'S STRATEGY AND EXPLAINS ITS RISK AND YIELD POTENTIAL RELATIVE TO THE OTHER FUNDS IN THIS FAMILY.
Spartan Municipal Invests normally in Because this fund seeks Money high-quality, short-term to maintain a stable municipal securities $1.00 share price, it is with an average the safest and lowest maturity of 90 days or yielding fund in the less. family. (low risk graphic) Spartan Invests under normal With its emphasis on Short-Intermediate conditions in short maturities, this is Municipal investment-grade the most conservative municipal securities bond fund in the family. while normally maintaining an average maturity of two to five years. (low to medium risk graphic) Spartan Invests under normal With its emphasis on Intermediate conditions in intermediate maturities, Municipal investment-grade this is the moderate municipal securities member of the family. while normally maintaining an average maturity of between three and 10 years. (medium risk graphic) Spartan Municipal Invests under normal With its emphasis on Income conditions in municipal longer-term maturities, securities of this is the moderately investment-grade aggressive member of quality. Although the the family. fund can invest in securities of any maturity, FMR seeks to manage the fund so that it generally reacts to changes in interest rates similarly to municipal bonds with maturities between eight and 18 years. (low to medium risk graphic) FUND STRATEGY RISK AND YIELD POTENTIAL THE RISK LEVEL AND YIELD POTENTIAL OF MONEY MARKET AND BOND FUNDS DEPEND ON THE QUALITY AND MATURITY OF THEIR INVESTMENTS. THE CHART BELOW PRESENTS EACH FUND'S STRATEGY AND EXPLAINS ITS RISK AND YIELD POTENTIAL RELATIVE TO THE OTHER FUNDS IN THIS FAMILY. Spartan Aggressive Allowed to invest in With its ability to invest in Municipal lower-quality municipal lower-quality securities securities. Although the with longer-term fund can invest in maturities, this is the securities of any most aggressive fund in maturity, FMR seeks to the family. manage the fund so that it generally reacts to changes in interest rates similarly to municipal bonds of comparable quality with maturities between 12 and 20 years. (high risk graphic)
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 October 25, 1995. The SAI has been filed with the Securities and Exchange Commission (SEC) and is incorporated herein by reference (legally forms a part of the prospectus). For a free copy of any of these documents, call Fidelity at 1-800-544-8888. Investments in the money market fund are neither insured nor guaranteed by the U.S. government, and there can be no assurance that the fund will maintain a stable $1.00 share price. Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the FDIC, the Federal Reserve Board, or any other agency, and are subject to investment risk, including the possible loss of principal. Spartan Aggressive Municipal may invest without limitation in lower-quality debt securities, sometimes called "municipal junk bonds." Investors should consider that these securities carry greater risks, such as the risk of default, than other debt securities. Refer to "Investment Principles and Risks" on page for further information. 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. SMU-pro-1095 SPARTAN(REGISTERED TRADEMARK) MUNICIPAL FUNDS Each of these funds seeks a high level of income free from federal income tax. The funds have different strategies, however, and carry varying degrees of risk and yield potential. SPARTAN MUNICIPAL MONEY FUND SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND SPARTAN INTERMEDIATE MUNICIPAL FUND SPARTAN MUNICIPAL INCOME PORTFOLIO SPARTAN AGGRESSIVE MUNICIPAL FUND PROSPECTUS OCTOBER 25, 1995 (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 The chart on page highlights the strategy, risk , and yield potential for each fund. Elements common to all five funds are described below. GOAL: High current income free from federal income tax. As with any mutual fund, there is no assurance that a fund will achieve its goal. MANAGEMENT: Fidelity Management & Research Company (FMR) is the management arm of Fidelity Investments, which was established in 1946 and is now America's largest mutual fund manager. FMR Texas Inc. (FTX), a subsidiary of FMR, chooses investments for Spartan Municipal Money. WHO MAY WANT TO INVEST These funds may be appropriate for investors in higher tax brackets who seek high current income that is free from federal income taxes . Each fund's level of risk, and potential reward, depend on the quality and maturity of its investments. Spartan Municipal Money is managed to keep its share price stable at $1.00. The bond funds, with their broader range o f 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 any 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 Spartan family of funds is designed for cost-conscious investors looking for higher yields through lower costs. The Spartan Approach(registered trademark) requires investors to make high minimum investments and, in some cases, to pay for individual transactions. THE SPECTRUM OF FIDELITY FUNDS Broad categories of Fidelity funds are presented here in order of ascending risk. Generally, investors seeking to maximize return must assume greater risk. The funds in this prospectus are in the INCOME category, except for Spartan Municipal Money, which is in the MONEY MARKET 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) FUND STRATEGY RISK AND YIELD POTENTIAL THE RISK LEVEL AND YIELD POTENTIAL OF MONEY MARKET AND BOND FUNDS DEPEND ON THE QUALITY AND MATURITY OF THEIR INVESTMENTS. THE CHART BELOW PRESENTS EACH FUND'S STRATEGY AND EXPLAINS ITS RISK AND YIELD POTENTIAL RELATIVE TO THE OTHE R FUNDS IN THIS FAMILY.
Spartan Municipal Invests in high-quality, Because this fund seeks Money short-term municipal to maintain a stable securities with an $1.00 share price, it is average maturity of 90 the safest and lowest days or less. yielding fund in the family. (low risk graphic) Spartan Invests in With its short maturity Short-Intermediate investment-grade and the high quality of its Municipal municipal securities investments, this is the while maintaining an most conservative bond average maturity of two fund in the family. to four years. (low to medium risk graphic) Spartan Invests in municipal With its intermediate Intermediate securities, focusing on maturity and focus on Municipal investment-grade medium- to high-quality securities while investments, this is the maintaining an average moderate member of the maturity of three to ten family. years. (medium risk graphic) Spartan Municipal Invests primarily in While emphasizing credit Income municipal securities of quality, its longer-term investment-grade maturity makes it the quality and generally moderately aggressive maintains an average member of the family. maturity of 10 years or more. (low to medium risk graphic) Spartan Aggressive Invests primarily in With its emphasis on Municipal medium- and medium- and lower-quality municipal lower-quality securities securities, normally with long maturities, this maintains an average is the most aggressive maturity of 10 years or fund in the family. more. (high risk graphic)
EXPENSES SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or hold shares of a fund. See pages and - for more information about these fees . Maximum sales charge on purchases and reinvested distributions None Deferred sales charge on redemptions None Redemption fee (as a % of amount redeemed on shares held less than 180 days) for Spartan Municipal Income .50% for Spartan Aggressive Municipal 1.00% for all other funds None Exchange and wire transaction fees $5.00 Checkwriting fee, per check written (available for Spartan Municipal Money, Spartan Short-Intermediate Municipal, and Spartan Intermediate Municipal) $2.00 Account closeout fee $5.00 Annual account maintenance fee (for accounts under $2500) $12.00 THESE FEES ARE WAIVED (except for the redemption fee) if your account balance at the time of the transaction is $50,000 or more. ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each fund pays a management fee to FMR. Expenses are factored into each fund's share price or dividends and are not charged directly to shareholder accounts (see page ). The operating expenses on page are projections based on historical expenses, and are calculated as a percentage of average net assets. FMR has voluntarily agreed to temporarily limit the total operating expenses of Spartan Municipal Money and Spartan Intermediate Municipal to .40% and . 45 %, respectively, of average net assets. If these agreements were not in effect, the management fee, other expenses, and total operating expenses for Spartan Municipal Money would be .50%, .00%, and .50%, and .55%, .00%, and .55%, respectively , for Spartan Intermediate Municipal . Expenses eligible for reimbursement do not include interest, taxes, brokerage commissions, or extraordinary expenses. EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5% and that its operating expenses are exactly as described on page . For every $1,000 you invested, the examples on page show you 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. These examples illustrate the effect of expenses, but are not meant to suggest actual or expected costs or returns, all of which may vary. SPARTAN MUNICIPAL MONEY Operating Expenses Examples Account Account open closed Management fee (after .40% After 1 year $ 4 $ 9 reimbursement) 12b-1 fee None After 3 $13 $18 years Other expenses .00% After 5 $22 $27 years Total fund operating .40% After 10 $51 $56 expenses years SPARTAN SHORT-INTERMEDIATE MUNICIPAL Operating Expenses Examples Account Account open closed Management fee .55% After 1 year $ 6 $11 12b-1 fee None After 3 $18 $23 years Other expenses .00% After 5 $31 $36 years Total fund operating .55% After 10 $69 $74 expenses years SPARTAN INTERMEDIATE MUNICIPAL Operating Expenses Examples Account Account open closed Management fee (after .45% After 1 year $ 5 $10 reimbursement) 12b-1 fee None After 3 $14 $19 years Other expenses .00% After 5 $25 $30 years Total fund operating .45% After 10 $ 5 7 $62 expenses years SPARTAN MUNICIPAL INCOME Operating Expenses Examples Account Account open closed Management fee .55% After 1 year $ 6 $11 12b-1 fee None After 3 $18 $23 years Other expenses .00% After 5 $31 $36 years Total fund operating .55% After 10 $69 $74 expenses years SPARTAN AGGRESSIVE MUNICIPAL Operating Expenses Examples Account Account open closed Management fee .60% After 1 year $ 6 $11 12b-1 fee None After 3 $19 $24 years Other expenses .00% After 5 $33 $3 8 years Total fund operating .60% After 10 $75 $80 expenses years FINANCIAL HIGHLIGHTS The tables that follow are included in each fund's Annual Report and have been audited by Coopers & Lybrand L.L.P., independent accountants. Their reports on the financial statements and financial highlights are included in the Annual Reports. The financial statements and financial highlights are incorporated by reference into (are legally a part of) the funds' Statement of Additional Information. SPARTAN MUNICIPAL MONEY
17.Selected Per-Share Data and Ratios 18.Years ended August 31 1995 1994 1993 1992 1991C 19.Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 period 20.Income from Investment .035 .025 .026 .038 .030 Operations Net interest income 21.Less Distributions (.035) (.025) (.026) (.038) (.030) From net interest income 22.Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 23.Total return B 3.59 2.50 2.66 3.91 3.03 % % % % % 24.Net assets, end of period (In $ 2,206 $ 2,288 $ 1,696 $ 1,303 $ 424 millions) 25.Ratio of expenses to average net .40 .33 .27 .20 .09 assets % % % % %A 26.Ratio of expenses to average net .50 .50 .50 .50 .50 assets before % % % % %A expense reductions 27.Ratio of net interest income to 3.53 2.48 2.61 3.67 4.69 average net assets % % % % %A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. C FOR THE PERIOD JANUARY 14, 1991 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1991 SPARTAN SHORT-INTERMEDIATE MUNICIPAL
28.Selected Per-Share Data and Ratios 29.Years ended 1995 1994D 1993G 1992F 1991F 1990F 1989F 1988F 1987F 1986E August 31 30.Net asset $ 9.84 $ 10.0 $ 9.88 $ 9.78 $ 9.52 $ 9.49 $ 9.45 $ 9.51 $ 9.92 $ 10.0 value, 0 90 0 0 0 0 0 0 0 00 beginning of period 31.Income from .429 .443 .303 .490 .559 .562 .536 .516 .433 .008 Investment Operations Net interest income 32. Net realized .140 (.240) .210 .100 .260 .030 .040 (.060) (.410) (.080) and unrealized gain (loss) on investments 33. Total from .569 .203 .513 .590 .819 .592 .576 .456 .023 (.072) investment operations 34.Less (.429) (.443) (.303) (.490) (.559) (.562) (.536) (.516) (.433) (.008) Distributions From net interest income 35. In excess of -- (.010) -- -- -- -- -- -- -- -- net realized gain on investments 36. Total (.429) (.453) (.303) (.490) (.559) (.562) (.536) (.516) (.433) (.008) distributions 37.Net asset $ 9.98 $ 9.84 $ 10.0 $ 9.88 $ 9.78 $ 9.52 $ 9.49 $ 9.45 $ 9.51 $ 9.92 value, end of 0 0 90 0 0 0 0 0 0 0 period 38.Total returnB,C 5.95 2.05 5.25 6.18 8.85 6.42 6.30 4.89 .26% (.72) % % % % % % % % % 39.Net assets, end $ 909 $ 1,08 $ 967 $ 659 $ 244 $ 59 $ 58 $ 77 $ 59 $ 2 of period 3 (In millions) 40.Ratio of .55% .47% .55% .55% .55% .60% .58% .35% .60% .60% expenses to A A average net assets 41.Ratio of .55% .55% .55% .55% .75% .89% .87% .92% 1.04 1.50 expenses to A % %A average net assets before expense reductions 42.Ratio of net 4.38 4.45 4.55 4.95 5.68 5.90 5.69 5.48 4.58 4.00 interest income % % %A % % % % % % %A to average net assets 43.Portfolio 51% 44% 56%A 28% 59% 75% 82% 96% 180% -- turnover rate
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. D EFFECTIVE SEPTEMBER 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. E FOR THE PERIOD DECEMBER 24, 1986 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1986 F YEARS ENDED DECEMBER 31 G FOR THE EIGHT MONTHS ENDING AUGUST 31, 1993 SPARTAN INTERMEDIATE MUNICIPAL
44.Selected Per-Share Data and Ratios 45.Years ended August 31 1995 1994D 1993E 46.Net asset value, beginning of period $ 9.840 $ 10.340 $ 10.000 47.Income from Investment Operations .490 .514 .177 Net interest income 48. Net realized and unrealized gain (loss) on .220 (.460) .340 investments 49. Total from investment operations .710 .054 .517 50.Less Distributions (.490) (.514) (.177) From net interest income 51. From net realized gain on investments -- (.010) -- 52. In excess of net realized gain on investments -- (.030) -- 53. Total distributions (.490) (.554) (.177) 54.Net asset value, end of period $ 10.060 $ 9.840 $ 10.340 55.Total returnB,C 7.50% 0.52% 5.22% 56.Net assets, end of period (000 omitted) $ 219,711 $ 256,269 $ 219,400 57.Ratio of expenses to average net assets .42% .20% -- 58.Ratio of expenses to average net assets before .55% .55% .55% expense reductions A 59.Ratio of net interest income to average net assets 5.04% 5.09% 5.20% A 60.Portfolio turnover rate 44% 69% 95% A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. D EFFECTIVE SEPTEMBER 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. E FOR THE PERIOD APRIL 26, 1993 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1993 SPARTAN MUNICIPAL INCOME
61.Selected Per-Share Data and Ratios 62.Years ended August 31 1995 1994D 1993 1992 1991 1990E 63.Net asset value, $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 $ 10.000 beginning of period 64.Income from .587 .611 .663 .704 .739 .187 Investment Operations Net interest income 65. Net realized and .189 (.752) .727 .387 .463 (.120) unrealized gain (loss) on investments 66. Total from investment .776 (.141) 1.390 1.091 1.202 .067 operations 67.Less Distributions (.587) (.611) (.663) (.704) (.739) (.187) From net interest income 68. From net realized (.080) (.550) (.070) (.040) -- -- gain on investments 69. Total distributions (.667) (1.161) (.733) (.744) (.739) (.187) 70. Redemption fees .001 .002 .003 .003 .007 .010 added to paid in capital 71.Net asset value, end of $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 period 72.Total returnB,C 8.20 (1.42) 13.55 10.93 12.65 .76 % % % % % % 73.Net assets, end of $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930 $ 93,118 period (000 omitted) 74.Ratio of expenses to .55 .55 .47 .36 .23 -- average net assets % % % % % 75.Ratio of expenses to .55 .55 .55 .55 .55 .55 average net assets before % % % % % %A expense reductions 76.Ratio of net interest 5.99 5.76 6.09 6.68 7.24 7.91 income to average % % % % % %A net assets 77.Portfolio turnover rate 69 48 50 62 78 116 % % % % % %A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. D EFFECTIVE SEPTEMBER 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. E FOR THE PERIOD JUNE 4, 1990 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1990 SPARTAN AGGRESSIVE MUNICIPAL
78.Selected Per-Share Data and Ratios 79.Years ended August 31 1995 1994C 1993D 80.Net asset value, beginning of period $ 9.790 $ 10.350 $ 10.000 81.Income from Investment Operations .602 .603 .209 Net interest income 82. Net realized and unrealized gain (loss) on .125 (.564) .346 investments 83. Total from investment operations .727 .039 .555 84.Less Distributions (.602) (.603) (.209) From net interest income 85. From net realized gain on investments -- (.010) -- 86. In excess of net realized gain on investments -- (.010) -- 87. Total distributions (.602) (.623) (.209) 88. Redemption fees added to paid in capital .015 .024 .004 89.Net asset value, end of period $ 9.930 $ 9.790 $ 10.350 90.Total returnB 7.97% 0.61% 5.64% 91.Net assets, end of period (000 omitted) $ 74,563 $ 61,673 $ 17,267 92.Ratio of expenses to average net assets .60% .60% .60% A 93.Ratio of net interest income to average net assets 6.24% 6.03% 6.24% A 94.Portfolio turnover rate 51% 64% 53% A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C EFFECTIVE SEPTEMBER 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. D FOR THE PERIOD APRIL 29, 1993 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1993 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 September 1 through August 31. The table below shows each fund's performance over past fiscal years compared to a measure of inflation. TOTAL RETURNS Average Annual Total Return Cumulative Total Return Fiscal periods ended Past 1 Past 5 Life of Past 1 Past 5 Life of August 31, 1995 year years fund year years fund Spartan Municipal 3.59 n/a 3.39 3.59% n/a 16.70 Money % % A % A Spartan Short- 5.95 6.22 5.20 5.95% 35.22 55.37 Intermediate % % %B % % B Municipal Spartan 7.50 n/a 5.61 7.50% n/a 13.70 Intermediate % % C % C Municipal Spartan Municipal 8.20 8.64 8.38 8.20% 51.36 52.51 Income % % % D % % D Spartan 7.97 n/a 6.05 7.97% n/a 14.75 Aggressive % % E % E Municipal Consumer Price 2.62 3.05 n/a 2.62% 16.19 n/a Index % % % A FROM JANUARY 14, 1991 B FROM DECEMBER 24, 1986 C FROM APRIL 26, 1993 D FROM JUNE 4, 1990 E FROM APRIL 29, 1993 EXPLANATION OF TERMS T OTAL RETURN is the change in value of an investment in a fund over a given period, assuming reinvestment of any dividends and capital gains. A CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. Average annual total returns smooth out variations in performance; they are not the same as actual year-by-year results. YIELD refers to the income generated by an investment in a fund over a given period of time, expressed as an annual percentage rate. When a money market fund yield assumes that income earned is reinvested, it is called an EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have to earn before taxes to equal a tax-free yield. Yields for the bond 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. THE CONSUMER PRICE INDEX is a widely recognized measure of inflation calculated by the U.S. government. The funds' recent strategies, performance, and holdings are detailed twice a year in financial reports, which are sent to all shareholders. For current performance or a free annual report, call 1-800-544-8888. TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF FUTURE PERFORMANCE. 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) THE FUNDS IN DETAIL CHARTER EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money and invests it toward a specified goal. In technical terms, Spartan Municipal Money is currently a diversified fund of Fidelity Union Street Trust II. Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan Municipal Income, and Spartan Aggressive Municipal are currently non-diversified funds of Fidelity Union Street Trust. Both trusts are open-end management investment companies. Fidelity Union Street Trust II was organized as a Delaware business trust on June 20, 1991. Fidelity Union Street Trust was organized as a Massachusetts business trust on March 1, 1974. There is a remote possibility that one fund might become liable for a misstatement in the prospectus about another fund. EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for protecting the interests of shareholders. The trustees are experienced executives who meet throughout the year to oversee the funds' activities, review contractual arrangements with companies that provide services to the funds, and review performance. The majority of trustees are not otherwise affiliated with Fidelity. THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings may be called to elect or remove trustees, change fundamental policies, approve a management contract, or for other purposes. Shareholders not attending these meetings are encouraged to vote by proxy. Fidelity will mail proxy materials in advance, including a voting card and information about the proposals to be voted on. For Spartan Municipal Money, you are entitled to one vote for each share you own. For each bond fund, the number of votes you are entitled to is based upon the dollar value of your investment. FMR AND ITS AFFILIATES FIDELITY FACTS Fidelity offers the broadest selection of mutual funds in the world. (solid bullet) Number of Fidelity mutual funds: over 210 (solid bullet) Assets in Fidelity mutual funds: over $328 billion (solid bullet) Number of shareholder accounts: over 22 million (solid bullet) Number of investment analysts and portfolio managers: over 200 (checkmark) The funds are managed by FMR, which chooses their investments and handles their business affairs. FTX, located in Irving Texas, has primary responsibility for providing investment management services for Spartan Municipal Money. Norman Lind is manager and Vice President of Spartan Short-Intermediate Municipal and Spartan Intermediate Municipal, both of which he has managed since October 1995. Mr. Lind also manages Advisor Short-Intermediate Tax-Exempt, New York Tax-Free High Yield, New York Tax-Free Insured, Spartan New York Intermediate Municipal, and Spartan New York Municipal High Yield. Previously, he managed Spartan Municipal Income, and he served as a municipal research analyst. Mr. Lind joined Fidelity in 1986. David Murphy is manager and Vice President of Spartan Municipal Income, which he has managed since October 1995. Mr. Murphy also manages High Yield Tax-Free, Limited Term Municipals, Advisor Limited Term Tax-Exempt: Class A, and Advisor Limited Term Tax-Exempt: Institutional Class. Previously, he managed Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan New Jersey Municipal High Yield, Spartan New York Intermediate Municipal, and Advisor Short-Intermediate Tax-Exempt. Mr. Murphy joined Fidelity in 1989. Tanya Roy is manager of Spartan Aggressive Municipal, which she has managed since October 1995. Ms. Roy also manages Advisor High Income Municipal and Aggressive Tax-Free. Previously, she managed Municipal Bond and was a municipal bond analyst. Ms. Roy joined Fidelity in 1989. Fidelity investment personnel may invest in securities for their own account pursuant to a code of ethics that establishes procedures for personal investing and restricts certain transactions. Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's funds and services. Fidelity Service Co. (FSC) performs transfer agent servicing functions for the funds. FMR Corp. is the ultimate parent company of FMR and FTX. Members of the Edward C. Johnson 3d family are the predominant owners of a class of shares of common stock representing approximately 49% of the voting power of FMR Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of a company is presumed where one individual or group of individuals owns more than 25% of the voting stock of that company; therefore, the Johnson family may be deemed under the 1940 Act to form a controlling group with respect to FMR Corp. UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to perform these functions for the funds. It is located at 1010 Grand Avenue, Kansas City, Missouri. To carry out the funds' transactions, FMR may use its broker-dealer affiliates and other firms that sell fund shares, provided that a fund receives services and commission rates comparable to those of other broker-dealers. INVESTMENT PRINCIPLES AND RISKS EACH FUND seeks high current income that is free from federal income tax. Their strategies and levels of risk in pursuing this objective are different. SPARTAN MUNICIPAL MONEY seeks to maintain a $1.00 share price by investing in high-quality, short-term municipal securities of all types. The fund normally invests so that at least 80% of its income is free from federal income tax. When you sell your shares, they should be worth the same amount as when you bought them. Of course, there is no guarantee that the fund will maintain a stable $1.00 share price. The fund follows industry-standard guidelines on the quality and maturity of its investments, which are designed to help maintain a stable $1.00 share price. The fund will purchase only high-quality securities that FMR believes present minimal credit risks and will observe maturity restrictions on securities it buys. In general, securities with longer maturities are more vulnerable to price changes, although they may provide higher yields. It is possible that a major change in interest rates or a default on the fund's investments could cause its share price (and the value of your investment) to change. SPARTAN SHORT-INTERMEDIATE MUNICIPAL stresses preservation of capital by investing in securities judged by FMR to be of equivalent quality to those rated A or better by a nationally recognized rating service. Although the fund can invest in securities of any maturity, the fund, under normal conditions, maintains a dollar-weighted average maturity of between two and four years. The fund normally invests so that 80% or more of its income is free from federal income tax. SPARTAN INTERMEDIATE MUNICIPAL focuses on securities rated A or above by Moody's or S&P or, if unrated, judged by FMR to be of equivalent quality. Although the fund can invest in securities of any maturity, the fund, under normal conditions, maintains a dollar-weighted average maturity ranging from three to ten years. The fund normally invests so that at least 80% of its assets are invested in municipal securities whose interest is free from federal income tax. SPARTAN MUNICIPAL INCOME invests primarily in municipal bonds judged by FMR to be of investment-grade quality. Although the fund can invest in securities of any maturity, it generally invests in medium- and long-term bonds and maintains a dollar-weighted average maturity of 10 years or longer. The fund normally invests so that at least 80% of its income is free from federal income tax. SPARTAN AGGRESSIVE MUNICIPAL invests at least 65% of its total assets in securities rated A or lower by Moody's or S&P or, if unrated, judged by FMR to be of equivalent quality. Although the fund can invest in securities of any maturity, it generally invests in medium- and long-term bonds and maintains a dollar-weighted average maturity of 10 years or longer. The fund normally invests so that at least 80% of its assets are invested in municipal securities whose interest is free from federal income tax. The money market fund stresses income, preservation of capital, and liquidity. The bond funds seek to provide a higher level of income by investing in a broader range of securities. Each fund's yield and each bond fund's share price change daily and are based on interest rates, market conditions, other economic and political news, and on the quality and maturity of its investments. In general, bond prices rise when interest rates fall, and vice versa. This effect is usually more pronounced for longer-term securities. Lower-quality securities offer higher yields, but also carry more risk. FMR may use various investment techniques to hedge a portion of the bond funds' risks, but there is no guarantee that these strategies will work as intended. When you sell your shares of the bond funds, they may be worth more or less than what you paid for them. If you are subject to the federal alternative minimum tax, you should note that each fund may invest all of its assets in municipal securities issued to finance private activities. The interest from these investments is a tax-preference item for purposes of the tax. FMR normally invests each fund's assets according to its investment strategy. The funds do not expect to invest in federally taxable obligations. 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 the funds' investments are contained in the funds' SAI. Policies and limitations are considered at the time of purchase; the sale of instruments is not required in the event of a subsequent change in circumstances. FMR may not buy all of these instruments or use all of these techniques unless it believes that they are consistent with a fund's investment objective and policies and that doing so will help a fund achieve its goal. Current holdings and recent investment strategies are described in each fund's financial reports which are sent to shareholders twice a year. For a free SAI or financial report, call 1-800-544-8888. DEBT SECURITIES. Bonds and other debt instruments are used by issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest, and must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. In general, bond prices rise when interest rates fall, and vice versa. Debt securities have varying degrees of quality and varying levels of sensitivity to changes in interest rates. Longer-term bonds are generally more sensitive to interest rate changes than short-term bonds. 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. Lower-quality debt securities (sometimes called "municipal junk bonds") are considered to have speculative characteristics, and involve greater risk of default or price changes due to changes in the issuer's creditworthiness, or they may already be in default. The market prices of these securities may fluctuate more than higher-quality securities and may decline significantly in periods of general or regional economic difficulty. The tables on page provide a summary of ratings assigned to debt holdings (not including money market instruments) in Spartan Municipal Income's and Spartan Aggressive Municipal's portfolio. These figures are dollar-weighted averages of month-end portfolio holdings during fiscal 1995, and are presented as a percentage of total security investments. These percentages are historical and do not necessarily indicate a fund's current or future debt holdings. SPARTAN MUNICIPAL INCOME FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S STANDARD & POOR'S INVESTORS SERVICE, INC. Rating Average A Rating Averag eA INVESTMENT GRADE Highest quality Aaa 30.01% AAA 27.28% High quality Aa 15.60% AA 18.26% Upper-medium grade A 16.63% A 18.15% Medium grade Baa 16.95% BBB 11.28% LOWER QUALITY Moderately speculative Ba 1.66% BB 4.84% Speculative B 0.04% B 0.17% Highly speculative Caa 0.00% CCC 0.00% Poor quality Ca 0.00% CC 0.00% Lowest quality, no interest C C In default, in arrears -- 0.00% D 0.00% 80.89% 79.98% SPARTAN AGGRESSIVE MUNICIPAL FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S S TANDARD & POOR'S INVESTORS SERVICE, INC. Rating Average A Rating Averag eA INVESTMENT GRADE Highest quality Aaa 18.37% AAA 17.02% High quality Aa 5.20% AA 3.64% Upper-medium grade A 6.88% A 10.83% Medium grade Baa 15.34% BBB 16.89% LOWER QUALITY Moderately speculative Ba 14.04% BB 12.78% Speculative B 0.00% B 1.70% Highly speculative Caa 0.00% CCC 0.00% Poor quality Ca 0.00% CC 0.00% Lowest quality, no interest C C In default, in arrears -- 0.00% D 0.00% 59.83% 62.86% A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO 11.93% AND 23.05% FOR SPARTAN MUNICIPAL INCOME AND SPARTAN AGGRESSIVE MUNICIPAL, RESPECTIVELY. THIS MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER-QUALITY ACCOUNT FOR 10.58% AND 20.64% OF SPARTAN MUNICIPAL INCOME'S AND SPARTAN AGGRESSIVE MUNICIPAL'S TOTAL SECURITY INVESTMENTS, RESPECTIVELY. REFER TO THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS. RESTRICTIONS: For Spartan Short-Intermediate Municipal purchase of a debt security is consistent with the fund's debt quality policy if it is rated at or above the stated level by Moody's or rated in the equivalent categories by any other nationally recognized rating service, or is unrated but judged to be of equivalent quality by FMR. The fund currently intends to limit its investments in debt securities to those of Baa-quality or above. For Spartan Intermediate Municipal, purchase of a debt security is consistent with the fund's debt quality policy if it is rated at or above the stated level by Moody's or in the equivalent categories by S&P. The fund currently intends to limit its investments in lower than A-quality debt securities to 40% of its total assets and in lower than Baa-quality debt securities to 5% of its assets. Spartan Municipal Income may not invest more than one-third of its assets in lower-quality bonds, and does not intend to invest in those rated below B by Moody's or S&P. Spartan Aggressive Municipal does not currently intend to invest more than 10% of its total assets in bonds that are in default. MONEY MARKET SECURITIES are high-quality, short-term obligations issued by municipalities, local and state governments, and other entities. These obligations may carry fixed, variable, or floating interest rates. Some money market securities employ a trust or other similar structure to modify the maturity, price characteristics, or quality of financial assets so that they are eligible investments for money market funds. If the structure does not perform as intended, adverse tax or investment consequences may result. MUNICIPAL SECURITIES are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, or financing for specific projects or public facilities. They may be issued in anticipation of future revenues and may be backed by the full taxing power of a municipality, the revenues from a specific project, or the credit of a private organization. A security's credit may be enhanced by a bank, insurance company, or other entity. The value of some or all municipal securities may be affected by uncertainties in the municipal market related to legislation or litigation involving the taxation of municipal securities or the rights of municipal securities holders. A fund may own a municipal security directly or through a participation interest. ASSET-BACKED SECURITIES include interests in pools of purchase contracts, financing leases, or sales agreements entered into by municipalities. These securities usually rely on continued payments by a municipality, and may also be subject to prepayment risk. VARIABLE AND FLOATING RATE SECURITIES have interest rates that are periodically adjusted either at specific intervals or whenever a benchmark rate changes. Inverse floaters have interest rates that move in the opposite direction from a benchmark, making the security's market value more volatile. RESTRICTIONS: The money market fund may not purchase certain types of variable and floating rate securities which are inconsistent with the fund's goal of maintaining a stable share price. MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land, equipment, or facilities. If the municipality stops making payments or transfers its obligations to a private entity, the obligation could lose value or become taxable. OTHER MUNICIPAL SECURITIES may include obligations of U.S. territories and possessions such as Guam, the Virgin Islands, and Puerto Rico, and their political subdivisions and public corporations. PUT FEATURES entitle the holder to put (sell back) a security to the issuer or a financial intermediary. In exchange for this benefit, the funds may pay periodic fees or accept a lower interest rate. The credit quality of the investment may be affected by the creditworthiness of the put provider. Demand features, standby commitments, and tender options are types of put features. PRIVATE ENTITIES may be involved in some municipal securities. For example, industrial revenue bonds are backed by private entities, and resource recovery bonds often involve private corporations. The viability of a project or tax incentives could affect the value and credit quality of these securities. ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to increase or decrease its exposure to changing security prices, interest rates, or other factors that affect security values. These techniques may involve derivative transactions such as buying and selling options and futures contracts, 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 the fund's investments, these techniques could result in a loss, regardless of whether the intent was to reduce risk or increase return. These techniques may increase the volatility of the fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the counterparty to the transaction does not perform as promised. RESTRICTIONS: The money market fund may not use investment techniques which are inconsistent with the fund's goal of maintaining a stable share price. ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by FMR, under the supervision of the Board of Trustees, to be illiquid, which means that they may be difficult to sell promptly at an acceptable price. The sale of some illiquid securities and some other securities may be subject to legal restrictions. Difficulty in selling securities may result in a loss or may be costly to a fund. RESTRICTIONS: A fund may not purchase a security if, as a result, more than 10% of its assets would be invested in illiquid securities. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in which payment and delivery for the securities take place at a future date. The market value of a security could change during this period, which could affect a fund's yield or the market value of its assets. DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the risks of investing. This may include limiting the amount of money invested in any one issuer or, on a broader scale, in any one industry or type of project. Economic, business, or political changes can affect all securities of a similar type. A fund that is not diversified may be more sensitive to these changes, and also to changes in the market value of a single issuer or industry. RESTRICTIONS: With respect to 75% of total assets, Spartan Municipal Money may not invest more than 5% of its total assets in any one issuer. Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan Municipal Income, and Spartan Aggressive Municipal are all considered non-diversified. Generally, to meet federal requirements at the close of each quarter, a fund does not invest more than 25% of its total assets in any one issuer and, with respect to 50% of total assets, does not invest more than 5% of its total assets in any one issuer. These limitations do not apply to U.S. government securities. A fund may invest more than 25% of its total assets in tax-free securities that finance similar types of projects. BORROWING. A fund may borrow from banks or from other funds advised by FMR, or through reverse repurchase agreements. If a bond fund borrows money, its share price may be subject to greater fluctuation until the borrowing is paid off. If the fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage. RESTRICTIONS: A fund may borrow only for temporary or emergency purposes, but not in an amount exceeding 33% of its total assets. FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS Some of the policies and restrictions discussed on the preceding pages are fundamental, that is, subject to change only by shareholder approval. The following paragraphs restate all those that are fundamental. All policies stated throughout this prospectus, other than those identified in the following paragraphs, can be changed without shareholder approval. SPARTAN MUNICIPAL MONEY seeks as high a level of federally tax-exempt income as is consistent with the preservation of capital and liquidity. The fund will normally invest so that at least 80% of its income is free from federal income tax. With respect to 75% of its total assets, the fund may not invest more than 5% of its total assets in any one issuer. SPARTAN SHORT-INTERMEDIATE MUNICIPAL seeks as high a level of current income, exempt from federal income tax, as is consistent with preservation of capital by investing primarily in short-term municipal obligations. The fund will normally invest so that at least 80% of its income is free from federal income tax. SPARTAN INTERMEDIATE MUNICIPAL seeks high current income that is exempt from federal income tax, by investing in municipal obligations. The fund will normally invest so that at least 80% of its assets are invested in municipal securities whose interest is free from federal income tax. SPARTAN MUNICIPAL INCOME seeks high current income by investing primarily in municipal securities. The fund will normally invest so that at least 80% of its income is free from federal income tax. SPARTAN AGGRESSIVE MUNICIPAL seeks a high current yield that is exempt from federal income tax. The fund will normally invest so that at least 80% of its assets are invested in municipal securities whose interest is free from federal income tax. EACH FUND may borrow solely 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 Municipal Money. 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. The table on page shows the annual rate of each fund's management fee as a percentage of average net assets for fiscal 1995. FMR has voluntarily agreed to limit Spartan Municipal Money's total operating expenses to an annual rate of .45% of average net assets. This agreement will continue until December 31, 1995. MANAGEMENT AND TRANSACTION FEES MANAGEMENT FEES TRANSACTIONS FEES Before After Exchang Closeout Wire Checkwriti reimbursement reimbursemen e ng t Spartan .50 .40 $13,1 $3,2 $3,00 $16,4 Municipal % % 20 74 5 48 Money Spartan Short- .55 n/a $11,5 $3,8 $770 $2,45 Intermediate % 45 06 4 Municipal Spartan .55 .45 $3,75 $1,1 $245 $600 Intermediate % % 0 00 Municipal Spartan .55 n/a $8,14 $2,8 $665 n/a Municipal % 5 75 Income Spartan .60 n/a $1,00 $215 $50 n/a Aggressive % 0 Municipal FMR HAS A SUB-ADVISORY AGREEMENT with FTX, which has primary responsibility for providing investment management for Spartan Municipal Money, while FMR retains responsibility for providing other management services. FMR pays FTX 50% of its management fee (before expense reimbursements) for these services. FSC performs many transaction and accounting functions for the funds. These services include processing shareholder transactions and calculating each fund's share price. FMR, and not the funds, pays for these services. To offset shareholder service costs, FMR or its affiliates also collect the funds' $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire purchases and redemptions, and, for Spartan Municipal Money, Spartan Short-Intermediate Municipal, and Spartan Intermediate Municipal, the $2.00 checkwriting charge. The table above shows what these fees amounted to for fiscal 1995. 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 fund's portfolio turnover rate for fiscal 1995. These rates vary from year to year. PORTFOLIO TURNOVER RATES Spartan Municipal Money n/a Spartan Short-Intermediate Municipal 51% Spartan Intermediate Municipal 44% Spartan Municipal Income 69% Spartan Aggressive Municipal 51% YOUR ACCOUNT DOING BUSINESS WITH FIDELITY Fidelity Investments was established in 1946 to manage one of America's first mutual funds. Today, Fidelity is the largest mutual fund company in the country, and is known as an innovative provider of high-quality financial services to individuals and institutions. In addition to its mutual fund business, the company operates one of America's leading discount brokerage firms, Fidelity Brokerage Services, Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered retirement plans for individuals investing on their own or through their employer. Fidelity is committed to providing investors with practical information to make investment decisions. Based in Boston, Fidelity provides customers with complete service 24 hours a day, 365 days a year, through a network of telephone service centers around the country. To reach Fidelity for general information, call these numbers: (small solid bullet) For mutual funds, 1-800-544-8888 (small solid bullet) For brokerage, 1-800-544-7272 If you would prefer to speak with a representative in person, Fidelity has over 80 walk-in Investor Centers across the country. TYPES OF ACCOUNTS You may set up an account directly in a fund or, if you own or intend to purchase individual securities as part of your total investment portfolio, you may consider investing in a fund through a brokerage account. If you are investing through FBSI or another financial institution or investment professional, refer to its program materials for any special provisions regarding your investment in the fund. The different ways to set up (register) your account with Fidelity are listed below. 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 Municipal Money 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 Municipal Money $25,000 TO ADD TO AN ACCOUNT $1,000 Through automatic investment plans $500 MINIMUM BALANCE $5,000 For Spartan Municipal Money $10,000 These minimums may vary for investments through Portfolio Advisory Services. Refer to the product materials for details. UNDERSTANDING THE SPARTAN APPROACH(registered trademark) Fidelity's Spartan Approach is based on the principle that lower fund expenses can increase returns. The Spartan funds keep expenses low in two ways. First, higher investment minimums reduce the effect of a fund's fixed costs, many of which are paid on a per-account basis. Second, unlike most mutual funds that include transaction costs as part of overall fund expenses, Spartan shareholders pay directly for the transactions they make. (checkmark)
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.
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.
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.
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.
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.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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 Spartan Municipal Money) 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 at right. Unless otherwise instructed, Fidelity will send a check to the record address. Deliver your letter to a Fidelity Investor Center, or mail it to: Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 CHECKWRITING If you have a checkbook for your account in Spartan Municipal Money, Spartan Short-Intermediate Municipal, or Spartan Intermediate Municipal, you may write an unlimited number of checks. Do not, however, try to close out your account by check. ACCOUNT TYPE SPECIAL REQUIREMENTS
IF YOU SELL SHARES OF SPARTAN MUNICIPAL INCOME OR SPARTAN AGGRESSIVE MUNICIPAL AFTER HOLDING THEM LESS THAN 180 DAYS, THE FUND WILL DEDUCT A REDEMPTION FEE EQUAL TO .50% AND 1.00%, RESPECTIVELY, 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 Trust names appear on the account. (small solid bullet) The trustee must sign the letter indicating capacity as Business or trustee. If the trustee's name Organization is not in the account registration, provide a copy of the trust document certified within the last 60 days. (small solid bullet) At least one person Executor, authorized by corporate Administrator, resolution to act on the Conservator, account must sign the letter. Guardian (small solid bullet) Include a corporate resolution with corporate seal or a signature guarantee. (small solid bullet) Call 1-800-544-6666 for instructions. Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire feature before using it. To verify that it is in place, call 1-800-544-6666. Minimum wire: $5,000. (small solid bullet) Your wire redemption request must be received by Fidelity before 4 p.m. Eastern time for money to be wired on the next business day.
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.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
INVESTOR SERVICES Fidelity provides a variety of services to help you manage your account. INFORMATION SERVICES FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days a year. Whenever you call, you can speak with someone equipped to provide the information or service you need. STATEMENTS AND REPORTS that Fidelity sends to you include the following: (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 BALANCES 1-800-544-7544 ACCOUNT TRANSACTIONS 1-800-544-7777 PRODUCT INFORMATION 1-800-544-8888 QUOTES 1-800-544-8544 RETIREMENT ACCOUNT ASSISTANCE 1-800-544-4774 AUTOMATED SERVICE (checkmark) To reduce expenses, only one copy of most financial reports will be mailed to your household, even if you have more than one account in the fund. Call 1-800-544-6666 if you need copies of financial reports or historical account information. TRANSACTION SERVICES EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other Fidelity funds by telephone or in writing. There may be a $5.00 fee for each exchange out of the 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
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.
DIRECT DEPOSIT TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING $500 Every pay (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.
FIDELITY AUTOMATIC EXCHANGE SERVICE TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING $500 Monthly, (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.
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 October and December. DISTRIBUTION OPTIONS When you open an account, specify on your application how you want to receive your distributions. If the option you prefer is not listed on the application, call 1-800-544-6666 for instructions. Each fund offers four options (three for Spartan Municipal Money): 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 Spartan Municipal Money. 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. 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. A portion of a fund's dividends may be free from state or local taxes. Income from investments in your state are often tax-free to you. Each year, Fidelity will send you a breakdown of your fund's income from each state to help you calculate your taxes. During fiscal 1995, 100% of each fund's income dividends was free from federal income tax and 77.42%, 21.86%, 32.64%, 17.87%, and 23.93% of Spartan Municipal Money's, Spartan Short-Intermediate Municipal's, Spartan Intermediate Municipal's, Spartan Municipal Income's, and Spartan Aggressive Municipal's income dividends, respectively, were subject to the federal alternative minimum tax. TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to other Fidelity funds - are subject to capital gains tax. A capital gain or loss is the difference between the cost of your shares and the price you receive when you sell them. Whenever you sell shares of a fund, Fidelity will send you a confirmation statement showing how many shares you sold and at what price. You will also receive a consolidated transaction statement every January. However, it is up to you or your tax preparer to determine whether this sale resulted in a capital gain and, if so, the amount of tax to be paid. Be sure to keep your regular account statements; the information they contain will be essential in calculating the amount of your capital gains. "BUYING A DIVIDEND." If you buy shares just before a fund deducts a capital gain distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back in the form of a taxable distribution. 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 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. YOU MAY BUY OR SELL SHARES OF THE FUNDS THROUGH A BROKER, who may charge you a fee for this service. If you invest through a broker or other institution, read its program materials for any additional service features or fees that may apply. CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with FDC may enter confirmed purchase orders on behalf of customers by phone, with payment to follow no later than the time when a fund is priced on the following business day. If payment is not received by that time, the financial institution could be held liable for resulting fees or losses. WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the next NAV calculated after your request is received and accepted. Note the following: (small solid bullet) Normally, redemption proceeds will be mailed to you on the next business day, but if making immediate payment could adversely affect a fund, it may take up to seven days to pay you. (small solid bullet) Shares will earn dividends through the date of redemption; however, shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. (small solid bullet) Fidelity Money Line redemptions generally will be credited to your bank account on the second or third business day after your phone call. (small solid bullet) Each fund may hold payment on redemptions until it is reasonably satisfied that investments made by check or Fidelity Money Line have been collected, which can take up to seven business days. (small solid bullet) Redemptions may be suspended or payment dates postponed when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is restricted, or as permitted by the SEC. (small solid bullet) If you sell shares by writing a check and the amount of the check is greater than the value of your account, your check will be returned to you and you may be subject to additional charges. THE REDEMPTION FEE for Spartan Municipal Income and Spartan Aggressive Municipal, if applicable, will be deducted from the amount of your redemption. This fee is paid to the fund rather than FMR, and it does not apply to shares that were acquired through reinvestment of distributions. If shares you are redeeming were not all held for the same length of time, those shares you held longest will be redeemed first for purposes of determining whether the fee applies. THE FEES FOR INDIVIDUAL TRANSACTIONS are waived if your account balance at the time of the transaction is $50,000 or more. Otherwise, you should note the following: (small solid bullet) The $2.00 checkwriting charge will be deducted from your account. (small solid bullet) The $5.00 exchange fee will be deducted from the amount of your exchange. (small solid bullet) The $5.00 wire fee will be deducted from the amount of your wire. (small solid bullet) The $5.00 account closeout fee does not apply to exchanges or wires, but it will apply to checkwriting. FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00 from accounts with a value of less than $2,500, subject to an annual maximum charge of $60.00 per shareholder. It is expected that accounts will be valued on the second Friday in November of each year. Accounts opened after September 30 will not be subject to the fee for that year. The fee, which is payable to the transfer agent, is designed to offset in part the relatively higher costs of servicing smaller accounts. The fee will not be deducted from retirement accounts (except non-prototype retirement accounts), accounts using regular investment plans, or if total assets in Fidelity funds exceed $50,000. Eligibility for the $50,000 waiver is determined by aggregating Fidelity mutual fund accounts maintained by FSC or FBSI which are registered under the same social security number or which list the same social security number for the custodian of a Uniform Gifts/Transfers to Minors Act account. IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($10,000 for Spartan Municipal Money), you will be given 30 days' notice to reestablish the minimum balance. If you do not increase your balance, Fidelity reserves the right to close your account and send the proceeds to you. Your shares will be redeemed at the NAV on the day your account is closed and the $5.00 account closeout fee will be charged. FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing historical account documents, that are beyond the normal scope of its services. EXCHANGE RESTRICTIONS As a shareholder, you have the privilege of exchanging shares of a fund for shares of other Fidelity funds. However, you should note the following: (small solid bullet) The fund you are exchanging into must be registered for sale in your state. (small solid bullet) You may only exchange between accounts that are registered in the same name, address, and taxpayer identification number. (small solid bullet) Before exchanging into a fund, read its prospectus. (small solid bullet) If you exchange into a fund with a sales charge, you pay the percentage-point difference between that fund's sales charge and any sales charge you have previously paid in connection with the shares you are exchanging. For example, if you had already paid a sales charge of 2% on your shares and you exchange them into a fund with a 3% sales charge, you would pay an additional 1% sales charge. (small solid bullet) Exchanges may have tax consequences for you. (small solid bullet) Because excessive trading can hurt fund performance and shareholders, each fund reserves the right to temporarily or permanently terminate the exchange privilege of any investor who makes more than four exchanges out of the fund per calendar year. Accounts under common ownership or control, including accounts with the same taxpayer identification number, will be counted together for purposes of the four exchange limit. (small solid bullet) Each fund reserves the right to refuse exchange purchases by any person or group if, in FMR's judgment, the fund would be unable to invest the money effectively in accordance with its investment objective and policies, or would otherwise potentially be adversely affected. (small solid bullet) Your exchanges may be restricted or refused if a fund receives or anticipates simultaneous orders affecting significant portions of the fund's assets. In particular, a pattern of exchanges that coincides with a "market timing" strategy may be disruptive to a fund. Although the funds will attempt to give you prior notice whenever they are reasonably able to do so, they may impose these restrictions at any time. The funds reserve the right to terminate or modify the exchange privilege in the future. OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose administrative fees of up to $7.50 and redemption fees of up to 1.50% on exchanges. Check each fund's prospectus for details. This prospectus is printed on recycled paper using soy-based inks. Spartan Bond Strategist (A Fund of Fidelity School Street Trust) Spartan Municipal Income Fund (A Fund of Fidelity Union Street Trust) FORM N-14 STATEMENT OF ADDITIONAL INFORMATION October 21, 1996 This Statement of Additional Information, relates to the proposed reorganization whereby Spartan Municipal Income Fund (Municipal Income), a Fund of Fidelity Union Street Trust, would acquire substantially all of the assets of Spartan Bond Strategist (Bond Strategist), a Fund of Fidelity School Street Trust, and assume all of Bond Strategist's liabilities in exchange solely for shares of beneficial interest in Municipal Income. This Statement of Additional Information consists of this cover page and the following described documents, each of which is attached hereto and incorporated herein by reference: 1. The Statement of Additional Information (SAI) of Spartan Municipal Income Fund, dated October 23, 1995 and the Supplement to the SAI dated February 20, 1996. 2. The Prospectus and Statement of Additional Information of Spartan Bond Strategist, dated February 20, 1996 and the Supplement to the Prospectus dated July 19, 1996. 3. The Annual Report of Spartan Municipal Income Fund for the fiscal year ended August 31, 1995. 4. The Annual Report of Spartan Bond Strategist for the fiscal year ended December 31, 1995. 5. The Semiannual Report of Spartan Municipal Income Fund for the fiscal period ended February 29, 1996. 6. The Semiannual Report of Spartan Bond Strategist for the fiscal period ended June 30, 1996. This Statement of Additional Information is not a prospectus. A Proxy Statement and Prospectus dated October 21, 1996, relating to the above-referenced matter may be obtained from Fidelity Distributors Corporation, 82 Devonshire Street, Boston, Massachusetts, 02109. This Statement of Additional Information relates to, and should be read in conjunction with, such Proxy Statement and Prospectus. The date of this Statement of Additional Information is October 21, 1996. SUPPLEMENT TO THE SPARTAN(Registered trademark) MUNICIPAL FUNDS' STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 25, 1995 ON FEBRUARY 20, 1996, SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND CHANGED ITS NAME TO SPARTAN SHORT-INTERMEDIATE MUNICIPAL INCOME FUND, SPARTAN INTERMEDIATE MUNICIPAL FUND CHANGED ITS NAME TO SPARTAN INTERMEDIATE MUNICIPAL INCOME FUND, AND SPARTAN MUNICIPAL INCOME PORTFOLIO CHANGED ITS NAME TO SPARTAN MUNICIPAL INCOME FUND. The following information replaces the similar information found in the "Performance" section beginning on page 17:
1996 TAX RATES AND TAX-EQUIVALENT YIELDS Federal If individual tax-exempt yield is: Taxable Income* Tax 2% 3% 4% 5% 6% 7% 8% Single Return Joint Return Bracket** Then taxable equivalent yield is $ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% $ 58,151 - $ 121,300 $ 96,901 - $ 147,700 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59% $ 121,301 - $ 263,750 $ 147,701 - $ 263,750 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% $ 263,751 and above $ 263,751 and above 39.6% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
* 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. SPARTAN(Registered trademark) MUNICIPAL FUNDS SPARTAN MUNICIPAL MONEY FUND A FUND OF FIDELITY UNION STREET TRUST II SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND SPARTAN INTERMEDIATE MUNICIPAL FUND SPARTAN MUNICIPAL INCOME PORTFOLIO SPARTAN AGGRESSIVE MUNICIPAL FUND FUNDS OF FIDELITY UNION STREET TRUST STATEMENT OF ADDITIONAL INFORMATION OCTOBER 25, 1995 This Statement is not a prospectus but should be read in conjunction with the funds' current Prospectus (dated October 25, 1995 ). Please retain this document for future reference. Each fund's financial statements and financial highlights, included in its Annual Report for the fiscal year ended August 31, 1995 , are incorporated herein by reference. To obtain an additional copy of the Prospectus or an Annual Report, please call Fidelity Distributors Corporation at 1-800-544-8888. TABLE OF CONTENTS PAGE Investment Policies and Limitations 2 Portfolio Transactions 15 Valuation of Portfolio Securities 16 Performance 17 Additional Purchase and Redemption Information 23 Distributions and Taxes 23 FMR 24 Trustees and Officers 25 Management Contracts Distribution and Service Plans Contracts with FMR Affiliates Description of the Trusts Financial Statements 34 Appendix INVESTMENT ADVISER Fidelity Management & Research Company (FMR) INVESTMENT SUB-ADVISER FMR Texas Inc. (FTX) (Spartan Municipal Money) DISTRIBUTOR Fidelity Distributors Corporation (FDC) TRANSFER AGENT UMB Bank, n.a. (UMB ) and Fidelity Service Co. (FSC) SMU -ptb-1095 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 MUNICIPAL MONEY FUND (SPARTAN MUNICIPAL MONEY) THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT: (1) with respect to 75% of the fund's total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government, or any of its agencies or instrumentalities) if, as a result thereof, (a) more than 5% of the fund's total assets would be invested in the securities of that issuer, or (b) the fund would hold more than 10% of the outstanding voting securities of that issuer; (2) issue senior securities, except as permitted under the Investment Company Act of 1940; (3) sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short; (4) purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions; (5) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (6) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (7) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S. territory or possession or a state or local government, or a political subdivision of any of the foregoing) if, as a result, more than 25% of the fund's total assets would be invested in securities of companies whose principal business activities are in the same industry; (8) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (9) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments; or (10) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties (for this purpose, purchasing debt securities and engaging in repurchase agreements do not constitute lending). (11) The fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. (i) The fund does not currently intend to purchase the voting securities of any issuer. (ii) The fund does not currently intend to sell securities short. (iii) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (5)). The fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (iv) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (v) The fund does not currently intend to invest in interests in real estate investment trusts that are not readily marketable, or to invest in interests in real estate limited partnerships that are not listed on the New York Stock Exchange or the American Stock Exchange or traded on the NASDAQ National Market System. (vi) The fund does not currently intend to purchase or sell futures contracts or call options. This limitation does not apply to options attached to, or acquired or traded together with, their underlying securities, and does not apply to securities that incorporate features similar to options or futures contracts. (vii) The fund does not currently intend to engage in repurchase agreements or make loans, but this limitation does not apply to purchases of debt securities. (viii) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (ix) The fund does not currently intend to purchase the securities of any issuer (other than securities issued or guaranteed by domestic or foreign governments or political subdivisions thereof) if, as a result, more than 5% of its total assets would be invested in the securities of Business Enterprises that, including predecessors, have a record of less than three years of continuous operation. (x) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (xi) The fund does not currently intend to purchase the securities of any issuer if those officers and Trustees of the trust and those officers and directors of FMR who individually own more than 1/2 of 1% of the securities of such issuer together own more than 5% of such issuer's securities. (xii) The fund does not currently intend to invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. For purposes of limitations (1) and (7), FMR identifies the issuer of a security depending on its terms and conditions. In identifying the issuer, FMR will consider the entity or entities responsible for payment of interest and repayment of principal and the source of such payments; the way in which assets and revenues of an issuing political subdivision are separated from those of other political entities; and whether a governmental body is guaranteeing the security. For purposes of limitation (x), pass-through entities and other special purpose vehicles or pools of financial assets, such as issuers of asset-backed securities or investment companies, are not considered "business enterprises." For the money market fund's policies on quality and maturity, see the section entitled "Quality and Maturity" on page . INVESTMENT LIMITATIONS OF SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND (SPARTAN SHORT-INTERMEDIATE MUNICIPAL) THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT: (1) issue senior securities, except as permitted under the Investment Company Act of 1940; (2) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (3) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (4) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S. territory or possession or a state or local government, or a political subdivision of any of the foregoing) if, as a result, more than 25% of the fund's total assets would be invested in securities of companies whose principal business activities are in the same industry; (5) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (6) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (7) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties (but this limitation does not apply to purchases of debt securities or to repurchase agreements). (8) The fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. (i) To meet federal tax requirements for qualification as a "regulated investment company," the fund limits its investments so that at the close of each quarter of its taxable year: (a) with regard to at least 50% of total assets, no more than 5% of total assets are invested in the securities of a single issuer, and (b) no more than 25% of total assets are invested in the securities of a single issuer. Limitations (a) and (b) do not apply to "Government securities" as defined for federal tax purposes. (ii) The fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (iii) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iv) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (2)). The fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (v) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (vi) The fund does not currently intend to engage in repurchase agreements or make loans, but this limitation does not apply to purchases of debt securities. (vii) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (viii) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (ix) The fund does not currently intend to purchase the securities of any issuer if those officers and Trustees of the trust and those officers and directors of FMR who individually own more than 1/2 of 1% of the securities of such issuer together own more than 5% of such issuer's securities. (x) The fund does not currently intend to invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. For purposes of limitations (4), and (i), FMR identifies the issuer of a security depending on its terms and conditions. In identifying the issuer, FMR will consider the entity or entities responsible for payment of interest and repayment of principal and the source of such payments; the way in which assets and revenues of an issuing political subdivision are separated from those of other political entities; and whether a governmental body is guaranteeing the security. For the fund's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions" beginning on page . INVESTMENT LIMITATIONS OF SPARTAN INTERMEDIATE MUNICIPAL FUND (SPARTAN INTERMEDIATE MUNICIPAL) THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT: (1) issue senior securities, except as permitted under the Investment Company Act of 1940; (2) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (3) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (4) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S. territory or possession or a state or local government, or a political subdivision of any of the foregoing) if, as a result, more than 25% of the fund's total assets would be invested in securities of companies whose principal business activities are in the same industry; (5) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (6) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (7) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements. (8) The fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. (i) To meet federal tax requirements for qualification as a "regulated investment company," the fund limits its investments so that at the close of each quarter of its taxable year: (a) with regard to at least 50% of total assets, no more than 5% of total assets are invested in the securities of a single issuer, and (b) no more than 25% of total assets are invested in the securities of a single issuer. Limitations (a) and (b) do not apply to "Government securities" as defined for federal tax purposes. (ii) The fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (iii) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iv) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (2)). The fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (v) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (vi) The fund does not currently intend to invest in interests in real estate investment trusts that are not readily marketable, or to invest in interests in real estate limited partnerships that are not listed on the New York Stock Exchange or the American Stock Exchange or traded on the NASDAQ National Market System. (vii) The fund does not currently intend to engage in repurchase agreements or make loans, but this limitation does not apply to purchases of debt securities. (viii) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (ix) The fund does not currently intend to purchase the securities of any issuer (other than securities issued or guaranteed by domestic or foreign governments or political subdivisions thereof) if, as a result, more than 5% of its total assets would be interested in the securities of business enterprises that, including predecessors, have a record of less than three years of continuous operation. (x) The fund does not currently intend to purchase warrants, valued at the lower of cost or market, in excess of 5% of the fund's net assets. Included in that amount, but not to exceed 2% of the fund's net assets may be warrants that are not listed on the New York Stock Exchange or the American Stock Exchange. Warrants acquired by the fund in units or attached to securities are not subject to these restrictions. (xi) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (xii) The fund does not currently intend to invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. For purposes of limitations (4) and (i), FMR identifies the issuer of a security depending on its terms and conditions. In identifying the issuer, FMR will consider the entity or entities responsible for payment of interest and repayment of principal and the source of such payments; the way in which assets and revenues of an issuing political subdivision are separated from those of other political entities; and whether a governmental body is guaranteeing the security. For purposes of limitation (ix), pass-through entities and other special purpose vehicles or pools of financial assets, such as issuers of asset-backed securities or investment companies, are not considered "business enterprises." 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 SPARTAN MUNICIPAL INCOME PORTFOLIO (SPARTAN MUNICIPAL INCOME) THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT: (1) issue senior securities, except as permitted under the Investment Company Act of 1940; (2) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (3) underwrite securities issued by others, except to the extent that the fund may be deemed to be 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 political subdivision of any of the foregoing) if, as a result, more than 25% of the fund's total assets would be invested in securities of companies whose principal business activities are in the same industry; (5) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business). (6) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (7) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements. (8) The fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. (i) To meet federal tax requirements for qualification as a "regulated investment company," the fund limits its investments so that at the close of each quarter of its taxable year: (a) with regard to at least 50% of total assets, no more than 5% of total assets are invested in the securities of a single issuer, and (b) no more than 25% of total assets are invested in the securities of a single issuer. Limitations (a) and (b) do not apply to "Government securities" as defined for federal tax purposes. (ii) The fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (iii) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iv) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (2)). The fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (v) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (vi) The fund does not currently intend to invest in interests in real estate investment trusts that are not readily marketable, or to invest in interests in real estate limited partnerships that are not listed on the New York Stock Exchange or the American Stock Exchange or traded on the NASDAQ National Market System. (vii) The fund does not currently intend to purchase or sell futures contracts on physical commodities. (viii) 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. (ix) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (x) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (xi) The fund does not currently intend to invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. For purposes of limitations (4) and (i), FMR identifies the issuer of a security depending on its terms and conditions. In identifying the issuer, FMR will consider the entity or entities responsible for payment of interest and repayment of principal and the source of such payments; the way in which assets and revenues of an issuing political subdivision are separated from those of other political entities; and whether a governmental body is guaranteeing the security. For the fund's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions" beginning on page . INVESTMENT LIMITATIONS OF SPARTAN AGGRESSIVE MUNICIPAL FUND (SPARTAN AGGRESSIVE MUNICIPAL) THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT: (1) issue senior securities, except as permitted under the Investment Company Act of 1940; (2) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (3) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (4) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S. territory or possession or a state or local government, or a political subdivision of any of the foregoing) if, as a result, more than 25% of the fund's total assets would be invested in securities of companies whose principal business activities are in the same industry; (5) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (6) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (7) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements. (8) The fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. (i) To meet federal tax requirements for qualification as a "regulated investment company," the fund limits its investments so that at the close of each quarter of its taxable year: (a) with regard to at least 50% of total assets, no more than 5% of total assets are invested in the securities of a single issuer, and (b) no more than 25% of total assets are invested in the securities of a single issuer. Limitations (a) and (b) do not apply to "Government securities" as defined for federal tax purposes. (ii) The fund does not currently intend to sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short. (iii) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (iv) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (2)). The fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (v) The fund does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. (vi) The fund does not currently intend to invest in interests in real estate investment trusts that are not readily marketable, or to invest in interests in real estate limited partnerships that are not listed on the New York Stock Exchange or the American Stock Exchange or traded on the NASDAQ National Market System. (vii) The fund does not currently intend to engage in repurchase agreements or make loans, but this limitation does not apply to purchases of debt securities. (viii) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger (ix) The fund does not currently intend to purchase the securities of any issuer (other than securities issued or guaranteed by domestic or foreign governments or political subdivisions thereof) if, as a result, more than 5% of its total assets would be invested in the securities of business enterprises that, including predecessors, have a record of less than three years of continuous operation. (x) The fund does not currently intend to purchase warrants, valued at the lower of cost or market, in excess of 5% of the fund's net assets. Included in that amount, but not to exceed 2% of the fund's net assets, may be warrants that are not listed on the New York Stock Exchange or the American Stock Exchange. Warrants acquired by the fund in units or attached to securities are not subject to these restrictions. (xi) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (xii) The fund does not currently intend to invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. For purposes of limitations (4) and (i), FMR identifies the issuer of a security depending on its terms and conditions. In identifying the issuer, FMR will consider the entity or entities responsible for payment of interest and repayment of principal and the source of such payments; the way in which assets and revenues of an issuing political subdivision are separated from those of other political entities; and whether a governmental body is guaranteeing the security. For purposes of limitation (ix), pass-through entities and other special purpose vehicles or pools of financial assets, such as issuers of asset-backed securities or investment companies, are not considered "business enterprises." For the fund's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions" beginning on page . Each fund's investments must be consistent with its investment objective and policies. Accordingly, not all of the security types and investment techniques discussed below are eligible investments for each of the funds. AFFILIATED BANK TRANSACTIONS . A fund may engage in transactions with financial institutions that are, or may be considered to be, "affiliated persons" of the fund under the Investment Company Act of 1940. These transactions may include repurchase agreements with custodian banks; short-term obligations of, and repurchase agreements with, the 50 largest U.S. banks (measured by deposits); municipal securities; U.S. government securities with affiliated financial institutions that are primary dealers in these securities; short-term currency transactions; and short-term borrowings. In accordance with exemptive orders issued by the Securities and Exchange Commission (SEC), the Board of Trustees has established and periodically reviews procedures applicable to transactions involving affiliated financial institutions. DELAYED-DELIVERY TRANSACTIONS . Each fund may buy and sell securities on a delayed-delivery or when-issued basis. These transactions involve a commitment by a fund to purchase or sell specific securities at a predetermined price or yield, with payment and delivery taking place after the customary settlement period for that type of security. Typically, no interest accrues to the purchaser until the security is delivered. The bond 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 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 state legislatures 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 re-evaluate 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 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 funds intend to comply with Rule 4.5 under the Commodity Exchange Act, which limits the extent to which the funds can commit assets to initial margin deposits and option premiums. In addition, each fund will not: (a) sell futures contracts, purchase put options, or write call options if, as a result, more than 25% of the fund's total assets would be hedged with futures and options under normal conditions; (b) purchase futures contracts or write put options if, as a result, the fund's total obligations upon settlement or exercise of purchased futures contracts and written put options would exceed 25% of its total assets; or (c) purchase call options if, as a result, the current value of option premiums for call options purchased by the fund would exceed 5% of the fund's total assets. These limitations do not apply to options attached to or acquired or traded together with their underlying securities, and do not apply to securities that incorporate features similar to options. The above limitations on the funds' investments in futures contracts and options, and the funds' policies regarding futures contracts and options discussed elsewhere in this Statement of Additional Information, may be changed as regulatory agencies permit. LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid secondary market will exist for any particular options or futures contract at any particular time. Options may have relatively low trading volume and liquidity if their strike prices are not close to the underlying instrument's current price. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts, and may halt trading if a contract's price moves upward or downward more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for a fund to enter into new positions or close out existing positions. If the secondary market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and potentially could require a fund to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, a fund's access to other assets held to cover its options or futures positions could also be impaired. OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of over-the-counter (OTC) options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows the funds greater flexibility to tailor an option to its needs, OTC options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the fund pays the current market price for the option (known as the option premium). Options have various types of underlying instruments, including specific securities, indices of securities prices, and futures contracts. The fund may terminate its position in a put option it has purchased by allowing it to expire or by exercising the option. If the option is allowed to expire, the fund will lose the entire premium it paid. If the fund exercises the option, it completes the sale of the underlying instrument at the strike price. A fund may also terminate a put option position by closing it out in the secondary market at its current price, if a liquid secondary market exists. The buyer of a typical put option can expect to realize a gain if security prices fall substantially. However, if the underlying instrument's price does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss (limited to the amount of the premium paid, plus related transaction costs). The features of call options are essentially the same as those of put options, except that the purchaser of a call option obtains the right to purchase, rather than sell, the underlying instrument at the option's strike price. A call buyer typically attempts to participate in potential price increases of the underlying instrument with risk limited to the cost of the option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option. WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the opposite side of the transaction from the option's purchaser. In return for receipt of the premium, the fund assumes the obligation to pay the strike price for the option's underlying instrument if the other party to the option chooses to exercise it. When writing an option on a futures contract, the fund will be required to make margin payments to an FCM as described above for futures contracts. A fund may seek to terminate its position in a put option it writes before exercise by closing out the option in the secondary market at its current price. If the secondary market is not liquid for a put option the fund has written, however, the fund must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes, and must continue to set aside assets to cover its position. If security prices rise, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the loss from purchasing the underlying instrument directly, however, because the premium received for writing the option should mitigate the effects of the decline. Writing a call option obligates a fund to sell or deliver the option's underlying instrument, in return for the strike price, upon exercise of the option. The characteristics of writing call options are similar to those of writing put options, except that writing calls generally is a profitable strategy if prices remain the same or fall. Through receipt of the option premium, a call writer mitigates the effects of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in security price increases. ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. Under the supervision of the Board of Trustees, FMR determines the liquidity of a fund's investments and, through reports from FMR, the Board monitors investments in illiquid instruments. In determining the liquidity of a fund's investments, FMR may consider various factors, including (1) the frequency of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the nature of the security (including any demand or tender features), and (5) the nature of the marketplace for trades (including the ability to assign or offset the fund's rights and obligations relating to the investment). For the money market fund, FMR may determine some restricted securities and municipal lease obligations to be illiquid. For the bond 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 fund 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. Each fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. Indexed securities may have principal payments as well as coupon payments that depend on the performance of one or more interest rates. Their coupon rates or principal payments may change by several percentage points for every 1% interest rate change. One example of indexed securities is inverse floaters. The performance of indexed securities depends to a great extent on the performance of the security or other instrument to which they are indexed, and may also be influenced by interest rate changes. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline substantially if the issuer's creditworthiness deteriorates. Indexed securities may be more volatile than the underlying instruments. INTERFUND BORROWING PROGRAM. 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 will participate in the interfund borrowing program only as a borrower. Interfund borrowings normally extend overnight, but can have a maximum duration of seven days. A fund will borrow through the program only when the costs are equal to or lower than the costs of bank loans. Loans may be called on one day's notice, and a fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. 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. Spartan Municipal Income and Spartan Aggressive Municipal may invest a portion of their assets in lower-quality municipal securities as described in the Prospectus. While the market for 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 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 fund. MUNICIPAL SECTORS: ELECTRIC UTILITIES INDUSTRY. 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 INDUSTRY. The health care industry is subject to regulatory action by a number of private and governmental agencies, including federal, state, and local governmental agencies. A major source of revenues for the health care industry is payments from 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. 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. 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, Spartan Municipal Money 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 another entity in determining whether to purchase a security supported by a letter of credit guarantee, 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 OR FLOATING RATE OBLIGATIONS, including certain participation interests in municipal instruments, have interest rate adjustment formulas that help stabilize their market values. Many variable and floating rate instruments also carry demand features that permit a fund to sell them at par value plus accrued interest on short notice. In many instances bonds and participation interests have tender options or demand features that permit a fund to tender (or put) the bonds to an institution at periodic intervals and to receive the principal amount thereof. A fund considers variable rate instruments structured in this way (Participating VRDOs) to be essentially equivalent to other VRDOs it purchases. The IRS has not ruled whether the interest on Participating VRDOs is tax-exempt and, accordingly, a fund intends to purchase these instruments based on opinions of bond counsel. A fund may also invest in fixed-rate bonds that are subject to third party puts and in participation interests in such bonds held by a bank in trust or otherwise. 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. 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, 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 years ended August 31, 1995 and 1994, the portfolio turnover rates amounted to: 1995 1994 Spartan Short-Intermediate Municipal 51% 44% Spartan Intermediate Municipal 44% 69% Spartan Municipal Income 69% 48% Spartan Aggressive Municipal 51% 64% For fiscal 1995, 1994, and 1993, the funds paid no brokerage commissions. From time to time the Trustees will review whether the recapture for the benefit of the funds of some portion of the brokerage commissions or similar fees paid by the funds on portfolio transactions is legally permissible and advisable. Each fund seeks to recapture soliciting broker-dealer fees on the tender of portfolio securities, but at present no other recapture arrangements are in effect. The Trustees intend to continue to review whether recapture opportunities are available and are legally permissible and, if so, to determine in the exercise of their business judgment whether it would be advisable for each fund to seek such recapture. Although the Trustees and officers of each fund are substantially the same as those of other funds managed by FMR, investment decisions for each fund are made independently from those of other funds managed by FMR or accounts managed by FMR affiliates. It sometimes happens that the same security is held in the portfolio of more than one of these funds or accounts. Simultaneous transactions are inevitable when several funds and accounts are managed by the same investment adviser, particularly when the same security is suitable for the investment objective of more than one fund or account. When two or more funds are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in accordance with procedures believed to be appropriate and equitable for each fund. In some cases this system could have a detrimental effect on the price or value of the security as far as each fund is concerned. In other cases, however, the ability of the funds to participate in volume transactions will produce better executions and prices for the funds. It is the current opinion of the Trustees that the desirability of retaining FMR as investment adviser to each fund outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions. VALUATION OF PORTFOLIO SECURITIES SPARTAN SHORT-INTERMEDIATE MUNICIPAL, SPARTAN INTERMEDIATE MUNICIPAL, SPARTAN MUNICIPAL INCOME, AND SPARTAN AGGRESSIVE MUNICIPAL. Valuations of portfolio securities furnished by the pricing service employed by the funds are based upon a computerized matrix system or appraisals by the pricing service, in each case in reliance upon information concerning market transactions and quotations from recognized municipal securities dealers. The methods used by the pricing service and the quality of valuations so established are reviewed by officers of the funds and FSC under the general supervision of the Board of Trustees. There are a number of pricing services available, and the Trustees, or officers acting on behalf of the Trustees, on the basis of on-going evaluation of these services, may use other pricing services or discontinue the use of any pricing service in whole or in part. Futures contracts and options are valued on the basis of market quotations if available. SPARTAN MUNICIPAL MONEY. The fund values its investments on the basis of amortized costs. This technique involves valuing an instrument at its cost as adjusted for amortization of premium or accretion of discount rather than its value based on current market quotations or appropriate substitutes which reflect current market conditions. The amortized cost value of an instrument may be higher or lower than the price the fund would receive if it sold the instrument. Valuing the fund's instruments on the basis of amortized cost and use of the term "money market fund" are permitted by Rule 2a-7 under the Investment Company Act of 1940. The fund must adhere to certain conditions under Rule 2a-7. The Board of Trustees of the trust oversees FMR's adherence to SEC rules concerning money market funds, and has established procedures designed to stabilize the fund's 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 Spartan Municipal Money's amortized cost per share may result in material dilution or other unfair results to shareholders, the Trustees have agreed to take such corrective action, if any, as they deem appropriate to eliminate or reduce, to the extent reasonably practicable, the dilution or unfair results. Such corrective action could include selling portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends; redeeming shares in kind; establishing NAV by using available market quotations; and such other measures as the Trustees may deem appropriate. During periods of declining interest rates, the money market fund's yields based on amortized cost may be higher than the yields based on market valuations. Under these circumstances, a shareholder in the fund would be able to obtain a somewhat higher yield than would result if the fund utilized market valuations to determine its NAV. The converse would apply in a period of rising interest rates. 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 funds, yields are computed by dividing a 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 a 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 Spartan Municipal Income's .50% redemption fee , or Spartan Aggressive Municipal's 1.00% redemption fee , which apply to shares held less than 180 days. Income is calculated for purposes of the bond funds' 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 each 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, each 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. In calculating a bond fund's yield, the fund may from time to time use a portfolio security's coupon rate instead of its yield to maturity in order to reflect the risk premium on that security. This practice will have the effect of reducing the fund's yield. 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 a fund's yield will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the fund's holdings, thereby reducing 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 tax rate. If only a portion of a fund's yield is tax-exempt, only that portion is adjusted in the calculation. The following table shows the effect of a shareholder's tax status on effective yield under federal income tax laws for 1995. It 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 2% to 8%. 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 income tax, other income received by the funds may be taxable. 1995 TAX RATES AND TAX-EQUIVALENT YIELDS
Federal If individual tax-exempt yield is: Taxable Income* Tax 2% 3% 4% 5% 6% 7% 8% Single Return Joint Return Bracket** Then taxable-equivalent yield is $23,351 - $56,550 $39,001 - $94,250 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% $56,551 - 117,950 $94,251 - $143,600 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59% $117,951 - $256,500 $143,601 - $256,500 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% $256,501 and above $256,501 and above 39.6% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
* 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. A fund may invest a portion of its assets in obligations that are subject to federal income tax. When a fund invests in these obligations, its tax-equivalent yields will be lower. In the table above, tax-equivalent yields are calculated assuming investments are 100% federally 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 Spartan Municipal Income's .50% or Spartan Aggressive Municipal's 1.00% redemption fee on shares held less than 180 days. Excluding a fund's redemption fee from a total return calculation produces a higher total return figure. Total returns, yields, and other performance information may be quoted numerically or in a table, graph, or similar illustration, and may omit or include the effect of the $5.00 account closeout fee. NET ASSET VALUE. Charts and graphs using a fund's net asset values, adjusted net asset values, and benchmark indices may be used to exhibit performance. An adjusted NAV includes any distributions paid by a fund and reflects all elements of its return. Unless otherwise indicated, a fund's adjusted NAVs are not adjusted for sales charges, if any. HISTORICAL FUND RESULTS. The following table shows the money market fund's 7-day yield, each bond fund's 30-day yield , and the funds' tax-equivalent yields and total returns fo r the periods ended August 31, 1995. Total return figures include the effect of t he $5.00 account closeout fee based on an average size account, but not Spartan Municipal Income's and Spartan Aggressive Municipal's .50% and 1.00% redemption fees, respectively, applicable to shares held less than 180 days. The tax-equivalent yield for a fund is based on a 36% federal income tax rate. Note that each fund may invest in securities whose income is subject to the federal alternative minimum tax.
Average Annual Total Returns Cumulative Total Returns 7-Day 30-Day Tax Equivalen One Five Life of One Five Life of t Yield Yield Yield Year Years Fund** Year Years Fund** Spartan Municipal 3.48% n/a 5.44% 3.59% n/a 3.39% 3.59% n/a 16.69% Money * Spartan n/a 4.21% 6.58% 5.94% 6.22% 5.20% 5.94% 35.21% 55.36% Short-Intermediate Municipal Spartan Intermediate n/a 4.94% 7.72% 7.49% n/a 5.61% 7.49% n/a 13.69% Municipal* Spartan Municipal n/a 5.49% 8.58% 8.19% 8.64% 8.37% 8.19% 51.35% 52.50% Income Spartan Aggressive n/a 6.06% 9.47% 7.96% n/a 6.05% 7.96% n/a 14.74% Municipal
* If FMR had not reimbursed certain fund expenses during these periods, Spartan Municipal Money's and Spartan Intermediate Municipal's yield and tax-equivalent yield would have been 3.38% and 5.28%, and 4.84% and 7.56%, respectively, and the total returns would have been lower. ** From commencement of operations: Spartan Municipal Money - January 14, 1991; Spartan Short-Intermediate Municipal - December 24, 1986; Spartan Intermediate Municipal - April 26, 1993; Spartan Municipal Income - June 4, 1990; Spartan Aggressive Municipal - April 29, 1993. The following tables show the income and capital elements of each fund's cumulative total return. The tables compare each fund's return to the record of the Standard & Poor's Composite Index of 500 Stocks (S&P 500(registered trademark)), the Dow Jones Industrial Average (DJIA), and the cost of living (measured by the Consumer Price Index, or CPI) over the same period. The CPI information is as of the month end closest to the initial investment date for each fund. The S&P 500 and DJIA comparisons are provided to show how each fund's total return compared to the record of a broad average of common stocks and a narrower set of stocks of major industrial companies, respectively, over the same period. Of course, since Spartan Municipal Money invests in short-term fixed income securities and the other fund's invest in fixed-income securities, common stocks represent a different type of investment from the funds. Common stocks generally offer greater growth potential than the funds, but generally experience greater price volatility, which means greater potential for loss. In addition, common stocks generally provide lower income than a fixed-income investment such as the funds. Figures for the S&P 500 and DJIA are based on the prices of unmanaged groups of stocks and, unlike the funds' returns, do not include the effect of paying brokerage commissions or other costs of investing. SPARTAN MUNICIPAL MONEY FUND. During the period from January 14, 1991 (commencement of operations) to August 31, 1995, a hypothetical $10,000 investment in S part an Municipal Money Fund would have grown to $11,670, assuming all distributions were reinvested. This was a period of fluctuating interest rates and bond prices and the figures below should not be considered representative of the dividend income or capital gain or loss that could be realized from an investment in the fund today. SPARTAN MUNICIPAL MONEY FUND INDICES
Period Value of Value of Total S&P 500 DJIA Cost of Ended Initial Reinvested Value Living August 31 $10,000 Dividend Investment Distributions 1995 $ 10,000 $ 1,670 $ 11,670 $ 20,415 $ 21,062 $ 11,428 1994 $ 10,000 $ 1,265 $ 11,265 $ 16,810 $ 17,424 $ 11,136 1993 $ 10,000 $ 990 $ 10,990 $ 15,938 $ 15,820 $ 10,822 1992 $ 10,000 $ 705 $ 10,705 $ 13,832 $ 13,704 $ 10,531 1991* $ 10,000 $ 303 $ 10,303 $ 12,815 $ 12,431 $ 10,209
* From January 14, 1991 (commencement of operations). Explanatory Notes: With an initial investment of $10,000 made on January 14, 1991, 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 for the period covered (their cash value at the time they were reinvested), amounted to $11,670. If distributions had not been reinvested, the amount of distributions earned from the fund over time would have been smaller, and cash payments (dividends) for the period would have amounted to $1,546. The fund did not distribute any capital gains during the period. Tax consequences of different investments have not been factored into the above figures. The figures in the table do not reflect the effect of the fund's $5.00 account closeout fee. SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND. During the period from December 24, 1986 (commencement of operations) to August 31, 1995 , a hypothetical $10,000 investment in Spartan Short-Intermediate Municipal Fund would have grown to $15,537, assuming all distributions were reinvested. This was a period of fluctuating interest rates and bond prices and the figures below should not be considered representative of the dividend income or capital gain or loss that could be realized from an investment in the fund today.
Spartan Short-Intermediate Municipal Fund INDICES
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of August 31 Initial Reinvested Reinvested Value Living $10,000 Dividend Capital Gain Investment Distributions Distributions 1995 $ 9,980 $ 5,543 $ 14 $ 15,537 $ 30,050 $ 31,797 $ 13,837 1994 $ 9,840 $ 4,810 $ 14 $ 14,664 $ 24,743 $ 26,306 $ 13,484 1993 $ 10,090 $ 4,279 $ 0 $ 14,369 $ 23,460 $ 23,884 $ 13,104 1992 $ 9,840 $ 3,543 $ 0 $ 13,383 $ 20,359 $ 20,689 $ 12,751 1991 $ 9,640 $ 2,805 $ 0 $ 12,445 $ 18,863 $ 18,768 $ 12,362 1990 $ 9,450 $ 2,040 $ 0 $ 11,490 $ 14,863 $ 15,552 $ 11,910 1989 $ 9,450 $ 1,394 $ 0 $ 10,844 $ 15,644 $ 15,674 $ 11,276 1988 $ 9,470 $ 785 $ 0 $ 10,255 $ 11,236 $ 11,213 $ 10,769 1987* $ 9,660 $ 285 $ 0 $ 9,945 $ 13,666 $ 14,188 $ 10,353
* From December 24, 1986 (commencement of operations). Explanatory Notes: With an initial investment of $10,000 made on December 24, 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 $15,393. 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 $4,278 for dividends and $10 for capital gain distributions. Tax consequences of different investments have not been factored into the above figures. The figures in the table do not reflect the effect of the fund's $5.00 account closeout fee. SPARTAN INTERMEDIATE MUNICIPAL FUND. During the period from April 26, 1993 (commencement of operations) to August 31, 1 995 , a hypothetical $10,000 investment in Spartan Intermediate Municipal Fund would have grown to $11,370, assuming all distributions were reinvested. This was a period of fluctuating interest rates and bond prices and the figures below should not be considered representative of the dividend income or capital gain or loss that could be realized from an investment in the fund today.
Spartan Intermediate Municipal Fund INDICES
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of August 31 Initial Reinvested Reinvested Value Living $10,000 Dividend Capital Gain Investment Distributions Distributions 1995 $ 10,060 $ 1,270 $ 40 $ 11,370 $ 13,737 $ 14,381 $ 10,618 1994 $ 9,840 $ 697 $ 39 $ 10,576 $ 11,311 $ 11,897 $ 10,347 1993* $ 10,340 $ 182 $ 0 $ 10,522 $ 10,725 $ 10,802 $ 10,056
* From April 26, 1993 (commencement of operations). Explanatory Notes: With an initial investment of $10,000 made on April 26, 1993, 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 $11,295. 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 $1,181 for dividends and $40 for capital gain distributions. Tax consequences of different investments have not been factored into the above figures. The figures in the table do not reflect the effect of the fund's $5.00 account closeout fee. SPARTAN MUNICIPAL INCOME FUND. During the period from June 4, 1990 (commencement of operations) to August 31, 1995, a hypothetical $10,000 investment in Spartan Municipal Income Fund would have grown to $15,251, assuming all distributions were reinvested. This was a period of fluctuating interest rates and bond prices and the figures below should not be considered representative of the dividend income or capital gain or loss that could be realized from an investment in the fund today. Spartan Municipal Income Fund INDICES
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of August 31 Initial Reinvested Reinvested Value Living $10,000 Dividend Capital Gain Investment Distributions Distributions 1995 $ 10,180 $ 4,182 $ 889 $ 15,251 $ 18,106 $ 18,604 $ 11,834 1994 $ 10,070 $ 3,263 $ 762 $ 14,095 $ 14,908 $ 15,391 $ 11,533 1993 $ 11,370 $ 2,790 $ 137 $ 14,297 $ 14,135 $ 13,974 $ 11,207 1992 $ 10,710 $ 1,835 $ 46 $ 12,591 $ 12,267 $ 12,105 $ 10,906 1991 $ 10,360 $ 990 $ 0 $ 11,350 $ 11,365 $ 10,981 $ 10,573 1990* $ 9,890 $ 186 $ 0 $ 10,076 $ 8,955 $ 9,099 $ 10,186
* From June 4, 1990 (commencement of operations). Explanatory Notes: With an initial investment of $10,000 made on June 4, 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 $15,188. 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 $3,491 for dividends and $740 for capital gain distributions. Tax consequences of different investments have not been factored into the above figures. The figures in the table do not reflect the effect of the fund's $5.00 account closeout fee or the fund's .50% redemption fee applicable to shares held less than 180 days. S PARTAN AGGRESSIVE MUNICIPAL FUND . During the period from April 29, 1993 (commencement of operations) to August 31, 1995 , a hypothetical $10,000 investment in Spartan Aggressive Municipal Fund would have grown to $11,475, assuming all distributions were reinvested. This was a period of fluctuating interest rates and bond prices and the figures below should not be considered representative of the dividend income or capital gain or loss that could be realized from an investment in the fund today. Spartan Aggressive Municipal Fund INDICES
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of August 31 Initial Reinvested Reinvested Value Living $10,000 Dividend Capital Gain Investment Distributions Distributions 1995 $ 9,930 $ 1,525 $ 20 $ 11,475 $ 13,704 $ 14,378 $ 10,618 1994 $ 9,790 $ 819 $ 19 $ 10,629 $ 11,284 $ 11,895 $ 10,347 1993* $ 10,350 $ 214 $ 0 $ 10,564 $ 10,699 $ 10,800 $ 10,056
* From April 29, 1993 (commencement of operations). Explanatory Notes: With an initial investment of $10,000 made on April 29, 1993, 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 $11,538. 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 $1,414 for dividends and $20 for capital gain distributions. Tax consequences of different investments have not been factored into the above figures. The figures in the table do not reflect the effect of the fund's $5.00 account closeout fee or the fund's 1.00% redemption fee applicable to shares held less than 180 days. PERFORMANCE COMPARISONS. A fund's performance may be compared to the performance of other mutual funds in general, or to the performance of particular types of mutual funds. These comparisons may be expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an independent service located in Summit, New Jersey that monitors the performance of mutual funds. Lipper generally ranks funds on the basis of total return, assuming reinvestment of distributions, but does not take sales charges or redemption fees into consideration, and is prepared without regard to tax consequences. Lipper may also rank funds based on yield. In addition to the mutual fund rankings, a fund's performance may be compared to stock, bond, and money market mutual fund performance indices prepared by Lipper or other organizations. When comparing these indices, it is important to remember the risk and return characteristics of each type of investment. For example, while stock mutual funds may offer higher potential returns, they also carry the highest degree of share price volatility. Likewise, money market funds may offer greater stability of principal, but generally do not offer the higher potential returns available from stock mutual funds. From time to time, a fund's performance may also be compared to other mutual funds tracked by financial or business publications and periodicals. For example, the fund may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk-adjusted performance. Rankings that compare the performance of Fidelity funds to one another in appropriate categories over specific periods of time may also be quoted in advertising. A fund may be compared in advertising to Certificates of Deposit (CDs) or other investments issued by banks or other depository institutions. Mutual funds differ from bank investments in several respects. For example, a fund may offer greater liquidity or higher potential returns than CDs, a fund does not guarantee your principal or your return, and fund shares are not FDIC insured. Fidelity may provide information designed to help individuals understand their investment goals and explore various financial strategies. Such information may include information about current economic, market, and political conditions; materials that describe general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting; questionnaires designed to help create a personal financial profile; worksheets used to project savings needs based on assumed rates of inflation and hypothetical rates of return; and action plans offering investment alternatives. Materials may also include discussions of Fidelity's asset allocation funds and other Fidelity funds, products, and services. Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI), and combinations of various capital markets. The performance of these capital markets is based on the returns of different indices. Fidelity funds may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. Performance comparisons may also include the value of a hypothetical investment in any of these capital markets. The risks associated with the security types in any capital market may or may not correspond directly to those of the funds. Ibbotson calculates total returns in the same method as the funds. The funds may also compare performance to that of other compilations or indices that may be developed and made available in the future. A fund may compare its performance or the performance of securities in which it may invest to averages published by IBC USA (Publications), Inc. of Ashland, Massachusetts. These averages assume reinvestment of distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All-Tax-Free, which is reported in the MONEY FUND REPORT(registered trademark), covers over 389 tax-free money market funds. The Bond Fund Report AverageS(trademark)/All-Tax-Free, which is reported in the BOND FUND REPORT(registered trademark), covers over 569 tax-free bond funds. When evaluating comparisons to money market funds, investors should consider the relevant differences in investment objectives and policies. Specifically, money market funds invest in short-term, high-quality instruments and seek to maintain a stable $1.00 share price. Bond funds, however, 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, including model portfolios or allocations, 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 August 31, 1995 , FMR advised over $26.5 billion in tax-free fund assets, $79 billion in money market fund assets, $218 billion in equity fund assets, $56 billion in international fund assets, and $23 billion in Spartan fund assets. The funds may reference the growth and variety of money market mutual funds and the adviser's innovation and participation in the industry. The equity funds under management figure represents the largest amount of equity fund assets under management by a mutual fund investment adviser in the United States, making FMR America's leading equity (stock) fund manager. FMR, its subsidiaries, and affiliates maintain a worldwide information and communications network for the purpose of researching and managing investments abroad. In addition to performance rankings, each fund may compare its total expense ratio to the average total expense ratio of similar funds tracked by Lipper. A fund's total expense ratio is a significant factor in comparing bond and money market investments because of its effect on yield. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Each fund is open for business and its net asset value per share (NAV) is calculated each day the New York Stock Exchange (NYSE) is open for trading. The NYSE has designated the following holiday closings for 1995: New Year's Day (observed), 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. Each fund purchases municipal securities that are free from federal income tax based on opinions of bond counsel regarding their tax status. These opinions generally will be based on covenants by the issuers or other parties regarding continuing compliance with federal tax requirements. If at any time the covenants are not complied with, distribution to shareholders of interest on a security could become federally taxable retroactive to the date the security was issued. For certain types of structured securities, opinions of counsel may also be based on the effect of the structure on the federal tax treatment of the income. As a result of the Tax Reform Act of 1986, interest on certain "private activity" securities is subject to the federal alternative minimum tax (AMT), although the interest continues to be excludable from gross income for other tax purposes. Interest from private activity securities will be considered tax-exempt for purposes of the Spartan Municipal Money, Spartan Short-Intermediate Municipal, and Spartan Municipal Income funds' policies of investing so that at least 80% of their income is free from federal income tax. Interest from private activity securities will be considered tax-exempt for purposes of Spartan Intermediate Municipal and Spartan Aggressive Municipal funds' policies of investing so that at least 80% of their assets are invested in municipal securities whose interest 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 Spartan Municipal Money, Spartan Short-Intermediate Municipal, and Spartan Municipal Income funds' policies of investing so that at least 80% of their income is free from federal income tax. Spartan Municipal Money 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. 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. As of August 31, 1995, Spartan Municipal Money had a capital loss carryforward aggregating approximately $73,900. This loss carryforward, of which $900, $700, $45,800, and $26,500 will expire on August 31, 199 9, 2001, 2002, and 2003 , respectively, is available to offset future capital gains. The table below shows the approximate capital loss carryforward available to offset future capital gains as of August 31, 1995 for each of the bond funds. Each fund's loss carryforward will expire on August 31, 2003. Spartan Spartan Spartan Spartan Short-Intermediate Intermediate Municipal Aggressive Municipal Municipal Income Municipal $ 5,803,000 $ 3,556,000 $ 2,188,000 $ 1,047,000 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. Spartan Municipal Money is treated as a separate entity from the other funds of Fidelity Union Street Trust II and Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan Municipal Income, and Spartan Aggressive Municipal are treated as separate entities from the other funds of Fidelity Union Street Trust 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 three of its divisions as follows: FSC, which is the transfer and shareholder servicing agent for certain of the funds advised by FMR; Fidelity Investments Institutional Operations Company, which performs shareholder servicing functions for institutional customers and funds sold through intermediaries; and Fidelity Investments Retail Marketing Company, which provides marketing services to various companies within the Fidelity organization. Fidelity investment personnel may invest in securities for their own account pursuant to a code of ethics that sets forth all employees' fiduciary responsibilities regarding the funds, establishes procedures for personal investing and restricts certain transactions. For example, all personal trades in most securities require pre-clearance, and participation in initial public offerings is prohibited. In addition, restrictions on the timing of 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 trusts 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 Union Street Trust II II prior to the money market fund's conversion from a series of a Massachusetts business trust served Fidelity Union Street Trust 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 (65), 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 (54), Trustee and Senior Vice President, is President of FMR; and President and a Director of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining Corporation (1994). Prior to February 1994, he was President of Greenhill Petroleum Corporation (petroleum exploration and production, 1990). Until March 1990, Mr. Cox was President and Chief Operating Officer of Union Pacific Resources Company (exploration and production). He is a Director of Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies (engineering). In addition, he served on the Board of Directors of the Norton Company (manufacturer of industrial devices, 1983-1990) and continues to serve on the Board of Directors of the Texas State Chamber of Commerce, and is a member of advisory boards of Texas A&M University and the University of Texas at Austin. PHYLLIS BURKE DAVIS (63), Trustee (1992). Prior to her retirement in September 1991, Mrs. Davis was the Senior Vice President of Corporate Affairs of Avon Products, Inc. She is currently a Director of BellSouth Corporation (telecommunications), Eaton Corporation (manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990), and she previously served as a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In addition, she is a member of the President's Advisory Council of The University of Vermont School of Business Administration. RICHARD J. FLYNN (71), Trustee, is a financial consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton Company (manufacturer of industrial devices). He is currently a Trustee of College of the Holy Cross and Old Sturbridge Village, Inc, and he previously served as a Director of Mechanics Bank (1971-1995). E. BRADLEY JONES (67), Trustee (1990). Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is a Director of TRW Inc. (original equipment and replacement products), Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990), and he previously served as a Director of NACCO Industries, Inc. (mining and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc.(1985-1995). In addition, he serves as a Trustee of First Union Real Estate Investments, a Trustee and member of the Executive Committee of the Cleveland Clinic Foundation, a Trustee and member of the Executive Committee of University School (Cleveland), and a Trustee of Cleveland Clinic Florida. DONALD J. KIRK (62), Trustee, is Executive-in-Residence (1995) at Columbia University Graduate School of Business and a financial consultant. From 1987 to January 1995, Mr. Kirk was a Professor at Columbia University Graduate School of Business. Prior to 1987, he was Chairman of the Financial Accounting Standards Board. Mr. Kirk is a Director of General Re Corporation (reinsurance), and he previously served as a Director of Valuation Research Corp. (appraisals and valuations, 1993-1995). In addition, he serves as Vice Chairman of the Board of Directors of the National Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the Greenwich Hospital Association, and as a Member of the Public Oversight Board of the American Institute of Certified Public Accountants' SEC Practice Section (1995). *PETER S. LYNCH (52), Trustee (1990) is Vice Chairman and Director of FMR (1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice President of FMR (a position he held until March 31, 1991); Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity Investments Corporate Services (1991-1992). He is a Director of W.R. Grace & Co. (chemicals) and Morrison Knudsen Corporation (engineering and construction). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield and Society for the Preservation of New England Antiquities, and as an Overseer of the Museum of Fine Arts of Boston (1990). GERALD C. McDONOUGH (66), Trustee, is Chairman of G.M. Management Group (strategic advisory services). Prior to his retirement in July 1988, he was Chairman and Chief Executive Officer of Leaseway Transportation Corp. (physical distribution services). Mr. McDonough is a Director of ACME-Cleveland Corp. (metal working, telecommunications and electronic products), Brush-Wellman Inc. (metal refining), York International Corp. (air conditioning and refrigeration), Commercial Intertech Corp. (water treatment equipment, 1992), and Associated Estates Realty Corporation (a real estate investment trust, 1993). EDWARD H. MALONE (70), Trustee. Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric Investment Corporation and a Vice President of General Electric Company. He is a Director of Allegheny Power Systems, Inc. (electric utility), General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). In addition, he serves as a Trustee of Corporate Property Investors, the EPS Foundation at Trinity College, the Naples Philharmonic Center for the Arts, and Rensselaer Polytechnic Institute, and he is a member of the Advisory Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership Funds. MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board, President, and Chief Executive Officer of Lexmark International, Inc. (office machines, 1991). Prior to 1991, he held the positions of Vice President of International Business Machines Corporation ("IBM") and President and General Manager of various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign Vice Chairman of the Tri-State United Way (1993) and is a member of the University of Alabama President's Cabinet (1990). THOMAS R. WILLIAMS (66), Trustee, is President of The Wales Group, Inc. (management and financial advisory services). Prior to retiring in 1987, Mr. Williams served as Chairman of the Board of First Wachovia Corporation (bank holding company), and Chairman and Chief Executive Officer of The First National Bank of Atlanta and First Atlanta Corporation (bank holding company). He is currently a Director of BellSouth Corporation (telecommunications), ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc. (computer software), Georgia Power Company (electric utility), Gerber Alley & Associates, Inc. (computer software), National Life Insurance Company of Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants, 1992). FRED L. HENNING, JR.(56), Vice President, is Vice President of Fidelity's money market (1994) and fixed-income (1995) funds and Senior Vice President of FMR Texas Inc. NORMAN LIND (39), is manager and Vice President of Spartan Short-Intermediate Municipal and Spartan Intermediate Municipal, both of which he has managed since October 1995. Mr. Lind also manages Advisor Short-Intermediate Tax-Exempt, New York Tax-Free High Yield, New York Tax-Free Insured, Spartan New York Intermediate Municipal, and Spartan New York Municipal High Yield. Previously, he managed Spartan Municipal Income, and he served as a municipal research analyst. Mr. Lind joined Fidelity in 1986. DAVID MURPHY (47), is manager and Vice President of Spartan Municipal Income, which he has managed since October 1995. Mr. Murphy also manages High Yield Tax-Free, Limited Term Municipals, Advisor Limited Term Tax-Exempt: Class A, and Advisor Limited Term Tax-Exempt: Institutional Class. Previously, he managed Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan New Jersey Municipal High Yield, Spartan New York Intermediate Municipal, and Advisor Short-Intermediate Tax-Exempt. Mr. Murphy joined Fidelity in 1989. SCOTT ORR (33), is manager and Vice President of Spartan Municipal Money Market, which he has managed since June 1995. He also manages Institutional Tax-Exempt Cash Portfolios, Daily Tax Exempt Money, and Spartan Arizona Municipal Money Market. Previously he managed Connecticut Municipal Money Market, Michigan Municipal Money Market, New Jersey Tax-Free Money Market, Spartan Connecticut Municipal Money Market, and Spartan New Jersey Municipal Money Market, and he served as a municipal bond analyst. Mr. Orr joined Fidelity in 1989. ARTHUR S. LORING (47), Secretary, is Senior Vice President (1993) and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of FDC. KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in various positions, including Vice President of Proprietary Accounting (1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer of Goldman Sachs (Asia) LLC (1994-1995). THOMAS D. MAHER (50), Assistant Vice President (1990), is Assistant Vice President of Fidelity's money market funds and Vice President and Associate General Counsel of FMR Texas Inc. (1990). Prior to 1990, Mr. Maher was an employee of FMR. JOHN H. COSTELLO (48), Assistant Treasurer, is an employee of FMR. LEONARD M. RUSH (49), Assistant Treasurer (1994), is an employee of FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice President, Assistant Controller, and Director of the Accounting Department - - First Boston Corp. (1986-1990). The following table sets forth information describing the compensation of each current trustee of each fund for his or her services as trustee for the fiscal year ended August 31, 1995. COMPENSATION TABLE Aggregate Compensation
J. Gary Ralph F. Phyllis Richard Edward C. E. Donald Peter S. Gerald C. Edward Marvin L. Thomas Burkhead** Cox Burke J. Flynn Johnson 3d** Bradley J. Kirk Lynch** McDonough H. Mann R. Davis Jones Malone Williams Spartan $ 0 $ 1,032 $ 994 $ 1,288 $ 0 $ 1,032 $ 1,046 $ 0 $ 1,032 $ 1,032 $ 1,032 $ 1,022 Municipal Money Spartan $ 0 $ 440 $ 424 $ 550 $ 0 $ 440 $ 446 $ 0 $ 440 $ 440 $ 441 $ 436 Short-Interm ediate Municipal Spartan $ 0 $ 101 $ 98 $ 126 $ 0 $ 101 $ 103 $ 0 $ 101 $ 101 $ 101 $ 100 Intermediate Municipal Spartan $ 0 $ 266 $ 256 $ 332 $ 0 $ 266 $ 270 $ 0 $ 266 $ 266 $ 267 $ 263 Municipal Income Spartan $ 0 $ 27 $ 26 $ 33 $ 0 $ 27 $ 27 $ 0 $ 27 $ 27 $ 27 $ 27 Aggressive Municipal
Trustees Pension or Estimated Annual Total Retirement Benefits Upon Compensation Benefits Accrued Retirement from from the Fund as Part of Fund the Fund Complex* Expenses from the Complex* Fund Complex* J. Gary Burkhead** $ 0 $ 0 $ 0 Ralph F. Cox 5,200 52,000 125,000 Phyllis Burke Davis 5,200 52,000 122,000 Richard J. Flynn 0 52,000 154,500 Edward C. Johnson 3d** 0 0 0 E. Bradley Jones 5,200 49,400 123,500 Donald J. Kirk 5,200 52,000 125,000 Peter S. Lynch** 0 0 0 Gerald C. McDonough 5,200 52,000 125,000 Edward H. Malone 5,200 44,200 128,000 Marvin L. Mann 5,200 52,000 125,000 Thomas R. Williams 5,200 52,000 126,500
* Information is as December 31, 1994 for 206 funds in the complex. ** Interested trustees of the fund are compensated by FMR. Under a retirement program adopted in July 1988, the non-interested Trustees, upon reaching age 72, become eligible to participate in a retirement program under which they receive payments during their lifetime from a fund based on their basic trustee fees and length of service. The obligation of a fund to make such payments are not secured or funded. Trustees become eligible if, at the time of retirement, they have served on the Board for at least five years. Currently, Messrs. Ralph S. Saul, William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former non-interested Trustees, receive retirement benefits under the program. As of August 31, 1995, approximately 3.7% of Spartan Municipal Money Fund's total outstanding shares were held by an FMR affiliate, FMR Corp. Mr. Edward C. Johnson 3d, President and Trustee of the fund, is a member of a group which, by virtue of its owning approximately 49% of the voting securities of FMR Corp., may be deemed to form a controlling group with respect to FMR Corp. Therefore, based on his membership in this group, Mr. Edward C. Johnson 3d may be deemed to own beneficially 3.7% of the fund. Also as of this date, with the exception of Mr. Johnson 3d's ownership of Spartan Municipal Money Fund's shares, the Trustees 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 non-interested Trustees; costs of typesetting, printing, and mailing prospectuses and statements of additional information, notices and reports to shareholders; each fund's proportionate share of insurance premiums and Investment Company Institute dues. FMR also provides for transfer agent and dividend disbursing services and portfolio and general accounting record maintenance through FSC. FMR pays all other expenses of each fund with the following exceptions: fees and expenses of all Trustees of the trust who are not "interested persons" of the trust or FMR (the non-interested Trustees); interest on borrowings; taxes; brokerage commissions (if any); and such nonrecurring expenses as may arise, including costs of any litigation to which a fund may be a party, and any obligation it may have to indemnify the officers and Trustees with respect to litigation. FMR is Spartan Municipal Money's manager pursuant to a management contract dated February 28, 1992. The contract was approved by Fidelity Union Street Trust as the then sole shareholder of Spartan Municipal Money 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 trust. The Agreement and Plan of Conversion was approved by public shareholders of the fund on December 11, 1991. Besides reflecting the fund's conversion, the February 28, 1992 contract is identical to the fund's prior management contract with FMR, which was approved by shareholders on December 11, 1991. FMR is Spartan Short-Intermediate Municipal's manager pursuant to a management contract dated October 18, 1993. The contract was approved by Fidelity Municipal Trust as the then sole shareholder of the fund on October 18, 1993, in conjunction with an Agreement and Plan to convert the fund from a series of one Massachusetts business trust to a series of another Massachusetts business trust. The Agreement and Plan of Conversion was approved by public shareholders of the fund on August 18, 1993. Besides reflecting the fund's conversion, the October 18, 1993 contract is identical to the fund's prior management contract with FMR, which was approved by shareholders on November 13, 1991. FMR is Spartan Municipal Income's manager pursuant to a management contract dated April 19, 1990, which was approved by shareholders on December 12, 1990, and Spartan Intermediate Municipal's and Spartan Aggressive Municipal's manager pursuant to management contracts dated March 18, 1993, which were approved by FMR, the then sole shareholder of each fund on April 8, 1993. For the services of FMR under each management contract, the funds pay FMR a monthly management fee at the annual rate of .50% (Spartan Municipal Money), .55% (Spartan Short-Intermediate Municipal), .55% (Spartan Intermediate Municipal), .55% (Spartan Municipal Income), and .60% (Spartan Aggressive Municipal) of average net assets throughout the month. The management fee paid to FMR is reduced by an amount equal to the fees and expenses of the non-interested Trustees. Fees received by FMR, after reduction of fees and expenses of the non-interested Trustees, for the last three fiscal years are shown in the following table:
Fiscal Spartan Spartan Spartan Spartan Spartan Year Ended Municipal Short-Intermediate Intermediate Municipal Aggressive August 31 Money Municipal Municipal Income Municipal 1995 $ 11,137,523 $ 5,253,000 $ 1,213,370 $ 3,224,403 $ 383,028 1994 $ 10,606,957 $ 6,100,246 $ 1,459,525 $ 4,332,192 $ 243,521 1993 $ 7,796,644 $ 2,998,716* $ 159,379** $ 4,777,234 $ 13,061***
* For the eight months ended August 31, 1993 ** From April 26, 1993 (commencement of operations) *** From April 29, 1993 (commencement of operations) 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. During the fiscal periods reported, FMR voluntarily agreed to reimburse certain funds to the extent that the fund's aggregate operating expenses were in excess of an annual rate of its average net assets. The tables below identify the funds in reimbursement; the levels of and periods for such reimbursement; and the dollar amount reimbursed by FMR, if any, for each period. SPARTAN MUNICIPAL MONEY: From To Expense Limitation August 1, 1994 - .40% July 1, 1994 July 31, 1994 .35% June 1, 1993 June 30, 1994 .32% April 1, 1993 May 31, 1993 .28% November 1, 1992 March 31, 1993 .25% September 1, 1992 October 31, 1992 .23% Amount of Fiscal Year Reimbursement 1995 $2,229,935 1994 $3,602,545 1993 $3,563,280 SPARTAN SHORT-INTERMEDIATE MUNICIPAL: From To Expense Limitation June 1, 1994 July 31, 1994 .45% January 10, 1994 May 31, 1994 .40% Amount of Fiscal Year Reimbursement 1995 $0 1994 $866,308 1993* $0 * For the eight months ended August 31, 1993 SPARTAN INTERMEDIATE MUNICIPAL: From To Expense Limitation February 1, 1995 - .45% October 1, 1994 January 31, 1995 .40% August 1, 1994 September 31, 1994 .30% June 1, 1994 July 31, 1994 .25% November 1, 1993 May 31, 1994 .20% October 18, 1993 October 31, 1993 .15% September 1, 1993 October 17, 1993 .10% April 26, 1993 August 31, 1993 .00% Amount of Fiscal Year Reimbursement 1995 $289,444 1994 $916,717 1993* $159,379 * From April 26, 1993 (commencement of operations). SPARTAN MUNICIPAL INCOME: From To Expense Limitation November 1, 1992 May 31, 1993 .45% September 1, 1992 October 31, 1992 .43% Amount of Fiscal Year Reimbursement 1995 $0 1994 $0 1993 $708,981 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 Spartan Municipal Money's, Spartan Short-Intermediate Municipal's, and Spartan Intermediate Municipal's $2.00 checkwriting charge. Spartan Municipal Income's .50% and Spartan Aggressive Municipal's 1.00% redemption fee on shares held less than 180 days is retained by each fund, it is not collected by FMR. Shareholder transaction fees and charges collected by FMR are indicated in the table below. SPARTAN MUNICIPAL MONEY Year Ended Account Checkwriting August 31 Exchange Fees Closeout Fees Wire Fees Charge 1995 $13,120 $3,274 $3,005 $16,448 1994 $21,336 $3,303 $3,155 $16,370 1993 $40,785 $2,948 $7,385 $23,971 SPARTAN SHORT-INTERMEDIATE MUNICIPAL Period Ended Account Checkwriting August 31 Exchange Fees Closeout Fees Wire Fees Charge 1995 $11,545 $3,806 $770 $2,454 1994 $20,989 $3,308 $1,805 $3,341 1993* $12,330 $1,215 $1,325 $708 * For the eight months ended August 31, 1993 SPARTAN INTERMEDIATE MUNICIPAL Period Ended Account Checkwriting August 31 Exchange Fees Closeout Fees Wire Fees Charge 1995 $3,750 $1,100 $245 $600 1994 $6,631 $885 $435 $730 1993* $920 $45 $185 $22 * From April 26, 1993 (commencement of operations) SPARTAN MUNICIPAL INCOME Year Ended Account August 31 Exchange Fees Closeout Fees Wire Fees 1995 $8,145 $2,875 $665 1994 $16,475 $2,985 $1,110 1993 $23,542 $2,275 $2,135 SPARTAN AGGRESSIVE MUNICIPAL Period Ended Account August 31 Exchange Fees Closeout Fees Wire Fees 1995 $1,000 $215 $50 1994 $775 $145 $80 1993* $20 $0 $30 * From April 29, 1993 (commencement of operations) SUB-ADVISER. On behalf of Spartan Municipal Money Fund, FMR has entered into a sub-advisory agreement with FTX pursuant to which FTX has primary responsibility for providing portfolio investment management services to the fund. Under the sub-advisory agreement, dated February 28, 1992, which was approved by Fidelity Union Street Trust as the then sole shareholder of the fund in conjunction with an Agreement and Plan to convert the fund to a series of a Delaware business trust, as approved by public shareholders on December 11, 1991, FMR pays FTX fees equal to 50% of the management fee payable to FMR under its management contract with the fund. The fees paid to FTX are not reduced by any voluntary or mandatory expense reimbursements that may be in effect from time to time. On behalf of the money market fund, for fiscal 1995, 1994, and 1993, FMR paid FTX fees of $5,568,762, $5,503,479 and $3,898,322 respectively. DISTRIBUTION AND SERVICE PLANS The Trustees have approved Distribution and Service Plans on behalf of the funds (the Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the Rule). The Rule provides in substance that a mutual fund may not engage directly or indirectly in financing any activity that is primarily intended to result in the sale of shares of a fund except pursuant to a plan approved on behalf of the fund under the Rule. The Plans, as approved by the Trustees, allow the funds and FMR to incur certain expenses that might be considered to constitute indirect payment by the funds of distribution expenses. Under each Plan, if the payment of management fees by the funds to FMR is deemed to be indirect financing by the funds of the distribution of their shares, such payment is authorized by the Plan. 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. The Trustees have not authorized such payments to date. 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 Plan by local entities with whom shareholders have other relationships. Spartan Municipal Money's Plan was approved by Fidelity Union Street Trust on February 28, 1992, as the then sole shareholder of the fund, pursuant to an Agreement and Plan of Conversion approved by public shareholders of the fund on December 11, 1991. Spartan Short-Intermediate Municipal's Plan was approved by Fidelity Municipal Trust on October 20, 1993, as the then sole shareholder of the fund pursuant to an Agreement and Plan of Conversion approved by public shareholders of the fund on August 18, 1993. The Plan for Spartan Municipal Income was approved by shareholders on December 12, 1990. The Plans for Spartan Intermediate Municipal and Spartan Aggressive Municipal were approved by FMR, the then sole shareholder of each fund, on April 8, 1993. The Glass-Steagall Act generally prohibits federally and state chartered or supervised banks from engaging in the business of underwriting, selling, or distributing securities. Although the scope of this prohibition under the Glass-Steagall Act has not been clearly defined by the courts or appropriate regulatory agencies, FDC believes that the Glass-Steagall Act should not preclude a bank from performing shareholder support services, or servicing and recordkeeping functions. FDC intends to engage banks only to perform such functions. However, changes in federal or state statutes and regulations pertaining to the permissible activities of banks and their affiliates or subsidiaries, as well as further judicial or administrative decisions or interpretations, could prevent a bank from continuing to perform all or a part of the contemplated services. If a bank were prohibited from so acting, the Trustees would consider what actions, if any, would be necessary to continue to provide efficient and effective shareholder services. In such event, changes in the operation of the funds might occur, including possible termination of any automatic investment or redemption or other services then provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein, and banks and financial institutions may be required to register as dealers pursuant to state law. Each fund may execute portfolio transactions with, and purchase securities issued by, depository institutions that receive payments under the Plans. No preference for the instruments of such depository institutions will be shown in the selection of investments. CONTRACTS WITH FMR AFFILIATES UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent. UMB has entered into sub-contracts with FSC, an affiliate of FMR, under the terms of which FSC performs the processing activities associated with providing transfer agent and shareholder servicing functions for each fund. Under this arrangement, FSC receives annual account fees and asset-based fees for each retail account and certain institutional accounts based on account size. In addition, the fees for retail accounts are subject to increase based on postal rate changes. With respect to certain institutional retirement accounts, FSC receives asset-based fees only. With respect to certain other institutional retirement accounts, FSC receives annual account fees and asset based fees based on fund type. FSC also collects small account fees from certain accounts with balances of less than $2,500. UMB has additional sub-contracts with FSC, pursuant to which FSC performs the calculations necessary to determine each fund's net asset value per share and dividends and maintains each fund's accounting records. Under this arrangement, FSC receives a fee based on each fund's average net assets. UMB is entitled to reimbursement from FMR for fees paid to FSC since FMR must bear these costs pursuant to its management contract with each fund. Each fund has a distribution agreement with FDC, a Massachusetts corporation organized on July 18, 1960. FDC is a broker-dealer registered under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The distribution agreement calls for FDC to use all reasonable efforts, consistent with its other business, to secure purchasers for shares of each fund, which are continuously offered at net asset value. Promotional and administrative expenses in connection with the offer and sale of shares are paid by FMR. DESCRIPTION OF THE TRUSTS TRUSTS' ORGANIZATION. Spartan Short-Intermediate Municipal Fund, Spartan Intermediate Municipal Fund, Spartan Municipal Income Portfolio, and Spartan Aggressive Municipal Fund are funds of Fidelity Union Street Trust (the Massachusetts Trust), an open-end management investment company organized as a Massachusetts business trust on March 1, 1974 as Fidelity Daily Income Trust. The trust's name was changed to Fidelity Union Street Trust by a supplement to the Declaration of Trust dated and filed with the Commonwealth of Massachusetts on April 30, 1990. Currently, there are eight funds of the Massachusetts trust: Spartan Municipal Income Portfolio, Spartan Ginnie Mae Fund, Spartan Maryland Municipal Income Fund, Spartan Aggressive Municipal Fund, Spartan Intermediate Municipal Fund, Spartan Short-Intermediate Municipal Fund, Spartan Arizona Municipal Income Portfolio, and Fidelity Export Fund. Spartan Short-Intermediate Municipal Fund entered into an agreement to acquire all of the assets of Spartan Short-Intermediate Municipal Fund, a series of Fidelity Municipal Trust on October 20, 1993. The Massachusetts trust's Declaration of Trust permits the Trustees to create additional funds. Spartan Municipal Money Fund is a fund of Fidelity Union Street Trust II (the Delaware Trust), an open-end management investment company organized as a Delaware business trust on June 20, 1991. Currently there are four funds of the Delaware trust: Spartan Municipal Money Fund, Fidelity Daily Income Trust, Spartan Arizona Municipal Money Market Portfolio, and Spartan World Money Market Fund. Spartan Municipal Money Fund entered into an agreement to acquire all of the assets of Spartan Municipal Money Fund, a series of Fidelity Union Street Trust, on February 28, 1992. 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 any 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. For the bond funds, as a shareholder, you receive one vote for each dollar value of net asset value you own. For the money market fund 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 for the money market fund must be approved by vote of the holders of a majority of the outstanding shares of the trust or the fund. Whereas such terminations for the bond funds must be approved by vote of the 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 the Massachusetts and Delaware trusts may also invest all of its assets in another investment company. CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri 64106, is custodian of the assets of each fund. The custodian is responsible for the safekeeping of a fund's assets and the appointment of the subcustodian banks and clearing agencies. The custodian takes no part in determining the investment policies of a fund or in deciding which securities are purchased or sold by a fund. However, a fund may invest in obligations of the custodian and may purchase securities from or sell securities to the custodian. Morgan Guaranty Trust Company of New York, The Bank of New York, and Chemical Bank, each headquartered in New York, also may serve as a special purpose custodian of certain assets in connection with pooled repurchase agreement transactions. FMR, its officers and directors, its affiliated companies, and the Board of Trustees may, from time to time, conduct transactions with various banks, including banks serving as custodians for certain funds advised by FMR. Transactions that have occurred to date include mortgages and personal and general business loans. In the judgment of FMR, the terms and conditions of those transactions were not influenced by existing or potential custodial or other fund relationships. AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts (bond funds) 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 August 31, 1995 are included in its Annual Report, which are separate reports supplied with this Statement of Additional Information. Each fund's financial statements and financial highlights are incorporated herein by reference. APPENDIX DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of each investment by the number of days remaining to its maturity, adding these calculations, and then dividing the total by the value of the fund's portfolio. An obligation's maturity is typically determined on a stated final maturity basis, although there are some exceptions to this rule. For example, if 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 bond funds. A fund may, however, consider the ratings for other types of investments and the ratings assigned by other rating organizations when determining the eligibility of a particular investment. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's ratings for state and municipal and other short-term obligations will be designated Moody's Investment Grade (MIG, or VMIG for variable rate obligations). This distinction is in recognition of the difference between short-term credit risk and long-term credit risk. Factors affecting the liquidity of the borrower and short-term cyclical elements are critical in short-term ratings, while other factors of major importance in bond risk, long-term secular trends for example, may be less important in the short run. Symbols used will be as follows: MIG-1/VMIG-1 - This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support, or demonstrated broad-based access to the market for refinancing. MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. MIG-3/VMIG-3 - This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG-4/VMIG-4 - This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and, although not distinctly or predominantly speculative, there is specific risk. DESCRIPTION OF STANDARD & POOR'S RATINGS OF STATE AND MUNICIPAL NOTES: SP-1 - Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation. S P-2 - Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 - Speculative capacity to pay principal and interest. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS: AAA - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA - Bonds which are rated Aa are judged to be of high quality by all standards. Together with Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA - Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA - Bonds which are rated Ba are judged to have speculative elements. Their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times in the future. Uncertainty of position characterizes bonds in this class. B - Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments of or maintenance of other terms of the contract over any long period of time may be small. CAA - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA - Bonds which 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 which 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. There are nine basic rating categories for long-term obligations. They range from AAA (highest quality) to C (lowest quality). Those bonds within the AA, A, BAA, BA, and B categories that Moody's believes possess the strongest credit attributes within those categories are designated by the symbols AA1, A1, BAA1, BA1, and B1. DESCRIPTION OF STANDARD & POOR'S MUNICIPAL BOND RATINGS: AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest-rated debt issues only in small degree. A - Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions 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 rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. 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 on 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. The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. SUPPLEMENT TO SPARTAN(registered trademark) BOND STRATEGIST(trademark) PROSPECTUS DATED FEBRUARY 20, 1996 PROPOSED REORGANIZATION. The Board of Trustees of Spartan Bond Strategist has unanimously approved an Agreement and Plan of Reorganization ("Agreement") between Spartan Bond Strategist and Spartan Municipal Income Fund, a fund of Fidelity Fidelity Union Street Trust. The Agreement provides for transfer of substantially all of the assets and the assumption of all of the liabilities of Spartan Bond Strategist solely in exchange for the number of shares of Spartan Municipal Income Fund equal in value to the relative net asset value of the outstanding shares of Spartan Bond Strategist. Following such exchange, Spartan Bond Strategist will distribute the Spartan Municipal Income Fund shares to its shareholders pro rata, in liquidation of Spartan Bond Strategist as provided in the Agreement (the transactions contemplated by the Agreement referred to as the "Reorganization"). The Reorganization can be consummated only if, among other things, it is approved by a majority vote of shareholders. A Special Meeting (the "Meeting") of the Shareholders of Spartan Bond Strategist will be held on December 18, 1996, and approval of the Agreement will be voted on at that time. In connection with the Meeting, Spartan Bond Strategist will be filing with the Securities and Exchange Commission and delivering to its shareholders of record a Proxy Statement describing the Reorganization and a Prospectus for Spartan Municipal Income Fund. If the Agreement is approved at the Meeting and certain conditions required by the Agreement are satisfied, the Reorganization is expected to become effective on or about December 30, 1996. If shareholder approval of the Agreement is delayed due to failure to meet a quorum or otherwise, the Reorganization will become effective, if approved, as soon as practicable thereafter. In the event Spartan Bond Strategist shareholders fail to approve the Agreement, Spartan Bond Strategist will continue to engage in business as a registered investment company and the Board of Trustees will consider other proposals for the reorganization or liquidation of Spartan Bond Strategist. Effective on or about September 16, 1996, the fund will be closed to all new and subsequent purchases except for reinvestment of dividends or other distributions pending the Reorganization. The following information replaces in its entirety the fourth paragraph of the "Investment Principles and Risks" section beginning on page 9. The fund's level of risk and potential reward depend on the quality and maturity of its investments. The fund invests in investment-grade securities under normal conditions. Although the fund can invest in securities of any maturity, FMR seeks to manage the fund so that it generally reacts to changes in interest rates similarly to bonds with maturities between 8 and 18 years. As of December 31, 1995, the fund's dollar-weighted average maturity was approximately 11.4 years. The following information replaces the similar information found under "Debt Securities" in the "Securities and Investment Practices" section beginning on page 10. DEBT SECURITIES. Bonds and other debt instruments are used by issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest, and must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. In general, bond prices rise when interest rates fall, and vice versa. Debt securities have varying degrees of quality and varying levels of sensitivity to changes in interest rates. Longer-term bonds are generally more sensitive to interest rate changes than short-term bonds. 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 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 Investors Service, L.P., or is unrated but judged by FMR to be of equivalent quality. Please read this prospectus before investing, and keep it on file for future reference. It contains important information, including how the fund invests and the services available to shareholders. To learn more about the fund and its investments, you can obtain a copy of the fund's most recent financial report and portfolio listing, or a copy of the Statement of Additional Information (SAI) dated February 20, 1996. The SAI has been filed with the Securities and Exchange Commission (SEC) and is incorporated herein by reference (legally forms a part of the prospectus). For a free copy of either document, call Fidelity at 1-800-544-8888. 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. SMU-pro-1095 Spartan Bond Strategist seeks maximum total return, after federal income tax, by investing in a combination of taxable and tax-exempt debt securities. SPARTAN(REGISTERED TRADEMARK) BOND STRATEGIST(trademark) PROSPECTUS OCTOBER 25, 1995(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA 02109 CONTENTS KEY FACTS THE FUND AT A GLANCE WHO MAY WANT TO INVEST EXPENSES The fund's yearly operating expenses. FINANCIAL HIGHLIGHTS A summary of the fund's financial data. PERFORMANCE How the fund has done over time. THE FUND IN DETAIL CHARTER How the fund is organized. INVESTMENT PRINCIPLES AND RISKS The 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 FUND AT A GLANCE GOAL: Maximum total investment return after the effect of federal income tax (after-tax total return). As with any mutual fund, there is no assurance that the fund will achieve its goal. STRATEGY: Invests in a combination of taxable and tax-free debt securities, focusing on medium and long-term bonds. 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. Foreign affiliates of FMR may help choose investments for the fund. SIZE: As of August 31, 1995 , the fund had over $18 million in assets. WHO MAY WANT TO INVEST This non-diversified fund may be appropriate for investors in higher tax brackets who want to maximize after-tax total return. The fund is designed for those who want to pursue this goal through an investment in both taxable and tax-exempt debt securities. Because the fund seeks to maximize total return after the effect of federal income tax, it may not be appropriate for those who are looking for an investment that focuses on high current taxable or tax-exempt income. The value of the fund's investments and the income they generate will vary from day to day, and generally reflect interest rates, market conditions, and other economic and political news. When you sell your shares, they may be worth more or less than what you paid for them. By itself, the fund does not constitute a balanced investment plan. The Spartan family of funds is designed for cost-conscious investors looking for higher yields through lower costs. The Spartan Approach(registered trademark) requires investors to make high minimum investments and, in some cases, to pay for individual transactions. 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 Municipal Money is in the INCOME category. (solid bullet) 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 pay when you buy, sell or hold shares of a fund. See p age and pages through f or more information about these fees. Maximum sales charge on purchases and reinvested distributions None Deferred sales charge on redemptions None Redemption fee (as a % of amount redeemed on shares held less than 180 days) .50% Exchange and wire transaction fees $5.00 Account closeout fee $5.00 Annual account maintenance fee (for accounts under $2500) $12.00 THESE FEES ARE WAIVED (except for the redemption fee) if your account balance at the time of the transaction is $50,000 or more. ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund pays a management fee to FMR. Expenses are factored into the fund's share price or dividends and are not charged directly to shareholder accounts (see page ). The following are projections based on historical expenses, and are calculated as a percentage of average net assets. Management fee .70% 12b-1 fee None Other expenses .00 % Total fund operating expenses .70% EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5% and that its operating expenses are exactly as just described. For every $1,000 you invested, here's how much you would pay in total expenses after the number of years indicated, first assuming that you leave your account open, and then assuming that you close your account at the end of the period: Account Account open closed After 1 year $ 7 $ 12 After 3 years $ 22 $ 27 After 5 years $ 39 $ 44 After 10 years $ 87 $ 92 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 table that follows is included in the fund's Annual Report and has been audited by Coopers & Lybrand, independent accountants. Their report on the financial statements and financial highlights is included in the Annual Report. The financial statements and financial highlights are incorporated by reference into (are legally a part of) the fund's Statement of Additional Information. SELECTED PER-SHARE DATA 101.Years ended December 31 1995 1994 1993D 102.Net asset value, beginning of period $ 8.740 $ 9.980 $ 10.000 103.Income from Investment Operations .491 .481 .130 Net investment income 104. Net realized and unrealized gain .924 (1.244) (.011)C (loss) 105. Total from investment operations 1.415 (.763) .119 106.Less Distributions (.475) (.486) (.130) From net investment income 107. In excess of net investment income -- -- (.011) 108. Total distributions (.475) (.486) (.141) 109. Redemption fees added to paid in .000 .009 .002 capital 110.Net asset value, end of period $ 9.680 $ 8.740 $ 9.980 111.Total returnB 16.52% (7.65)% 1.23% 112.Ratios and Supplemental Data 113.Net assets, end of period (000 $ 18,118 $ 17,722 $ 21,080 omitted) 114.Ratio of expenses to average net .70% .70% .70%A assets 115.Ratio of net investment income to 5.10% 5.26% 4.44%A average net assets 116.Portfolio turnover rate 79% 168% 275%A A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. D FOR THE PERIOD SEPTEMBER 9, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1993. PERFORMANCE Bond 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. The fund's fiscal year runs from January 1 through August 31. The tables below show the fund's performance over past fiscal years compared to a measure of inflation. AVERAGE ANNUAL TOTAL RETURNS Fiscal periods Past Life ended 1 of August 31, 1995 year fund A Bond 16.52 3.77 Strategist % % Consumer 2.54 2.53 Price % % Index CUMULATIVE TOTAL RETURNS Fiscal periods Past Life ended 1 of August 31, 1995 year fund A Bond 16.52 8.93 Strategist % % Consumer 2.54 6.01 Price % % Index A FROM SEPTEMBER 9, 1993 UNDERSTANDING PERFORMANCE YIELD illustrates the income earned by a fund over a recent period. 30-day yields are usually used for bond funds. Yields change daily, reflecting changes in interest rates. TOTAL RETURN reflects both the reinvestment of income and capital gain distributions and any change in a fund's share price. (checkmark) EXPLANATION OF TERMS TOTAL RETURN is the change in value of an investment in the fund over a given period, assuming reinvestment of any dividends and capital gains. A CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. Average annual total returns smooth out variations in performance; they are not the same as actual year-by-year results. Total returns may be quoted on a before-tax or after-tax basis. YIELD refers to the income generated by an investment in the fund over a given period of time, expressed as an annual percentage rate. A TAX-EQUIVALENT YIELD shows what an investor would have to earn before taxes to equal a tax-free yield. Yields are calculated according to a standard that is required for all stock and bond funds. Because this differs from other accounting methods, the quoted yield may not equal the income actually paid to shareholders. THE CONSUMER PRICE INDEX is a widely recognized measure of inflation calculated by the U.S. government. The fund's 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 FUND IN DETAIL CHARTER SPARTAN MUNICIPAL MONEY IS A MUTUAL FUND: an investment that pools shareholders' money and invests it toward a specified goal. In technical terms, the fund is currently a non-diversified fund of Fidelity Union Street Trust II, an open-end management investment company organized as a Delaware business trust on September 10, 1976. THE FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for protecting the interests of shareholders. The trustees are experienced executives who meet throughout the year to oversee the fund's activities, review contractual arrangements with companies that provide services to the fund, and review performance. The majority of trustees are not otherwise affiliated with Fidelity. THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings may be called to elect or remove trustees, change fundamental policies, approve a management contract, or for other purposes. Shareholders not attending these meetings are encouraged to vote by proxy. Fidelity will mail proxy materials in advance, including a voting card and information about the proposals to be voted on. The number of votes you are entitled to is based upon the dollar value of your investment. FMR AND ITS AFFILIATES The fund is managed by FMR, which chooses the fund's investments and handles its business affairs. Fidelity Management & Research (U.K.) Inc. (FMR U.K.), in London, England, and Fidelity Management & Research (Far East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR with foreign investments. George Fischer is manager of Spartan Bond Strategist, which he has managed since September 1993. He also manages Municipal Bond, Insured Municipal Income, and various trust accounts. Mr. Fischer joined Fidelity in 1989. Fidelity investment personnel may invest in securities for their own account pursuant to a code of ethics that establishes procedures for personal investing and restricts certain transactions. Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's funds and services. Fidelity Service Co. (FSC) performs transfer agent servicing functions for the fund. FIDELITY FACTS Fidelity offers the broadest selection of mutual funds in the world. (solid bullet) Number of Fidelity mutual funds: over 210 (solid bullet) Assets in Fidelity mutual funds: over $354 billion (solid bullet) Number of shareholder accounts: over 23 million (solid bullet) Number of investment analysts and portfolio managers: over 200 (checkmark) FMR Corp. is the ultimate parent company of FMR, FMR U.K., and FMR Far East. 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. As of December 31, 1995, approximately 42.1% of the fund's total outstanding shares were held by an FMR affiliate, FMR Corp. Mr. Edward C. Johnson 3d, President and Trustee of the fund, is a member of a group which, by virtue of its owning approximately 49% of the voting securities of FMR Corp., may be deemed under the 1940 Act to form a controlling group with respect to FMR Corp. Therefore, based on his membership in this group, Mr. Edward C. Johnson 3d may be deemed to own beneficially 42.1% of the fund. To carry out the fund's transactions, FMR may use its broker-dealer affiliates and other firms that sell fund shares, provided that the fund receives services and commission rates comparable to those of other broker-dealers. INVESTMENT PRINCIPLES AND RISKS THE FUND SEEKS MAXIMUM TOTAL INVESTMENT RETURN AFTER THE EFFECT OF FEDERAL INCOME TAX by investing primarily in taxable and tax-exempt debt instruments. FMR normally invests at least 65% of the fund's total assets in these securities. Most bond funds focus on yield, which is one component of total return, and invest in either taxable or tax-free bonds. Spartan Bond Strategist has the flexibility to invest in a combination of these securities, which have varying maturities and levels of credit quality. The fund varies its proportion in each bond market to pursue high after-tax total return, which is the combination of income and changes in value after the effect of federal income tax. When choosing the fund's investments, FMR looks at expected federal tax rates on income and capital gains and considers the potential effect of taxes, assuming a high tax bracket. The federal alternative minimum tax and state and local taxes are not considered. FMR studies interest rates, credit conditions, and other factors, and may use a variety of techniques to adjust the fund's exposure to the taxable and tax-exempt bond markets. FMR relies on fundamental research to select domestic and foreign investments, and may also use computer-aided analysis. The fund's strategy does not restrict its ability to invest in either bond market. However, in order to distribute its tax free income to shareholders on a tax-free basis, the fund must invest at least 50% of its total assets in municipal securities at the end of each calendar quarter. This requirement may mean missing an investment opportunity in the taxable bond market. The fund's level of risk and potential reward depend on the quality and maturity of its investments. Lower-quality, longer-term investments typically carry the most risk and the highest performance potential. The fund focuses on investment-grade securities, but may also invest in lower-quality securities. Although the fund can invest in securities of any maturity, FMR seeks to manage the fund so that it generally reacts to changes in interest rates similarly to bonds with maturities between 8 and 18 years. As of December 31, 1995, the fund's dollar-weighted average maturity was approximately 11.4 years. The fund's yield and share price change daily and are based on changes in interest rates, market conditions, other economic and political news, and on the quality and maturity of its investments. In general, bond prices rise when interest rates fall, and vice versa. This effect is usually more pronounced for longer-term securities. Lower-quality securities offer higher yields, but also carry more risk. FMR may use various investment techniques to hedge a portion of the fund's risks, but there is no guarantee that these strategies will work as intended. When you sell your shares of the fund, they may be worth more or less than what you paid for them. If you are subject to the federal alternative minimum tax, you should note that the fund may invest all of its assets in municipal securities issued to finance private activities. The interest from these investments is a tax-preference item for purposes of the tax. FMR normally invests the fund's assets according to its investment strategy. The fund also reserves the right to invest without limitation in short-term instruments, investment-grade money market instruments, or to hold a substantial amount of uninvested cash for temporary, defensive purposes. SECURITIES AND INVESTMENT PRACTICES The following pages contain more detailed information about types of instruments in which the fund may invest, strategies FMR may employ in pursuit of the fund's investment objective, and a summary of related risks. Any restrictions listed supplement those discussed earlier in this section. A complete listing of the fund's limitations and more detailed information about the fund's investments are contained in the 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 the fund's investment objective and policies and that doing so will help the fund achieve its goal. Current holdings and recent investment strategies are described in the fund's financial reports which are sent to shareholders twice a year. For a free SAI or financial report, call 1-800-544-8888. DEBT SECURITIES. Bonds and other debt instruments are used by issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest, and must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values. In general, bond prices rise when interest rates fall, and vice versa. Debt securities have varying degrees of quality and varying levels of sensitivity to changes in interest rates. Longer-term bonds are generally more sensitive to interest rate changes than short-term bonds. Taxable lower-quality debt securities (sometimes called "junk bonds") and tax-exempt lower-quality debt securities (sometimes called "municipal junk bonds") are considered to have speculative characteristics and involve greater risk of default or price changes due to changes in the issuer's creditworthiness, or they may already be in default. The market prices of these securities may fluctuate more than higher-quality securities and may decline significantly in periods of general or regional economic difficulty. Lower-quality foreign government securities are considered to have speculative characteristics and involve greater risk of default or price changes, or they may already be in default. These risks are in addition to the general risks associated with foreign securities. FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S INVESTORS SERVICE, INC. STANDARD & POOR'S Rating Average A Rating Averag eA INVESTMENT GRADE Highest quality Aaa 53.32% AAA 44.85% High quality Aa 9.39% AA 18.85% Upper-medium grade A 11.97% A 12.61% Medium grade Baa 8.92% BBB 8.59% LOWER QUALITY Moderately speculative Ba 1.32% BB 1.32% Speculative B 0.00% B 0.00% Highly speculative Caa 0.00% CCC 0.00% Poor quality Ca 0.00% CC 0.00% Lowest quality, no interest C C In default, in arrears -- D 0.00% 84.92% 86.22% A F OR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT. THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO 3.37%. THIS MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER QUALITY ACCOUNT FOR 3.01% OF THE FUND'S SECURITY INVESTMENTS. REFER TO THE FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS. The following table provides a summary of ratings assigned to debt holdings (not including money market instruments) in the fund's portfolio. These figures are dollar-weighted averages of month-end portfolio holdings during fiscal 1995, and are presented as a percentage of total security investments. These percentages are historical and do not necessarily indicate the fund's current or future debt holdings. RESTRICTIONS: Purchase of a debt security is consistent with the fund's debt quality policy if it is rated at or above the stated level by Moody's or rated in the equivalent categories by S&P, or is unrated but judged to be of equivalent quality by FMR. The fund currently intends to limit its investments in lower than Baa-quality debt securities to less than 35% of its assets. In addition, the fund currently intends to limit its investments in corporate or municipal debt securities to those of B-quality or above and does not intend to limit the quality of its foreign government securities investments. MONEY MARKET SECURITIES are high-quality, short-term obligations issued by the U.S. Government, corporations, financial institutions, and other entities. These obligations may carry fixed, variable, or floating interest rates. U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. government. Not all U.S. government securities are backed by the full faith and credit of the United States. For example, securities issued by the Federal Farm Credit Bank or by the Federal National Mortgage Association are supported by the instrumentality's right to borrow money from the U.S. Treasury under certain circumstances. However, securities issued by the Financing Corporation are supported only by the credit of the entity that issued them. MUNICIPAL SECURITIES are issued to raise money for a variety of public or private purposes, including general financing for state and local governments, or financing for specific projects or public facilities. They may be issued in anticipation of future revenues and may be backed by the full taxing power of a municipality, the revenues from a specific project, or the credit of a private organization. The value of some or all municipal securities may be affected by uncertainties in the municipal market related to legislation or litigation involving the taxation of municipal securities or the rights of municipal securities holders. The fund may own a municipal security directly or through a participation interest. CREDIT SUPPORT. Issuers may employ various forms of credit enhancement, including letters of credit, guarantees, or insurance from a bank, insurance company, or other entity. These arrangements expose the fund to the credit risk of the entity. In the case of foreign entities, extensive public information about the entity may be be available and the entity may be subject to unfavorable political, economic, or governmental developments which might affect its ability to honor its commitment. EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations may involve additional risks and considerations. These include risks relating to political or economic conditions in foreign countries, fluctuations in foreign currencies, withholding or other taxes, operational risks, increased regulatory burdens, and the potentially less stringent investor protection and disclosure standards of foreign markets. Additionally, governmental issuers of foreign securities may be unwilling to repay principal and interest when due, and may require that the conditions for payment be renegotiated. All of these factors could make foreign investments, especially those in developing countries, more volatile. ASSET-BACKED AND MORTGAGE SECURITIES include interests in pools of the following: purchase contracts, financing leases, or sales agreements entered into by municipalities; lower-rated debt securities; consumer loans or mortgages; or complex instruments such as collateralized mortgage obligations and stripped mortgage-backed securities. The value of these securities may be significantly affected by changes in interest rates, the market's perception of the issuers, and the creditworthiness of the parties involved. Some securities may have a structure that makes their reaction to interest rates and other factors difficult to predict, making their value highly volatile. These securities may also be subject to prepayment risk. VARIABLE AND FLOATING RATE SECURITIES have interest rates that are periodically adjusted either at specific intervals or whenever a benchmark rate changes. Inverse floaters have interest rates that move in the opposite direction from a benchmark, making the security's market value more volatile. MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land, equipment, or facilities. If the municipality stops making payments or transfers its obligations to a private entity, the obligation could lose value or become taxable. STRIPPED SECURITIES are the separate income or principal components of a debt security. Their risks are similar to those of other debt securities, although they may be more volatile and the value of certain types of stripped securities may move in the same direction as interest rates. REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security at one price and simultaneously agrees to sell it back at a higher price. Delays or losses could result if the other party to the agreement defaults or becomes insolvent. OTHER MUNICIPAL SECURITIES may include obligations of U.S. territories and possessions such as Guam, the Virgin Islands, and Puerto Rico, and their political subdivisions and public corporations. PUT FEATURES entitle the holder to put (sell back) a security to the issuer or a financial intermediary. In exchange for this benefit, the fund may pay periodic fees or accept a lower interest rate. Demand features and standby commitments are types of put features. 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. The fund can use various techniques to increase or decrease its exposure to changing security prices, interest rates, currency exchange rates, commodity prices, or other factors that affect security values. These techniques may involve derivative transactions such as buying and selling options and futures contracts, entering into currency exchange contracts or swap agreements, and purchasing indexed securities. FMR can use these practices to adjust the risk and return characteristics of the fund's portfolio of investments. If FMR judges market conditions incorrectly or employs a strategy that does not correlate well with the fund's investments, these techniques could result in a loss, regardless of whether the intent was to reduce risk or increase return. These techniques may increase the volatility of the fund and may involve a small investment of cash relative to the magnitude of the risk assumed. In addition, these techniques could result in a loss if the counterparty to the transaction does not perform as promised. DIRECT DEBT. Loans and other direct debt instruments are interests in amounts owed to another party by a company, government, or other borrower. They have additional risks beyond conventional debt securities because they may entail less legal protection for the fund, or there may be a requirement that a fund supply additional cash to a borrower on demand. 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 the fund. RESTRICTIONS: The fund may not purchase a security if, as a result, more than 10% of its assets would be invested in illiquid securities. WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in which payment and delivery for the securities take place at a future date. The market value of a security could change during this period, which could affect the fund's yield. OTHER INSTRUMENTS may include convertible bonds, preferred stocks, and warrants. DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the risks of investing. This may include limiting the amount of money invested in any one issuer or, on a broader scale, in any one industry or type of project. Economic, business, or political changes can affect all securities of a similar type. A fund that is not diversified may be more sensitive to these changes, and also to changes in the market value of a single issuer or industry. RESTRICTIONS: The fund is considered non-diversified. Generally, to meet federal tax requirements at the close of each quarter, the fund does not invest more than 25% of its total assets in any one issuer and, with respect to 50% of total assets, does not invest more than 5% of its total assets in any one issuer. These limitations do not apply to U.S. government securities. BORROWING. The fund may borrow from banks or from other funds advised by FMR, or through reverse repurchase agreements. If the fund borrows money, its share price may be subject to greater fluctuation until the borrowing is paid off. If the fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage. RESTRICTIONS: The fund may borrow only for temporary or emergency purposes, but not in an amount exceeding 33% of its total assets. LENDING. Lending securities to broker-dealers and institutions, including Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning income. This practice could result in a loss or a delay in recovering the fund's securities. The fund may also lend money to other funds advised by FMR. RESTRICTIONS: Loans, in the aggregate, may not exceed 33% of the fund's total assets. FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS Some of the policies and restrictions discussed on the preceding pages are fundamental, that is, subject to change only by shareholder approval. The following paragraph restates all those that are fundamental. All policies stated throughout this prospectus, other than those identified in the following paragraph, can be changed without shareholder approval. The fund seeks maximum total investment return after the effect of federal income taxes, by investing primarily in taxable and tax-exempt debt instruments. The fund may borrow only for temporary or emergency purposes, but not in an amount exceeding 33% of its total assets. Loans, in the aggregate, may not exceed 33% of the fund's total assets. BREAKDOWN OF EXPENSES Like all mutual funds, the fund pays fees related to its daily operations. Expenses paid out of the fund's assets are reflected in its share price or dividends; they are neither billed directly to shareholders nor deducted from shareholder accounts. The fund pays a MANAGEMENT FEE to FMR for managing its investments and business affairs. FMR in turn may pay fees to affiliates who provide assistance with these services. FMR may, from time to time, agree to reimburse the fund for management fees above a specified limit. FMR retains the ability to be repaid by the fund if expenses fall below the specified limit prior to the end of the fiscal year. Reimbursement arrangements, which may be terminated at any time without notice, can decrease the fund's expenses and boost its performance. MANAGEMENT FEE The management fee is calculated and paid to FMR every month. The fund pays the fee at the annual rate of .70% of its average net assets. FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These sub-advisers provide FMR with investment research and advice on issuers based outside the United States. Under the sub-advisory agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of the costs of providing these services. The sub-advisers may also provide investment management services. In return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its management fee rate with respect to the fund's investments that the sub-adviser manages on a discretionary basis. FSC performs many transaction and accounting functions for the fund. These services include processing shareholder transactions and calculating the fund's share price. FMR, and not the fund, pays for these services. To offset shareholder service costs, FMR or its affiliates also collect the fund's $5.00 exchange fee, $5.00 account closeout fee, and $5.00 fee for wire purchases and redemptions. For fiscal 1995, these fees amounted to $285, $130, and $30, respectively. The fund has adopted a Distribution and Service Plan. This plan recognizes that FMR may use its resources, including management fees, to pay expenses associated with the sale of fund shares. This may include payments to third parties, such as banks or broker-dealers, that provide shareholder support services or engage in the sale of the fund's shares. It is important to note, however, that the fund does not pay FMR any separate fees for this service. The fund's portfolio turnover rate for fiscal 1995 was 79%. 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 the fund or, if you own or intend to purchase individual securities as part of your total investment portfolio, you may consider investing in the fund through a brokerage account. If you are investing through FBSI or another financial institution or investment professional, refer to its program materials for any special provisions regarding your investment in the fund. The different ways to set up (register) your account with Fidelity are listed 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 THE FUND'S SHARE PRICE, called net asset v alue (NAV), is calculated every business day. The 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 TO ADD TO AN ACCOUNT $1,000 Through automatic investment plans $500 MINIMUM BALANCE $5,000 These minimums may vary for investments through Fidelity Portfolio Advisory Services. Refer to the program materials for details. UNDERSTANDING THE SPARTAN APPROACH(registered trademark) Fidelity's Spartan Approach is based on the principle that lower fund expenses can increase returns. The Spartan funds keep expenses low in two ways. First, higher investment minimums reduce the effect of a fund's fixed costs, many of which are paid on a per-account basis. Second, unlike most mutual funds that include transaction costs as part of overall fund expenses, Spartan shareholders pay directly for the transactions they make. (checkmark)
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.
Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check application. Make your payable to "Spartan check payable to Bond Strategist." "Spartan Bond Indicate your fund Strategist." Mail to the account number on address indicated on your check and mail to the application. the address printed on your account statement. (small solid bullet) Exchange by mail: call 1-800-544-6666 for instructions.
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.
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 "Spartan Bond Bank Routing Strategist" and include #021001033, your account number Account #00163053. and your name. Specify "Spartan Bond Strategist" and include your new account number and your name.
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.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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 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 ACCOUNT TYPE SPECIAL REQUIREMENTS
IF YOU SELL SHARES OF THE 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: $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 Trust names appear on the account. (small solid bullet) The trustee must sign the letter indicating capacity as Business or trustee. If the trustee's name Organization is not in the account registration, provide a copy of the trust document certified within the last 60 days. (small solid bullet) At least one person Executor, authorized by corporate Administrator, resolution to act on the Conservator, account must sign the letter. Guardian (small solid bullet) Include a corporate resolution with corporate seal or a signature guarantee. (small solid bullet) Call 1-800-544-6666 for instructions. Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire feature before using it. To verify that it is in place, call 1-800-544-6666. Minimum wire: $5,000. (small solid bullet) Your wire redemption request must be received by Fidelity before 4 p.m. Eastern time for money to be wired on the next business day.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
INVESTOR SERVICES Fidelity provides a variety of services to help you manage your account. INFORMATION SERVICES FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days a year. Whenever you call, you can speak with someone equipped to provide the information or service you need. 24-HOUR SERVICE ACCOUNT ASSISTANCE 1-800-544-6666 ACCOUNT BALANCES 1-800-544-7544 ACCOUNT TRANSACTIONS 1-800-544-7777 PRODUCT INFORMATION 1-800-544-8888 QUOTES 1-800-544-8544 RETIREMENT ACCOUNT ASSISTANCE 1-800-544-4774 AUTOMATED SERVICE (checkmark) STATEMENTS AND REPORTS that Fidelity sends to you include the following: (small solid bullet) Confirmation statements (after every transaction, except reinvestments, that affects your account balance or your account registration) (small solid bullet) Account statements (quarterly) (small solid bullet) Financial reports (every six months) To reduce expenses, only one copy of most financial reports will be mailed to your household, even if you have more than one account in the fund. Call 1-800-544-6666 if you need copies of financial reports or historical account information. TRANSACTION SERVICES EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other Fidelity funds by telephone or in writing. There may be a $5.00 fee for each exchange out of the fund, unless you place your transaction on Fidelity's automated exchange services. Note that exchanges out of the 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
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.
DIRECT DEPOSIT TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING $500 Every pay (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.
FIDELITY AUTOMATIC EXCHANGE SERVICE TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING $500 Monthly, (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.
A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN APPROPRIATE CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK. SHAREHOLDER AND ACCOUNT POLICIES DIVIDENDS, CAPITAL GAINS, AND TAXES The fund distributes substantially all of its net investment income and capital gains to shareholders each year. Income dividends are declared daily and paid monthly. Capital gains are normally distributed in February and December. DISTRIBUTION OPTIONS When you open an account, specify on your application how you want to receive your distributions. If the option you prefer is not listed on the application, call 1-800-544-6666 for instructions. The fund offers four options: 5. REINVESTMENT OPTION. Your dividend and capital gain distributions will be automatically reinvested in additional shares of the fund. If you do not indicate a choice on your application, you will be assigned this option. 6. INCOME-EARNED OPTION. Your capital gain distributions will be automatically reinvested, but you will be sent a check for each dividend distribution. 7. CASH OPTION. You will be sent a check for your dividend and capital gain distributions. 8. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and capital gain distributions will be automatically invested in another identically registered Fidelity fund. Dividends will be reinvested at the fund's NAV on the last day of the month. Capital gain distributions will be reinvested at the NAV as of the date the fund deducts the distribution from its 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. The fund earns interest from its investments. These are passed along as DIVIDEND DISTRIBUTIONS. The fund may realize capital gains if it sells securities for a higher price than it paid for them. These are passed along as CAPITAL GAIN DISTRIBUTIONS. (checkmark) TAXES As with any investment, you should consider how an investment in the fund could affect you. Below are some of the fund's tax implications. TAXES ON DISTRIBUTIONS. Distributions may be subject to federal income tax and may also be subject to state or local taxes. However, interest that is federally tax-free remains tax-free when it is distributed. If you live outside the United States, your distributions from the fund could also be taxed by the country in which you reside. For federal tax purposes, the fund's income and short-term capital gain distributions are taxed as dividends; long-term capital gain distributions are taxed as long-term capital gains. Gain on the sale of tax-free bonds results in taxable distributions. However, short-term capital gains and a portion of the gain on bonds purchased at a discount are taxed as dividends. These distributions are taxable when they are paid, whether you take them in cash or reinvest them. However, distributions declared in December and paid in January are taxable as if they were paid on December 31. Fidelity will send you and the IRS a statement showing the tax status of the distributions paid to you in the previous year. The interest from some municipal securities is subject to the federal alternative minimum tax. The fund may invest up to 100% of its assets in these securities. Individuals who are subject to the tax must report this interest on their tax returns. A portion of the fund's dividends may be free from state or local taxes. Income from investments in your state are often tax-free to you. Each year, Fidelity will send you a breakdown of the fund's income from each state to help you calculate your taxes. During fiscal 1995, 90.3% of the fund's income dividends was free from federal income tax. 8.93% of the fund's income dividends was subject to the federal alternative minimum tax. TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other Fidelity funds - are subject to capital gains tax. A capital gain or loss is the difference between the cost of your shares and the price you receive when you sell them. Whenever you sell shares of the fund, Fidelity will send you a confirmation statement showing how many shares you sold and at what price. You will also receive a consolidated transaction statement every January. However, it is up to you or your tax preparer to determine whether this sale resulted in a capital gain and, if so, the amount of tax to be paid. Be sure to keep your regular account statements; the information they contain will be essential in calculating the amount of your capital gains. "BUYING A DIVIDEND." If you buy shares just before the fund deducts a capital gain distribution from its NAV, you will pay the full price for the shares and then receive a portion of the price back in the form of a taxable distribution. EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the fund and its investments and these taxes generally will reduce the fund's distributions. However, an offsetting tax credit or deduction may be available to you. If so, your tax statement will show more taxable income or capital gains than were actually distributed by the fund, but will also show the amount of the available offsetting credit or deduction. There are tax requirements that all funds must follow in order to avoid federal taxation. In its effort to adhere to these requirements, the fund may have to limit its investment activity in some types of instruments. TRANSACTION DETAILS THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE) is open. Fidelity normally calculates the fund's NAV as of the close of business of the NYSE, normally 4 p.m. Eastern time. THE FUND'S NAV is the value of a single share. The NAV is computed by adding the value of the fund's investments, cash, and other assets, subtracting its liabilities, and then dividing the result by the number of shares outstanding. The fund's assets are valued primarily on the basis of market quotations, if available. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. If quotations are not readily available, or if the values have been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Board of Trustees believes accurately reflects fair value. THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to sell one share) are its NAV. WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that your Social Security or taxpayer identification number is correct and that you are not subject to 31% backup withholding for failing to report income to the IRS. If you violate IRS regulations, the IRS can require the fund to withhold 31% of your taxable distributions and redemptions. YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. 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. THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period of time. The fund also reserves the right to reject any specific purchase order, including certain purchases by exchange. See "Exchange Restrictions" on page . Purchase orders may be refused if, in FMR's opinion, they would disrupt management of the fund. WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the next offering price calculated after your order is received and accepted. Note the following: (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) The 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 the 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. YOU MAY BUY OR SELL SHARES OF THE FUND THROUGH A BROKER, who may charge you a fee for this service. If you invest through a broker or other institution, read its program materials for any additional service features or fees that may apply. CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with FDC may enter confirmed purchase orders on behalf of customers by phone, with payment to follow no later than the time when the fund is priced on the following business day. If payment is not received by that time, the financial institution could be held liable for resulting fees or losses. WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the next NAV calculated after your request is received and accepted. Note the following: (small solid bullet) Normally, redemption proceeds will be mailed to you on the next business day, but if making immediate payment could adversely affect the fund, it may take up to seven days to pay you. (small solid bullet) Shares will earn dividends through the date of redemption; however, shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. (small solid bullet) Fidelity Money Line redemptions generally will be credited to your bank account on the second or third business day after your phone call. (small solid bullet) The fund may hold payment on redemptions until it is reasonably satisfied that investments made by check or Fidelity Money Line have been collected, which can take up to seven business days. (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. THE REDEMPTION FEE, 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 $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. FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00 from accounts with a value of less than $2,500, subject to an annual maximum charge of $60.00 per shareholder. It is expected that accounts will be valued on the second Friday in November of each year. Accounts opened after September 30 will not be subject to the fee for that year. The fee, which is payable to the transfer agent, is designed to offset in part the relatively higher costs of servicing smaller accounts. The fee will not be deducted from retirement accounts (except non-prototype retirement accounts), accounts using regular investment plans, or if total assets in Fidelity funds exceed $50,000. Eligibility for the $50,000 waiver is determined by aggregating Fidelity mutual fund accounts maintained by FSC or FBSI which are registered under the same social security number or which list the same social security number for the custodian of a Uniform Gifts/Transfers to Minors Act account. IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, you will be given 30 days' notice to reestablish the minimum balance. If you do not increase your balance, Fidelity reserves the right to close your account and send the proceeds to you. Your shares will be redeemed at the NAV on the day your account is closed and the $5.00 account closeout fee will be charged. FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing historical account documents, that are beyond the normal scope of its services. EXCHANGE RESTRICTIONS As a shareholder, you have the privilege of exchanging shares of the fund for shares of other Fidelity funds. However, you should note the following: (small solid bullet) The fund you are exchanging into must be registered for sale in your state. (small solid bullet) You may only exchange between accounts that are registered in the same name, address, and taxpayer identification number. (small solid bullet) Before exchanging into a fund, read its prospectus. (small solid bullet) If you exchange into a fund with a sales charge, you pay the percentage-point difference between that fund's sales charge and any sales charge you have previously paid in connection with the shares you are exchanging. For example, if you had already paid a sales charge of 2% on your shares and you exchange them into a fund with a 3% sales charge, you would pay an additional 1% sales charge. (small solid bullet) Exchanges may have tax consequences for you. (small solid bullet) Because excessive trading can hurt fund performance and shareholders, the fund reserves the right to temporarily or permanently terminate the exchange privilege of any investor who makes more than four exchanges out of the fund per calendar year. Accounts under common ownership or control, including accounts with the same taxpayer identification number, will be counted together for purposes of the four exchange limit. (small solid bullet) The fund reserves the right to refuse exchange purchases by any person or group if, in FMR's judgment, the fund would be unable to invest the money effectively in accordance with its investment objective and policies, or would otherwise potentially be adversely affected. (small solid bullet) Your exchanges may be restricted or refused if the fund receives or anticipates simultaneous orders affecting significant portions of the fund's assets. In particular, a pattern of exchanges that coincides with a "market timing" strategy may be disruptive to the fund. Although the fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. The fund reserves the right to terminate or modify the exchange privilege in the future. OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose administrative fees of up to $7.50 and redemption fees of up to 1.50% on exchanges. Check each fund's prospectus for details. This prospectus is printed on recycled paper using soy-based inks. SPARTAN(Registered trademark) BOND STRATEGIST(trademark) A FUND OF FIDELITY UNION STREET TRUST II STATEMENT OF ADDITIONAL INFORMATION OCTOBER 25, 1995 This Statement is not a prospectus but should be read in conjunction with the fund's current Prospectus (dated October 25, 1995) . P lease retain this document for future reference. The fund's financial statements and financial highlights, included in the Annual Report for the fiscal year ended December 31, 19 9 5, are incorporated herein by reference. To obtain an additional copy of the Prospectus or the Annual Report, please call Fidelity Distributors Corporation at 1-800-544-8888. TABLE OF CONTENTS PAGE Investment Policies and Limitations 2 Portfolio Transactions 12 Valuation of Portfolio Securities 13 Performance 14 Additional Purchase and Redemption Information 18 Distributions and Taxes 18 FMR 19 Trustees and Officers 20 Management Contract Distribution and Service Plan Contracts with FMR Affiliates Description of the Trust Financial Statements 25 Appendix 25 INVESTMENT ADVISER Fidelity Management & Research Company (FMR) INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc. (FMR U.K.) Fidelity Management & Research (Far East) Inc. (FMR Far East) DISTRIBUTOR Fidelity Distributors Corporation (FDC) TRANSFER AGENT Fidelity Service Co. (FSC) SMU -ptb- 1095 INVESTMENT POLICIES AND LIMITATIONS The following policies and limitations supplement those set forth in the Prospectus. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of the fund's assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such standard or percentage limitation will be determined immediately after and as a result of the fund's acquisition of such security or other asset. Accordingly, any subsequent change in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the fund's investment policies and limitations. The fund's fundamental investment policies and limitations cannot be changed without approval by a "majority of the outstanding voting securities" (as defined in the Investment Company Act of 1940) of the fund. However, except for the fundamental investment limitations listed below, the investment policies and limitations described in this Statement of Additional Information are not fundamental and may be changed without shareholder approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT: (1) issue senior securities, except as permitted under the Investment Company Act of 1940; (2) borrow money, except that the fund may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33 1/3% limitation; (3) underwrite securities issued by others, except to the extent that the fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities; (4) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S. territory or possession or a state or local government, or a political subdivision of any of the foregoing) if, as a result, more than 25% of the fund's total assets would be invested in securities of companies whose principal business activities are in the same industry; (5) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); (6) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the fund from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities); or (7) lend any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, but this limitation does not apply to purchases of debt securities or to repurchase agreements. (8) The fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies, and limitations as the fund. THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL. (i) To meet federal tax requirements for qualification as a "regulated investment company," the fund limits its investments so that at the close of each quarter of its taxable year: (a) with regard to at least 50% of total assets, no more than 5% of total assets are invested in the securities of a single issuer, and (b) no more than 25% of total assets are invested in the securities of a single issuer. Limitations (a) and (b) do not apply to "Government securities" as defined for federal tax purposes. (ii) With respect to 75% of its total assets, the fund does not currently intend to purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, the fund would hold more than 10% of the outstanding voting securities of that issuer. (iii) The fund does not 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. (iv) The fund does not currently intend to purchase securities on margin, except that the fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin. (v) The fund may borrow money only (a) from a bank or from a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) by engaging in reverse repurchase agreements with any party (reverse repurchase agreements are treated as borrowings for purposes of fundamental investment limitation (2)). The fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding. The fund will not borrow from other funds advised by FMR or its affiliates if total outstanding borrowings immediately after such borrowing would exceed 15% of the fund's total assets. (vi) The fund 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. (vii) The fund does not currently intend to invest in interests in real estate investment trusts that are not readily marketable, or to invest in interests in real estate limited partnerships that are not listed on the New York Stock Exchange or the American Stock Exchange or traded on the NASDAQ National Market System. (viii) The fund does not currently intend to lend assets other than securities to other parties, except by (a) lending money (up to 7.5% of the fund's net assets) to a registered investment company or portfolio for which FMR or an affiliate serves as investment adviser or (b) acquiring loans, loan participations, or other forms of direct debt instruments and, in connection therewith, assuming any associated unfunded commitments of the sellers. (This limitation does not apply to purchases of debt securities or to repurchase agreements.) (ix) The fund does not currently intend to (a) purchase securities of other investment companies, except in the open market where no commission except the ordinary broker's commission is paid, or (b) purchase or retain securities issued by other open-end investment companies. Limitations (a) and (b) do not apply to securities received as dividends, through offers of exchange, or as a result of a reorganization, consolidation, or merger. (x) The fund does not currently intend to purchase the securities of any issuer (other than securities issued or guaranteed by domestic or foreign governments or political subdivisions thereof) if, as a result, more than 5% of its total assets would be invested in the securities of business enterprises that, including predecessors, have a record of less than three years of continuous operation. (xi) The fund does not currently intend to purchase warrants, valued at the lower of cost or market, in excess of 5% of the fund's net assets. Included in that amount, but not to exceed 2% of the fund's net assets, may be warrants that are not listed on the New York Stock Exchange or the American Stock Exchange. Warrants acquired by the fund in units or attached to securities are not subject to these restrictions. (xii) The fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases. (xiii) 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 (x), pass-through entities and other special purpose vehicles or pools of financial assets, such as issuers of asset-backed securities or investment companies, are not considered "business enterprises." For the fund's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions" on page 6. AFFILIATED BANK TRANSACTIONS. The 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. ASSET-BACKED SECURITIES include pools of mortgages, loans, receivables or other assets. Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities and, in certain cases, supported by letters of credit, surety bonds, or other credit enhancements. The value of asset-backed securities may also be affected by the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities providing the credit support. DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a delayed-delivery or when-issued basis. These transactions involve a commitment by the fund to purchase or sell specific securities at a predetermined price or yield, with payment and delivery taking place after the customary settlement period for that type of security. Typically, no interest accrues to the purchaser until the security is delivered. The fund may receive fees for entering into delayed-delivery transactions. When purchasing securities on a delayed-delivery basis, the fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations. Because the fund is not required to pay for securities until the delivery date, these risks are in addition to the risks associated with the fund's other investments. If the fund remains substantially fully invested at a time when delayed-delivery purchases are outstanding, the delayed-delivery purchases may result in a form of leverage. When delayed-delivery purchases are outstanding, the fund will set aside appropriate liquid assets in a segregated custodial account to cover its purchase obligations. When the fund has sold a security on a delayed-delivery basis, the fund does not participate in further gains or losses with respect to the security. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity, or could suffer a loss. The fund may renegotiate delayed-delivery transactions after they are entered into, and may sell underlying securities before they are delivered, which may result in capital gains or losses. EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations may involve significant risks in addition to the risks inherent in U.S. investments. The value of securities denominated in foreign currencies and of dividends and interest paid with respect to such securities will fluctuate based on the relative strength of the U.S. dollar. Foreign investments involve a risk of local political, economic, or social instability, military action or unrest, or adverse diplomatic developments, and may be affected by actions of foreign governments adverse to the interests of U.S. investors. Such actions may include the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There is no assurance that FMR will be able to anticipate these potential events or counter their effects. These risks are magnified for investments in developing countries, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. Economies of particular countries or areas of the world may differ favorably or unfavorably from the economy of the United States. Foreign markets may offer less protection to investors than U.S. markets. It is anticipated that in most cases the best available market for foreign securities will be on an exchange or in over-the-counter markets located outside of the United States. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. issuers. Foreign security trading practices, including those involving securities settlement where fund assets may be released prior to receipt of payment, may result in increased risk in the event of a failed trade or the insolvency of a foreign broker-dealer, and may involve substantial delays. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions and custodial costs, are generally higher than for U.S. investors. In general, there is less overall governmental supervision and regulation of securities exchanges, brokers, and listed companies than in the United States. It may also be difficult to enforce legal rights in foreign countries. Foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to U.S. issuers. Some foreign securities impose restrictions on transfer within the United States or to U.S. persons. Although securities subject to such transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions. American Depository Receipts (ADR's) as well as other "hybrid" forms of ADRs including European Depository Receipts (EDRs) and Global Depository Receipts (GDRs), are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depository banks and generally trade on an established market in the United States or elsewhere. The underlying shares are held in trust by a custodian bank or similar financial institution in the issuer's home country. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. ADRs are an alternative to directly purchasing the underlying foreign securities in their national markets and currencies. However, ADRs continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include foreign exchange risk as well as the political and economic risks of the underlying issuer's country. FOREIGN CURRENCY TRANSACTIONS. The fund may conduct foreign currency transactions on a spot (i.e., cash) basis or by entering into forward contracts to purchase or sell foreign currencies at a future date and price. The fund will convert currency on a spot basis from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers generally do not charge a fee for conversion, they do realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the fund at one rate, while offering a lesser rate of exchange should the fund desire to resell that currency to the dealer. Forward contracts are generally traded in an interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The parties to a forward contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity and complete the contemplated currency exchange. The fund may use currency forward contracts for any purpose consistent with its investment objective. The following discussion summarizes the principal currency management strategies involving forward contracts that could be used by the fund. The fund may also use swap agreements, indexed securities, and options and futures contracts relating to foreign currencies for the same purposes. When the fund agrees to buy or sell a security denominated in a foreign currency, it may desire to "lock in" the U.S. dollar price of the security. By entering into a forward contract for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transaction, the fund will be able to protect itself against an adverse change in foreign currency values between the date the security is purchased or sold and the date on which payment is made or received. This technique is sometimes referred to as a "settlement hedge" or "transaction hedge." The fund may also enter into forward contracts to purchase or sell a foreign currency in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected by FMR. The fund may also use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if the fund owned securities denominated in pounds sterling, it could enter into a forward contract to sell pounds sterling in return for U.S. dollars to hedge against possible declines in the pound's value. Such a hedge, sometimes referred to as a "position hedge," would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. The fund could also hedge the position by selling another currency expected to perform similarly to the pound sterling - for example, by entering into a forward contract to sell Deutschemarks or European Currency Units in return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms of cost, yield, or efficiency, but generally would not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated. The fund may enter into forward contracts to shift its investment exposure from one currency into another. This may include shifting exposure from U.S. dollars to a foreign currency, or from one foreign currency to another foreign currency. For example, if the fund held investments denominated in Deutschemarks, the fund could enter into forward contracts to sell Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes known as a "cross-hedge," will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased, much as if the fund had sold a security denominated in one currency and purchased an equivalent security denominated in another. Cross-hedges protect against losses resulting from a decline in the hedged currency, but will cause the fund to assume the risk of fluctuations in the value of the currency it purchases. Under certain conditions, SEC guidelines require mutual funds to set aside appropriate liquid assets in a segregated custodial account to cover currency forward contracts. As required by SEC guidelines, the fund will segregate assets to cover currency forward contracts, if any, whose purpose is essentially speculative. The fund will not segregate assets to cover forward contracts entered into for hedging purposes, including settlement hedges, position hedges, and proxy hedges. Successful use of currency management strategies will depend on FMR's skill in analyzing and predicting currency values. Currency management strategies may substantially change the fund's investment exposure to changes in currency exchange rates, and could result in losses to the fund if currencies do not perform as FMR anticipates. For example, if a currency's value rose at a time when FMR had hedged the fund by selling that currency in exchange for dollars, the fund would be unable to participate in the currency's appreciation. If FMR hedges currency exposure through proxy hedges, the fund could realize currency losses from the hedge and the security position at the same time if the two currencies do not move in tandem. Similarly, if FMR increases the fund's exposure to a foreign currency, and that currency's value declines, the fund will realize a loss. There is no assurance that FMR's use of currency management strategies will be advantageous to the fund or that it will hedge at an appropriate time. FUND'S RIGHTS AS A SHAREHOLDER. The fund does not intend to direct or administer the day-to-day operations of any company. The fund, however, may exercise its rights as a shareholder and may communicate its views on important matters of policy to management, the Board of Directors, and shareholders of a company when FMR determines that such matters could have a significant effect on the value of the fund's investment in the company. The activities that the fund may engage in, either individually or in conjunction with others, may include, among others, supporting or opposing proposed changes in a company's corporate structure or business activities; seeking changes in a company's directors or management; seeking changes in a company's direction or policies; seeking the sale or reorganization of the company or a portion of its assets; or supporting or opposing third party takeover efforts. This area of corporate activity is increasingly prone to litigation and it is possible that the fund could be involved in lawsuits related to such activities. FMR will monitor such activities with a view to mitigating, to the extent possible, the risk of litigation against the fund and the risk of actual liability if the fund is involved in litigation. No guarantee can be made, however, that litigation against the fund will not be undertaken or liabilities incurred. 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, Options and Futures Relating to Foreign Currencies, OTC Options, Purchasing Put and Call Options, and Writing Put and Call Options. ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply with guidelines established by the SEC with respect to coverage of options and futures strategies by mutual funds, and if the guidelines so require will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures or option strategy is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of the fund's assets could impede portfolio management or the fund's ability to meet redemption requests or other current obligations. COMBINED POSITIONS. The fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, the fund may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. CORRELATION OF PRICE CHANGES. Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match the fund's current or anticipated investments exactly. The fund may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the fund's other investments. Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match the fund's investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. The fund may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in the fund's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. FUTURES CONTRACTS. When the fund purchases a futures contract, it agrees to purchase a specified underlying instrument at a specified future date. When the fund sells a futures contract, it agrees to sell the underlying instrument at a specified future date. The price at which the purchase and sale will take place is fixed when the fund enters into the contract. Some currently available futures contracts are based on specific securities, such as U.S. Treasury bonds or notes, and some are based on indices of securities prices, such as the Bond Buyer Municipal Bond Index. Futures can be held until their delivery dates, or can be closed out before then if a liquid secondary market is available. The value of a futures contract tends to increase and decrease in tandem with the value of its underlying instrument. Therefore, purchasing futures contracts will tend to increase the fund's exposure to positive and negative price fluctuations in the underlying instrument, much as if it had purchased the underlying instrument directly. When the fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying instrument had been sold. FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, both the purchaser and seller are required to deposit "initial margin" with a futures broker, known as a futures commission merchant (FCM), when the contract is entered into. Initial margin deposits are typically equal to a percentage of the contract's value. If the value of either party's position declines, that party will be required to make additional "variation margin" payments to settle the change in value on a daily basis. The party that has a gain may be entitled to receive all or a portion of this amount. Initial and variation margin payments do not constitute purchasing securities on margin for purposes of the fund's investment limitations. In the event of the bankruptcy of an FCM that holds margin on behalf of the fund, the fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCM's other customers, potentially resulting in losses to the fund. LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund has filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" with the Commodity Futures Trading Commission (CFTC) and the National Futures Association, which regulate trading in the futures markets. The fund intends to comply with Rule 4.5 under the Commodity Exchange Act, which limits the extent to which the fund can commit assets to initial margin deposits and option premiums. In addition, the fund will not: (a) sell futures contracts, purchase put options, or write call options if, as a result, more than 25% of the fund's total assets would be hedged with futures and options under normal conditions; (b) purchase futures contracts or write put options if, as a result, the fund's total obligations upon settlement or exercise of purchased futures contracts and written put options would exceed 25% of its total assets; or (c) purchase call options if, as a result, the current value of option premiums for call options purchased by the fund would exceed 5% of the fund's total assets. The above limitations on the fund's investments in futures contracts and options, and the fund's policies regarding futures contracts and options discussed elsewhere in this Statement of Additional Information, may be changed as regulatory agencies permit. LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid secondary market will exist for any particular options or futures contract at any particular time. Options may have relatively low trading volume and liquidity if their strike prices are not close to the underlying instrument's current price. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts, and may halt trading if a contract's price moves upward or downward more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for the fund to enter into new positions or close out existing positions. If the secondary market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and potentially could require the fund to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, the fund's access to other assets held to cover its options or futures positions could also be impaired. OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures contracts are similar to forward currency exchange contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures contracts call for payment or delivery in U.S. dollars. The underlying instrument of a currency option may be a foreign currency, which generally is purchased or delivered in exchange for U.S. dollars, or may be a futures contract. The purchaser of a currency call obtains the right to purchase the underlying currency, and the purchaser of a currency put obtains the right to sell the underlying currency. The uses and risks of currency options and futures are similar to options and futures relating to securities or indices, as discussed above. The fund may purchase and sell currency futures and may purchase and write currency options to increase or decrease its exposure to different foreign currencies. The fund may also purchase and write currency options in conjunction with each other or with currency futures or forward contracts. Currency futures and options values can be expected to correlate with exchange rates, but may not reflect other factors that affect the value of the fund's investments. A currency hedge, for example, should protect a Yen-denominated security from a decline in the Yen, but will not protect the fund against a price decline resulting from deterioration in the issuer's creditworthiness. Because the value of the fund's foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of the fund's investments exactly over time. 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 fund greater flexibility to tailor an option to its needs, OTC options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the fund obtains the right (but not the obligation) to sell the option's underlying instrument at a fixed strike price. In return for this right, the fund pays the current market price for the option (known as the option premium). Options have various types of underlying instruments, including specific securities, indices of securities prices, and futures contracts. The fund may terminate its position in a put option it has purchased by allowing it to expire or by exercising the option. If the option is allowed to expire, the fund will lose the entire premium it paid. If the fund exercises the option, it completes the sale of the underlying instrument at the strike price. The fund may also terminate a put option position by closing it out in the secondary market at its current price, if a liquid secondary market exists. The buyer of a typical put option can expect to realize a gain if security prices fall substantially. However, if the underlying instrument's price does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss (limited to the amount of the premium paid, plus related transaction costs). The features of call options are essentially the same as those of put options, except that the purchaser of a call option obtains the right to purchase, rather than sell, the underlying instrument at the option's strike price. A call buyer typically attempts to participate in potential price increases of the underlying instrument with risk limited to the cost of the option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option. WRITING PUT AND CALL OPTIONS. When the fund writes a put option, it takes the opposite side of the transaction from the option's purchaser. In return for receipt of the premium, the fund assumes the obligation to pay the strike price for the option's underlying instrument if the other party to the option chooses to exercise it. When writing an option on a futures contract, the fund will be required to make margin payments to an FCM as described above for futures contracts. The fund may seek to terminate its position in a put option it writes before exercise by closing out the option in the secondary market at its current price. If the secondary market is not liquid for a put option the fund has written, however, the fund must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes, and must continue to set aside assets to cover its position. If security prices rise, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the loss from purchasing the underlying instrument directly, however, because the premium received for writing the option should mitigate the effects of the decline. Writing a call option obligates the 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 the fund's investments and, through reports from FMR, the Board monitors investments in illiquid instruments. In determining the liquidity of the fund's investments, FMR may consider various factors, including (1) the frequency of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the nature of the security (including any demand or tender features), and (5) the nature of the marketplace for trades (including the ability to assign or offset the fund's rights and obligations relating to the investment). Investments currently considered by the fund to be illiquid include repurchase agreements not entitling the holder to payment of principal and interest within seven days, non-government stripped fixed-rate mortgage-backed securities, and over-the-counter options. Also, FMR may determine some restricted securities, government-stripped fixed-rate mortgage-backed securities, loans and other direct debt instruments, emerging market securities, and swap agreements to be illiquid. However, with respect to over-the-counter options the fund writes, all or a portion of the value of the underlying instrument may be illiquid depending on the assets held to cover the option and the nature and terms of any agreement the fund may have to close out the option before expiration. In the absence of market quotations, illiquid investments are priced at fair value as determined in good faith by a committee appointed by the Board of Trustees. If through a change in values, net assets, or other circumstances, the fund were in a position where more than 10% of its net assets was invested in illiquid securities, it would seek to take appropriate steps to protect liquidity. INDEXED SECURITIES. The fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, currencies, precious metals or other commodities, 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. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other. The performance of indexed securities depends to a great extent on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the United States and abroad. 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. Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies. Indexed securities may be more volatile than the underlying instruments. INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order issued by the SEC, the fund has received permission to lend money to, and borrow money from, other funds advised by FMR or its affiliates. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one day's notice. A fund will lend through the program only when the returns are higher than those available from other short-term instruments (such as repurchase agreements), and will borrow through the program only when the costs are equal to or lower than the cost of bank loans. A fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs. 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. LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Direct debt instruments are subject to the fund's policies regarding the quality of debt securities. Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Direct debt instruments may not be rated by any nationally recognized rating service. If the fund does not receive scheduled interest or principal payments on such indebtedness, the fund's share price and yield could be adversely affected. Loans that are fully secured offer the fund more protections than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower's obligation, or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Direct indebtedness of developing countries also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and repay principal when due. Investments in loans through direct assignment of a financial institution's interests with respect to a loan may involve additional risks to the fund. For example, if a loan is foreclosed, the fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, the fund could be held liable as a co-lender. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary. Direct debt instruments that are not in the form of securities may offer less legal protection to the fund in the event of fraud or misrepresentation. In the absence of definitive regulatory guidance, the fund relies on FMR's research in an attempt to avoid situations where fraud or misrepresentation could adversely affect the fund. A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, the fund has direct recourse against the borrower, it may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of the fund were determined to be subject to the claims of the agent's general creditors, the fund might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest. Direct indebtedness purchased by the fund may include letters of credit, revolving credit facilities, or other standby financing commitments obligating the fund to pay additional cash on demand. These commitments may have the effect of requiring the fund to increase its investment in a borrower at a time when it would not otherwise have done so, even if the borrower's condition makes it unlikely that the amount will ever be repaid. The fund will set aside appropriate liquid assets in a segregated custodial account to cover its potential obligations under standby financing commitments. The fund limits the amount of total assets that it will invest in any one issuer or in issuers within the same industry (see limitations (4) and (i). For purposes of these limitations, the fund generally will treat the borrower as the "issuer" of indebtedness held by the fund. In the case of loan participations where a bank or other lending institution serves as financial intermediary between the fund and the borrower, if the participation does not shift to the fund the direct debtor-creditor relationship with the borrower, SEC interpretations require the fund, in appropriate circumstances, to treat both the lending bank or other lending institution and the borrower as "issuers" for these purposes. Treating a financial intermediary as an issuer of indebtedness may restrict the fund's ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries. LOWER-QUALITY DEBT SECURITIES. While the market for high-yield corporate debt securities has been in existence for many years and has weathered previous economic downturns, the 1980s brought a dramatic increase in the use of such securities to fund highly leveraged corporate acquisitions and restructurings. Past experience may not provide an accurate indication of the future performance of the high-yield bond market, especially during periods of economic recession. The market for lower-quality debt securities may be thinner and less active than that for higher-quality debt securities, which can adversely affect the prices at which the former are sold. If market quotations are not available, lower-quality debt securities will be valued in accordance with procedures established by the Board of Trustees, including the use of outside pricing services. Judgment plays a greater role in valuing high-yield corporate debt securities than is the case for securities for which more external sources for quotations and last-sale information are available. Adverse publicity and changing investor perceptions may affect the ability of outside pricing services to value lower-quality debt securities and the fund's ability to dispose of these securities. Since the risk of default is higher for lower-quality debt securities, FMR's research and credit analysis are an especially important part of managing securities of this type held by the fund. In considering investments for the fund, FMR will attempt to identify those issuers of high-yielding securities whose financial condition is adequate to meet future obligations, has improved, or is expected to improve in the future. FMR's analysis focuses on relative values based on such factors as interest or dividend coverage, asset coverage, earnings prospects, and the experience and managerial strength of the issuer. The fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise to exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the best interest of the fund's shareholders. MORTGAGE-BACKED SECURITIES. The fund may purchase mortgage-backed securities issued by government and non-government entities such as banks, mortgage lenders, or other financial institutions. A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages. Some mortgage-backed securities, such as collateralized mortgage obligations or CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types of mortgages including those on commercial real estate or residential properties. Other types of mortgage-backed securities will likely be developed in the future, and the fund may invest in them if FMR determines they are consistent with the fund's investment objective and policies. The value of mortgage-backed securities may change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Mortgage-backed securities are subject to prepayment risk. Prepayment, which occurs when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities of these securities and may lower their total returns. 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 fund will not hold such obligations directly as a lessor of the property, but will purchase a participation interest in a municipal obligation from a bank or other third party. A participation interest gives the fund a specified, undivided interest in the obligation in proportion to its purchased interest in the total amount of the obligation. Municipal leases frequently have risks distinct from those associated with general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet to incur debt. These may include voter referenda, interest rate limits, or public sale requirements. Leases, installment purchases, or conditional sale contracts (which normally provide for title to the leased asset to pass to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting their constitutional and statutory requirements for the issuance of debt. Many leases and contracts include "non-appropriation clauses" providing that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for such purposes by the appropriate legislative body on a yearly or other periodic basis. Non-appropriation clauses free the issuer from debt issuance limitations. MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities may be affected by uncertainties in the municipal market related to legislation or litigation involving the taxation of municipal securities or the rights of municipal securities holders in the event of a bankruptcy. Municipal bankruptcies are relatively rare, and certain provisions of the U.S. Bankruptcy Code governing such bankruptcy 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. REFUNDING CONTRACTS. The fund may purchase securities on a when-issued basis in connection with the refinancing of an issuer's outstanding indebtedness. Refunding contracts require the issuer to sell and the fund to buy refunded municipal obligations at a stated price and yield on a settlement date that may be several months or several years in the future. The fund generally will not be obligated to pay the full purchase price if it fails to perform under a refunding contract. Instead, refunding contracts generally provide for payment of liquidated damages to the issuer (currently 15-20% of the purchase price). The fund may secure its obligations under a refunding contract by depositing collateral or a letter of credit equal to the liquidated damages provisions of the refunding contract. When required by SEC guidelines, the fund will place liquid assets in a segregated custodial account equal in amount to its obligations under refunding contracts. REPURCHASE AGREEMENTS. In a repurchase agreement, the 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 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 the fund in connection with bankruptcy proceedings), it is the 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, the fund may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time it may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the fund might obtain a less favorable price than prevailed when it decided to seek registration of the security. REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the fund sells a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. While a reverse repurchase agreement is outstanding, the fund will maintain appropriate liquid assets in a segregated custodial account to cover its obligation under the agreement. The fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been found satisfactory by FMR. Such transactions may increase fluctuations in the market value of the fund's assets and may be viewed as a form of leverage. SECURITIES LENDING. The fund may lend securities to parties such as broker-dealers or institutional investors, including Fidelity Brokerage Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange and a subsidiary of FMR Corp. Securities lending allows the fund to retain ownership of the securities loaned and, at the same time, to earn additional income. Since there may be delays in the recovery of loaned securities, or even a loss of rights in collateral supplied should the borrower fail financially, loans will be made only to parties deemed by FMR to be of good standing. Furthermore, they will only be made if, in FMR's judgment, the consideration to be earned from such loans would justify the risk. FMR understands that it is the current view of the SEC Staff that a fund may engage in loan transactions only under the following conditions: (1) the fund must receive 100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower must increase the collateral whenever the market value of the securities loaned (determined on a daily basis) rises above the value of the collateral; (3) after giving notice, the fund must be able to terminate the loan at any time; (4) the fund must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends, interest, or other distributions on the securities loaned and to any increase in market value; (5) the fund may pay only reasonable custodian fees in connection with the loan; and (6) the Board of Trustees must be able to vote proxies on the securities loaned, either by terminating the loan or by entering into an alternative arrangement with the borrower. Cash received through loan transactions may be invested in any security in which the fund is authorized to invest. Investing this cash subjects that investment, as well as the security loaned, to market forces (i.e., capital appreciation or depreciation). STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at an exercise price equal to the amortized cost of the underlying security plus accrued interest, if any, at the time of exercise. The fund may acquire standby commitments to enhance the liquidity of portfolio securities. Ordinarily the fund will not transfer a standby commitment to a third party, although it could sell the underlying municipal security to a third party at any time. The fund may purchase standby commitments separate from or in conjunction with the purchase of securities subject to such commitments. In the latter case, the fund would pay a higher price for the securities acquired, thus reducing their yield to maturity. Issuers or financial intermediaries may obtain letters of credit or other guarantees to support their ability to buy securities on demand. FMR may rely upon its evaluation of a bank's credit in determining whether to support an instrument supported by a letter of credit. In evaluating a foreign bank's credit, FMR will consider whether adequate public information about the bank is available and whether the bank may be subject to unfavorable political or economic developments, currency controls, or other governmental restrictions that might affect the bank's ability to honor its credit commitment. Standby commitments are subject to certain risks, including the ability of issuers of standby commitments to pay for securities at the time the commitments are exercised; the fact that standby commitments are not marketable by the fund; and the possibility that the maturities of the underlying securities may be different from those of the commitments. STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security (PO) receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security (IO) receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. SWAP AGREEMENTS. Swap agreements can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease the fund's exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. Swap agreements can take many different forms and are known by a variety of names. The fund is not limited to any particular form of swap agreement if FMR determines it is consistent with the fund's investment objective and policies. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift the fund's investment exposure from one type of investment to another. For example, if the fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of the fund's investments and its share price and yield. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from the fund. If a swap agreement calls for payments by the fund, the fund must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declined, the value of a swap agreement would be likely to decline, potentially resulting in losses. The fund expects to be able to eliminate its exposure under swap agreements either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. The fund will maintain appropriate liquid assets in a segregated custodial account to cover its current obligations under swap agreements. If the fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the fund's accrued obligations under the swap agreement over the accrued amount the fund is entitled to receive under the agreement. If the fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the fund's accrued obligations under the agreement. TENDER OPTION BONDS are created by coupling an intermediate- or long-term, fixed-rate, tax-exempt bond (generally held pursuant to a custodial arrangement) with a tender agreement that gives the holder the option to tender the bond at its face value. As consideration for providing the tender option, the sponsor (usually a bank, broker-dealer, or other financial institution) receives periodic fees equal to the difference between the bond's fixed coupon rate and the rate (determined by a remarketing or similar agent) that would cause the bond, coupled with the tender option, to trade at par on the date of such determination. After payment of the tender option fee, the fund effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. In selecting tender option bonds for the fund, FMR will consider the creditworthiness of the issuer of the underlying bond, the custodian, and the third party provider of the tender option. In certain instances, a sponsor may terminate a tender option if, for example, the issuer of the underlying bond defaults on interest payments. VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest rates and carry rights that permit holders to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial intermediaries. Floating rate instruments have interest rates that change whenever there is a change in a designated base rate while variable rate instruments provide for a specified periodic adjustment in the interest rate. These formulas are designed to result in a market value for the instrument that approximates its par value. ZERO COUPON BONDS. Zero coupon bonds do not make 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 dividends, the fund takes into account as income a portion of the difference between a zero coupon bond's purchase price and its face value. A broker-dealer creates a DERIVATIVE ZERO by separating the interest and principal components of a U.S. Treasury security and selling them as two individual securities. CATS (Certificates of Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are examples of derivative zeros. The Federal Reserve Bank creates STRIPS (Separate Trading of Registered Interest and Principal of Securities) by separating the interest and principal components of an outstanding U.S. Treasury bond and selling them as individual securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be separated in this fashion. ORIGINAL ISSUE ZEROS are zero coupon securities originally issued by the U.S. government, a government agency, or a corporation in zero coupon form. PORTFOLIO TRANSACTIONS All orders for the purchase or sale of portfolio securities are placed on behalf of the fund by FMR pursuant to authority contained in the management contract. If FMR grants investment management authority to the sub-advisers (see the section entitled "Management Contract"), the sub-advisers are 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. 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. Commissions for investments traded on foreign exchanges will be higher than for investments traded on U.S. exchanges and may not be subject to negotiation. The fund may execute portfolio transactions with broker-dealers who provide research and execution services to the fund or other accounts over which FMR or its affiliates exercise investment discretion. Such services may include advice concerning the value of securities; the advisability of investing in, purchasing, or selling securities; 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). The selection of such broker-dealers generally is made by FMR (to the extent possible consistent with execution considerations) based upon the quality of research and execution services provided. The receipt of research from broker-dealers that execute transactions on behalf of the fund may be useful to FMR in rendering investment management services to the fund or its other clients, and conversely, such research provided by broker-dealers who have executed transaction orders on behalf of other FMR clients may be useful to FMR in carrying out its obligations to the fund. The receipt of such research has not reduced FMR's normal independent research activities; however, it enables FMR to avoid 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 the fund to pay such higher commissions, FMR must determine in good faith that such commissions are reasonable in relation to the value of the brokerage and research services provided by such executing broker-dealers, viewed in terms of a particular transaction or FMR's overall responsibilities to the fund and its other clients. In reaching this determination, FMR will not attempt to place a specific dollar value on the brokerage and research services provided, or to determine what portion of the compensation should be related to those services. FMR is authorized to use research services provided by and to place portfolio transactions with brokerage firms that have provided assistance in the distribution of shares of the fund or shares of other Fidelity funds to the extent permitted by law. FMR may use research services provided by and place agency transactions with Fidelity Brokerage Services, Inc. (FBSI) and Fidelity Brokerage Services (FBS), subsidiaries of FMR Corp., if the commissions are fair, reasonable, and comparable to commissions charged by non-affiliated, qualified brokerage firms for similar services. From September 1992 through December 1994, FBS operated under the name Fidelity Brokerage Services Limited, Inc. (FBSL). As of January 1995, FBSL was converted to an unlimited liability company and assumed the name FBS. Prior to September 4, 1992, FBSL operated under the name Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary of Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman of FIL. Mr. Johnson 3d, Johnson family members, and various trusts for the benefit of the Johnson family own, directly or indirectly, more than 25% of the voting common stock of FIL. 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. The Trustees periodically review FMR's performance of its responsibilities in connection with the placement of portfolio transactions on behalf of the fund and review the commissions paid by the fund over representative periods of time to determine if they are reasonable in relation to the benefits to the fund. For the fiscal years ended August 31, 1995 and 1994, the fund's portfolio turnover rates were 79 % and 168 %, respectively. Because a high turnover rate increases transaction costs and may increase taxable gains, FMR carefully weighs the anticipated benefits of short-term investing against these consequences. For fiscal 1995, 1994, and 1993, the fund paid no brokerage commissions. From time to time the Trustees will review whether the recapture for the benefit of the fund of some portion of the brokerage commissions or similar fees paid by the fund on portfolio transactions is legally permissible and advisable. The fund seeks to recapture soliciting broker-dealer fees on the tender of portfolio securities, but at present no other recapture arrangements are in effect. The Trustees intend to continue to review whether recapture opportunities are available and are legally permissible and, if so, to determine in the exercise of their business judgment whether it would be advisable for the fund to seek such recapture. Although the Trustees and officers of the fund are substantially the same as those of other funds managed by FMR, investment decisions for the fund are made independently from those of other funds managed by FMR or accounts managed by FMR affiliates. It sometimes happens that the same security is held in the portfolio of more than one of these funds or accounts. Simultaneous transactions are inevitable when several funds 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 the fund is concerned. In other cases, however, the ability of the fund to participate in volume transactions will produce better executions and prices for the fund. It is the current opinion of the Trustees that the desirability of retaining FMR as investment adviser to the fund outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions. VALUATION OF PORTFOLIO SECURITIES Securities owned by the fund are appraised by various methods depending on the market or exchange on which they trade. Securities traded on the New York Stock Exchange or the American Stock Exchange are appraised at the last sale price, or if no sale has occurred, at the closing bid price. Securities traded on other exchanges are appraised as nearly as possible in the same manner. Securities and other assets for which exchange quotations are not readily available are valued on the basis of closing over-the-counter bid prices, if available, or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Foreign securities are valued at the last sale price in the principal market where they are traded, or, if last sale prices are unavailable, at the last bid price available prior to the time the fund's net asset value per share (NAV) is determined. Foreign security prices are furnished by quotation services who express the value of securities in their local currency. FSC translates the value of foreign securities from the local currency into U.S. dollars at current exchange rates. Any changes in the value of forward contracts due to exchange rate fluctuations are included in the determination of NAV. The fund's bond investments are valued primarily on the basis of valuations furnished by a pricing service that uses both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data, without exclusive reliance upon quoted prices or exchanges or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Use of the pricing service has been approved by the Board of Trustees. The fund's portfolio securities with remaining maturities of less than 60 days are valued on the basis of amortized cost. This technique involves valuing an instrument at its cost as adjusted for amortization of premium or accretion of discount rather than its value based on current market quotations or appropriate substitutes which reflect current market conditions. The amortized cost value of an instrument may be higher or lower than the price the fund would receive if it sold the instrument. PERFORMANCE The fund may quote performance in various ways. All performance information supplied by the fund in advertising is historical and is not intended to indicate future returns. The fund's share price, yield, and total return fluctuate in response to market conditions and other factors, and the value of fund shares when redeemed may be more or less than their original cost. YIELD CALCULATIONS. Yields for the fund are computed by dividing the fund's interest and dividend income for a given 30-day or one-month period, net of expenses, by the average number of shares entitled to receive distributions during the period, dividing this figure by the fund's net asset value (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 1.00% redemption fee, which applies to shares held less than 180 days. Income is calculated for purposes of yield quotations in accordance with standardized methods applicable to all stock and bond funds. Dividends from equity investments are treated as if they were accrued on a daily basis, solely for the purposes of yield calculations. 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. For the fund's investments denominated in foreign currencies, income and expenses are calculated first in their respective currencies, and are then converted to U.S. dollars, either when they are actually converted or at the end of the 30-day or one month period, whichever is earlier. Capital gains and losses generally are excluded from the calculation as are gains and losses from currency exchange rate fluctuations. Income calculated for the purposes of calculating the fund's yield differs from income as determined for other accounting purposes. Because of the different accounting methods used, and because of the compounding of income assumed in yield calculations, the fund's yield may not equal its distribution rate, the income paid to your account, or the income reported in the fund's financial statements. Yield information may be useful in reviewing the fund's performance and in providing a basis for comparison with other investment alternatives. However, the fund's yield fluctuates, unlike investments that pay a fixed interest rate over a stated period of time. When comparing investment alternatives, investors should also note the quality and maturity of the portfolio securities of respective investment companies they have chosen to consider. Investors should recognize that in periods of declining interest rates the fund's yield will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates the fund's yield will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to the fund from the continuous sale of its shares will likely be invested in instruments producing lower yields than the balance of the fund's holdings, thereby reducing the fund's current yield. In periods of rising interest rates, the opposite can be expected to occur. The 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 the fund's yield by the result of one minus a stated federal or combined federal and state tax rate. If only a portion of the fund's yield is tax-exempt, only that portion is adjusted in the calculation. The following table shows the effect of a shareholder's tax status on effective yield under federal income tax laws for 1996. It 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 4% to 8%. Of course, no assurance can be given that the fund will achieve any specific tax-exempt yield. While the fund intends to invest at least 50% of its assets in obligations whose interest is exempt form federal income tax, other income received by the fund may be taxable.
1996 TAX RATES AND TAX-EQUIVALENT YIELDS Federal If individual tax-exempt yield is: Taxable Income* Tax 4% 5% 6% 7% 8% Single Return Joint Return Bracket** Then taxable equivalent yield is $ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28% 5.56% 6.94% 8.33% 9.72% 11.11% $ 58,151 - $ 121,300 $ 96,901 - $ 147,700 31% 5.80% 7.25% 8.70% 10.14% 11.59% $ 121,301 - $ 263,750 $ 147,701 - $ 263,750 36% 6.25% 7.81% 9.38% 10.94% 12.50% $ 263,751 and above $ 263,751 and above 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
* 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. The fund may invest a portion of its assets in obligations that are subject to federal income tax. When the fund invests in these obligations, its tax-equivalent yields will be lower. In the table above, tax-equivalent yields are calculated assuming investments are 100% federally tax-free. During fiscal 1995, 90.3% of the fund's income was free from federal income tax. TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all aspects of the fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in the fund's NAV over a stated period. Average annual total returns are calculated by determining the growth or decline in value of a hypothetical historical investment in the fund over a stated period, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the 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 the fund's performance is not constant over time, but changes from year to year, and that average annual total returns represent averaged figures as opposed to the actual year-to-year performance of the fund. In addition to average annual total returns, the 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 fund's 1.00% redemption fee on shares held less than 180. After-tax total returns reflect the total return of a hypothetical account after payment of federal and/or state taxes using assumed tax rates. After-tax total returns may assume that taxes are paid at the time of distribution or once each year or are paid in cash or by redeeming shares, that shares are held through the entire period or redeemed on the last day of the period, and that distributions are reinvested or paid in cash. Excluding the fund's redemption fee from a total return calculation produces a higher total return figure. Total returns, yields, and other performance information may be quoted numerically or in a table, graph, or similar illustration, and may omit or include the effect of the $5.00 account closeout fee. NET ASSET VALUE. Charts and graphs using the fund's net asset values, adjusted net asset values, and benchmark indices may be used to exhibit performance. An adjusted NAV includes any distributions paid by the fund and reflects all elements of its return. Unless otherwise indicated, the fund's adjusted NAVs are not adjusted for sales charges, if any. HISTORICAL FUND RESULTS. The following tables show the fund's yields, tax-equivalent yields, and total returns for periods ended August 31, 1995 . Total return figures include the effect of the $5.00 account closeout fee based on an average size account, but not the fund's 1.00% redemption fee, applicable to shares held less than 180. The tax-equivalent yield is based on a 36% federal income tax rate. Note that the fund may invest in securities whose income is subject to federal and state income taxes and to the federal alternative minimum tax. SPARTAN BOND STRATEGIST
Average Annual Cumulative Total Returns Total Returns Average Annual Cumulative After-Tax After-Tax Total Returns** Total Returns** 30-Day Tax-Equivalent One Life of One Life of One Life of One Life of Yield Yield Year Fund* Year Fund* Year Fund* Year Fund* 4.51% 6.92% 16.51% 3.77% 16.51% 8.92% 12.33% 3.77% 12.33% 8.93%
* From September 9, 1993 (commencement of operations). ** After-tax total returns reflect what you would have after taxes (at the 36% federal tax rate for income and short-term gains and 28% federal tax rate for long-term gains). They assume that money was withdrawn from the fund to pay for taxes in the year that the distributions, if any, were taxable, and that you closed the account at the end of the period. If you did not close your account, the after-tax return would have been 16.29% for t he past year and 8.17 % for the life of the fund. These returns are lower because they do not include the tax benefit of realizing a capital loss upon closing your account. The following table shows the income and capital elements of the fund's cumulative total return. The table compares the fund's return to the record of the Standard & Poor's Composite Index of 500 Stocks (S&P 500(Registered trademark)), the Dow Jones Industrial Average (DJIA), and the cost of living (measured by the Consumer Price Index, or CPI) over the same period. The CPI information is as of the month end closest to the initial investment date. The S&P 500 and DJIA comparisons are provided to show how the fund's total return compared to the record of a broad average of common stocks and a narrower set of stocks of major industrial companies, respectively, over the same period. Of course, since the fund invests in fixed-income securities, common stocks represent a different type of investment from the fund. Common stocks generally offer greater growth potential than the fund, but generally experience greater price volatility, which means greater potential for loss. In addition, common stocks generally provide lower income than a fixed-income investment such as the fund. Figures for the S&P 500 and DJIA are based on the prices of unmanaged groups of stocks and, unlike the fund's returns, do not include the effect of paying brokerage commissions or other costs of investing. During the period from September 9, 1993 (commencement of operations) to August 31, 1995 , a hypothetical $10,000 investment in Spartan Bond Strategist would have grown to $ 10,893, as suming all distributions were reinvested. This was a period of fluctuating interest rates and bond prices and the figures below should not be considered representative of the dividend income or capital gain or loss that could be realized from an investment in the fund today. Spartan Bond Strategist INDICES
Period 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 1995 $ 9,680 $ 1,213 $ 0 $ 10,893 $ 14,358 $ 15,139 $ 10,601 1994 $ 8,740 $ 608 $ 0 $ 9,348 $ 10,437 $ 11,073 $ 10,338 1993* $ 9,980 $ 143 $ 0 $ 10,123 $ 10,301 $ 10,548 $ 10,069
* From September 9, 1993 (commencement of operations). ** From month-end closest to initial investment date. Explanatory Notes: With an initial investment of $10,000 made on September 9, 1993, 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 $11,167. 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 $1,102 for dividends and $0 for capital gains distributions. Tax consequences of different investments have not been factored into the above figures. T he figures shown above do not reflect the fund's 1.00% redemption fee applicable to shares held less than 180 days or the fund's $5.00 account closeout fee. PERFORMANCE COMPARISONS. The fund's performance may be compared to the performance of other mutual funds in general, or to the performance of particular types of mutual funds. These comparisons may be expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an independent service located in Summit, New Jersey that monitors the performance of mutual funds. Lipper generally ranks funds on the basis of total return, assuming reinvestment of distributions, but does not take sales charges or redemption fees into consideration, and is prepared without regard to tax consequences. Lipper may also rank funds based on yield. In addition to the mutual fund rankings, the fund's performance may be compared to 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, the fund's performance may also be compared to other mutual funds tracked by financial or business publications and periodicals. For example, the fund may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk-adjusted performance. Rankings that compare the performance of Fidelity funds to one another in appropriate categories over specific periods of time may also be quoted in advertising. The fund may be compared in advertising to Certificates of Deposit (CDs) or other investments issued by banks or other depository institutions. Mutual funds differ from bank investments in several respects. For example, the fund may offer greater liquidity or higher potential returns than CDs, the fund does not guarantee your principal or your return, and fund shares are not FDIC insured. Fidelity may provide information designed to help individuals understand their investment goals and explore various financial strategies. Such information may include information about current economic, market, and political conditions; materials that describe general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting; questionnaires designed to help create a personal financial profile; worksheets used to project savings needs based on assumed rates of inflation and hypothetical rates of return; and action plans offering investment alternatives. Materials may also include discussions of Fidelity's asset allocation funds and other Fidelity funds, products, and services. Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI), and combinations of various capital markets. The performance of these capital markets is based on the returns of different indices. Fidelity funds may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. Performance comparisons may also include the value of a hypothetical investment in any of these capital markets. The risks associated with the security types in any capital market may or may not correspond directly to those of the funds. Ibbotson calculates total returns in the same method as the funds. The funds may also compare performance to that of other compilations or indices that may be developed and made available in the future. A fund may compare its performance or the performance of securities in which it may invest to averages published by IBC USA (Publications), Inc. of Ashland, Massachusetts. These averages assume reinvestment of distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All Tax-Free, which is reported in the MONEY FUND REPORT(registered trademark), covers over 395 tax-free money market funds and the IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All Taxable covers over 771 taxable money market funds. The Bond Fund Report AverageS(trademark)/All Tax-Free, which is reported in the BOND FUND REPORT(registered trademark), covers over 559 tax-free bond funds and the BOND FUND REPORT AVERAGES(trademark)/All Taxable covers over 539 taxable bond funds. When evaluating comparisons to money market funds, investors should consider the relevant differences in investment objectives and policies. Specifically, money market funds invest in short-term, high-quality instruments and seek to maintain a stable $1.00 share price. The fund, however, invests in longer-term instruments and its share price changes daily in response to a variety of factors. The fund may compare and contrast in advertising the relative advantages of investing in a mutual fund versus an individual municipal bond. Unlike tax-free mutual funds, individual municipal bonds offer a stated rate of interest and, if held to maturity, repayment of principal. Although some individual municipal bonds might offer a higher return, they do not offer the reduced risk of a mutual fund that invests in many different securities. The initial investment requirements and sales charges of many tax-free mutual funds are lower than the purchase cost of individual municipal bonds, which are generally issued in $5,000 denominations and are subject to direct brokerage costs. In advertising materials, Fidelity may reference or discuss its products and services, which may include other Fidelity funds; retirement investing; brokerage products and services; 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(Registered trademark), a quarterly magazine provided free of charge to Fidelity fund shareholders. The fund may present its fund number, Quotron(trademark) number, and CUSIP number, and discuss or quote its current portfolio manager. VOLATILITY. The fund may quote various measures of volatility and benchmark correlation in advertising. In addition, the fund may compare these measures to those of other funds. Measures of volatility seek to compare the fund's historical share price fluctuations or 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 fund may also discuss or illustrate examples of interest rate sensitivity. MOMENTUM INDICATORS indicate the fund's price movements over specific periods of time. Each point on the momentum indicator represents the fund's percentage change in price movements over that period. The fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. While such a strategy does not assure a profit or guard against loss in a declining market, the investor's average cost per share can be lower than if fixed numbers of shares are purchased at the same intervals. In evaluating such a plan, investors should consider their ability to continue purchasing shares during periods of low price levels. As of August 31, 1995, FMR advised over $26.5 billion in tax-free fund assets, $81 billion in money market fund assets, $240 billion in equity fund assets, $49 billion in international fund assets, and $23 billion in Spartan fund assets. The fund may reference the growth and variety of money market mutual funds and the adviser's innovation and participation in the industry. The equity funds under management figure represents the largest amount of equity fund assets under management by a mutual fund investment adviser in the United States, making FMR America's leading equity (stock) fund manager. FMR, its subsidiaries, and affiliates maintain a worldwide information and communications network for the purpose of researching and managing investments abroad. In addition to performance rankings, the fund may compare its total expense ratio to the average total expense ratio of similar funds tracked by Lipper. 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 The fund is open for business and its net asset value per share (NAV) is calculated each day the New York Stock Exchange (NYSE) is open for trading. The NYSE has designated the following holiday closings for 1996: New Year's Day, President's Day (observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Although FMR expects the same holiday schedule to be observed in the future, the NYSE may modify its holiday schedule at any time. In addition, the fund will not process wire purchases and redemptions on days when the Federal Reserve Wire System is closed. FSC normally determines the fund's NAV as of the close of the NYSE (normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if trading on the NYSE is restricted or as permitted by the Securities and Exchange Commission (SEC). To the extent that portfolio securities are traded in other markets on days when the NYSE is closed , the fund's NAV may be affected on days when investors do not have access to the fund to purchase or redeem shares. In addition, trading in some of the 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 the fund's NAV. Shareholders receiving securities or other property on redemption may realize a gain or loss for tax purposes, and will incur any costs of sale, as well as the associated inconveniences. Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940 Act), the fund is required to give shareholders at least 60 days' notice prior to terminating or modifying its exchange privilege. Under the Rule, the 60-day notification requirement may be waived if (i) the only effect of a modification would be to reduce or eliminate an administrative fee, redemption fee, or deferred sales charge ordinarily payable at the time of an exchange, or (ii) the fund suspends the redemption of the shares to be exchanged as permitted under the 1940 Act or the rules and regulations thereunder, or the fund to be acquired suspends the sale of its shares because it is unable to invest amounts effectively in accordance with its investment objective and policies. In the Prospectus, the fund has notified shareholders that it reserves the right at any time, without prior notice, to refuse exchange purchases by any person or group if, in FMR's judgment, the fund would be unable to invest effectively in accordance with its investment objective and policies, or would otherwise potentially be adversely affected. DISTRIBUTIONS AND TAXES DISTRIBUTIONS. If you request to have distributions mailed to you and the U.S. Postal Service cannot deliver your checks, or if your checks remain uncashed for six months, Fidelity may reinvest your distributions at the then-current NAV. All subsequent distributions will then be reinvested until you provide Fidelity with alternate instructions. DIVIDENDS. To the extent that the fund's income is designated as federally tax-exempt interest, the daily dividends declared by the fund are also federally tax-exempt. A portion of the fund's dividends derived from certain U.S. government obligations may be exempt from state and local taxation. Gains (losses) attributable to foreign currency fluctuations are generally taxable as ordinary income, and therefore will increase (decrease) dividend distributions. Short-term capital gains are distributed as dividend income and will be taxed as ordinary income. The fund will send each shareholder a notice in January describing the tax status of dividends and capital gain distributions for the prior year. A portion of the fund's income may qualify for the dividends-received deduction available to corporate shareholders to the extent that the fund's income is derived from qualifying dividends. Because the fund may earn other types of income, such as interest, income from securities loans, non-qualifying dividends, and short-term capital gains, the percentage of dividends from the fund that qualifies for the deduction generally will be less than 100%. The fund will notify corporate shareholders annually of the percentage of fund dividends that qualifies for the dividends-received deduction. 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. The fund purchases municipal securities that are free from federal income tax based on opinions of bond counsel regarding their tax status. These opinions generally will be based on covenants by the issuers or other parties regarding continuing compliance with federal tax requirements. If at any time the covenants are not complied with, distribution to shareholders of interest on a security could become federally taxable retroactive to the date the security was issued. For certain types of structure securities, opinions of bond counsel may also be based on the effect of the structure on the federal tax treatment of the income. As a result of the Tax Reform Act of 1986, interest on certain "private activity" securities is subject to the federal alternative minimum tax (AMT), although the interest continues to be excludable from gross income for other tax purposes. Interest from private activity securities 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 the fund are taxable to shareholders as dividends, not as capital gains. 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. CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on the sale of securities and distributed to shareholders are federally taxable as long-term capital gains, regardless of the length of time shareholders have held their shares. If a shareholder receives a long-term capital gain distribution on shares of the fund, and such shares are held six months or less and are sold at a loss, the portion of the loss equal to the amount of the long-term capital gain distribution will be considered a long-term loss for tax purposes. Short-term capital gains distributed by the fund are taxable to shareholders as dividends, not as capital gains. As of August 31, 1995, the fund had a capital loss carryforward aggregating approximately $1,755,000. This loss carryforward, of which $26,000, $1,196,000, and $533,000 will expire on August 31 , 2001, 2002, and 2003, respectively, is available to offset future capital gains. FOREIGN TAXES. Foreign governments may withhold taxes on dividends and interest paid with respect to foreign securities. Foreign governments may also impose taxes on other payments or gains with respect to foreign securities. If at the close of its fiscal year, more than 50% of the fund's total assets are invested in securities of foreign issuers, the fund may elect to pass through foreign taxes paid and thereby allow shareholders to take a credit or deduction on their individual tax returns. TAX STATUS OF THE FUND. The fund intends to qualify each year as a "regulated investment company" for tax purposes so that it will not be liable for federal tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company and avoid being subject to federal income or excise taxes at the fund level, the fund intends to distribute substantially all of its net investment income and net realized capital gains within each calendar year as well as on a fiscal year basis. The 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 forward currency contracts, futures contracts, and options are included in this 30% calculation, which may limit the fund's investments in such instruments. If the fund purchases shares in certain foreign investment entities, defined as passive foreign investment companies (PFICs) in the Internal Revenue Code, it may be subject to U.S. federal income tax on a portion of any excess distribution or gain from the disposition of such shares. Interest charges may also be imposed on the fund with respect to deferred taxes arising from such distributions or gains. Generally, the fund will elect to mark-to-market any PFIC shares. Unrealized gains will be recognized as income for tax purposes and must be distributed to shareholders as dividends. The fund is treated as a separate entity from the other funds of Fidelity Union Street Trust II for tax purposes. OTHER TAX INFORMATION. The information above is only a summary of some of the tax consequences generally affecting the fund and its shareholders, and no attempt has been made to discuss individual tax consequences. In addition to federal income taxes, shareholders may be subject to state and local taxes on fund distributions, and shares may be subject to state and local personal property taxes. Investors should consult their tax advisers to determine whether the 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 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 three of its divisions as follows: FSC, which is the transfer and shareholder servicing agent for certain of the funds advised by FMR; Fidelity Investments Institutional Operations Company, which performs shareholder servicing functions for institutional customers and funds sold through intermediaries; and Fidelity Investments Retail Marketing Company, which provides marketing services to various companies within the Fidelity organization. Fidelity investment personnel may invest in securities for their own account pursuant to a code of ethics that sets forth all employees' fiduciary responsibilities regarding the funds, establishes procedures for personal investing and restricts certain transactions. For example, all personal trades in most securities require pre-clearance, and participation in initial public offerings is prohibited. In addition, restrictions on the timing of 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. 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 (65), 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 (54), Trustee and Senior Vice President, is President of FMR; and President and a Director of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc. RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining Corporation (1994). Prior to February 1994, he was President of Greenhill Petroleum Corporation (petroleum exploration and production, 1990). Until March 1990, Mr. Cox was President and Chief Operating Officer of Union Pacific Resources Company (exploration and production). He is a Director of Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies (engineering). In addition, he served on the Board of Directors of the Norton Company (manufacturer of industrial devices, 1983-1990) and continues to serve on the Board of Directors of the Texas State Chamber of Commerce, and is a member of advisory boards of Texas A&M University and the University of Texas at Austin. PHYLLIS BURKE DAVIS (64), Trustee (1992). Prior to her retirement in September 1991, Mrs. Davis was the Senior Vice President of Corporate Affairs of Avon Products, Inc. She is currently a Director of BellSouth Corporation (telecommunications), Eaton Corporation (manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990), and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In addition, she is a member of the President's Advisory Council of The University of Vermont School of Business Administration. RICHARD J. FLYNN (71), Trustee, is a financial consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton Company (manufacturer of industrial devices). He is currently a Trustee of College of the Holy Cross and Old Sturbridge Village, Inc., and he previously served as a Director of Mechanics Bank (1971-1995). E. BRADLEY JONES (68), Trustee (1990). Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is a Director of TRW Inc. (original equipment and replacement products), Cleveland-Cliffs Inc. (mining), Consolidated Rail Corporation, Birmingham Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990), and he previously served as a Director of NACCO Industries, Inc. (mining and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc. (1985-1995). In addition, he serves as a Trustee of First Union Real Estate Investments, a Trustee and member of the Executive Committee of the Cleveland Clinic Foundation, a Trustee and member of the Executive Committee of University School (Cleveland), and a Trustee of Cleveland Clinic Florida. DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at Columbia University Graduate School of Business and a financial consultant. From 1987 to January 1995, Mr. Kirk was a Professor at Columbia University Graduate School of Business. Prior to 1987, he was Chairman of the Financial Accounting Standards Board. Mr. Kirk is a Director of General Re Corporation (reinsurance), and he previously served as a Director of Valuation Research Corp. (appraisals and valuations, 1993-1995). In addition, he serves as Chairman of the Board of Directors of the National Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the Greenwich Hospital Association, and as a Member of the Public Oversight Board of the American Institute of Certified Public Accountants' SEC Practice Section (1995). *PETER S. LYNCH (52), Trustee (1990) is Vice Chairman and Director of FMR (1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice President of FMR (a position he held until March 31, 1991); Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity Investments Corporate Services (1991-1992). He is a Director of W.R. Grace & Co. (chemicals) and Morrison Knudsen Corporation (engineering and construction). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society for the Preservation of New England Antiquities, and as an Overseer of the Museum of Fine Arts of Boston (1990). GERALD C. McDONOUGH (66), Trustee, is Chairman of G.M. Management Group (strategic advisory services). Prior to his retirement in July 1988, he was Chairman and Chief Executive Officer of Leaseway Transportation Corp. (physical distribution services). Mr. McDonough is a Director of ACME-Cleveland Corp. (metal working, telecommunications and electronic products), Brush-Wellman Inc. (metal refining), York International Corp. (air conditioning and refrigeration), Commercial Intertech Corp. (water treatment equipment, 1992), and Associated Estates Realty Corporation (a real estate investment trust, 1993). EDWARD H. MALONE (71), Trustee. Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric Investment Corporation and a Vice President of General Electric Company. He is a Director of Allegheny Power Systems, Inc. (electric utility), General Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). In addition, he serves as a Trustee of the Naples Philharmonic Center for the Arts and Rensselaer Polytechnic Institute, and he is a member of the Advisory Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership Funds. MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board, President, and Chief Executive Officer of Lexmark International, Inc. (office machines, 1991). Prior to 1991, he held the positions of Vice President of International Business Machines Corporation ("IBM") and President and General Manager of various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign Vice Chairman of the Tri-State United Way (1993) and is a member of the University of Alabama President's Cabinet (1990). THOMAS R. WILLIAMS (67), Trustee, is President of The Wales Group, Inc. (management and financial advisory services). Prior to retiring in 1987, Mr. Williams served as Chairman of the Board of First Wachovia Corporation (bank holding company), and Chairman and Chief Executive Officer of The First National Bank of Atlanta and First Atlanta Corporation (bank holding company). He is currently a Director of BellSouth Corporation (telecommunications), ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc. (computer software), Georgia Power Company (electric utility), Gerber Alley & Associates, Inc. (computer software), National Life Insurance Company of Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants, 1992). FRED L. HENNING, JR. (56), Vice President, is Vice President of Fidelity's money market (1994) and fixed-income (1995) funds and Senior Vice President of FMR Texas Inc. ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993) and General Counsel of FMR, Vice President - Legal of FMR Corp., and Vice President and Clerk of FDC. KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in various positions, including Vice President of Proprietary Accounting (1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer of Goldman Sachs (Asia) LLC (1994-1995) JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of FMR. LEONARD M. RUSH (49), Assistant Treasurer (1994), is an employee of FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice President, Assistant Controller, and Director of the Accounting Department - - First Boston Corp. (1986-1990). The following table sets forth information describing the compensation of each current Trustee of the fund for his or her services as trustee for the fiscal year ended December 31, 1995. COMPENSATION TABLE
Trustees Aggregate Pension or Estimated Annual Total Compensation Retirement Benefits Upon Compensation from Benefits Accrued Retirement from from the Fund the Fund as Part of Fund the Complex* Expenses from the Fund Complex* Fund Complex* J. Gary Burkhead ** $ 0 $ 0 $ 0 $ 0 Ralph F. Cox 8 5,200 52,000 128,000 Phyllis Burke Davis 7 5,200 52,000 125,000 Richard J. Flynn 10 0 52,000 160,500 Edward C. Johnson 3d ** 0 0 0 0 E. Bradley Jones 8 5,200 49,400 128,000 Donald J. Kirk 8 5,200 52,000 129,500 Peter S. Lynch ** 0 0 0 0 Gerald C. McDonough 8 5,200 52,000 128,000 Edward H. Malone 8 5,200 44,200 128,000 Marvin L. Mann 8 5,200 52,000 128,000 Thomas R. Williams 7 5,200 52,000 125,000
* Information is as of December 31, 1995 for 219 funds in the complex. ** Interested trustees of the fund are compensated by FMR. The non-interested Trustees may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of a Deferred Compensation Plan (the Plan). Under the Plan, compensation deferred by a Trustee is periodically adjusted as though an equivalent amount had been invested and reinvested in shares of one or more funds in the complex designated by such Trustee (designated securities). The amount paid to the Trustee under the Plan will be determined based upon the performance of such investments. Deferral of Trustees' fees in accordance with the Plan will have a negligible effect on the fund's assets, liabilities, and net income per share, and will not obligate the fund to retain the services of any Trustee or to pay any particular level of compensation to the Trustee. The fund may invest in such designated securities without shareholder approval. Under a retirement program adopted in July 1988, the non-interested Trustees, upon reaching age 72, become eligible to participate in a retirement program under which they receive payments during their lifetime from a fund based on their basic trustee fees and length of service. The obligation of a fund to make such payments is not secured or funded. Trustees become eligible if, at the time of retirement, they have served on the Board for at least five years. Currently, Messrs. Ralph S. Saul, William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former non-interested Trustees, receive retirement benefits under the program. As of December 31, 1995, approximately 42.1% of the fund's total outstanding shares were held by an FMR affiliate, FMR Corp. Mr. Edward C. Johnson 3d, President and Trustee of the fund, is a member of a group which, by virtue of its owning approximately 49% of the voting securities of FMR Corp., may be deemed under the 1940 Act to form a controlling group with respect to FMR Corp. Therefore, based on his membership in this group, Mr. Edward C. Johnson 3d may be deemed to own beneficially 42.1% of the fund. As of this date, with the exception of Mr. Johnson 3d's ownership of the fund's shares, the Trustees and officers of the fund owned, in the aggregate, less than 1% of the fund's total outstanding shares. A shareholder owning of record or beneficially more than 25% of a fund's outstanding shares may be considered a controlling person. That shareholder's vote could have a more significant effect on matters presented at a shareholder's meeting than votes of other shareholders. MANAGEMENT CONTRACT The fund employs FMR to furnish investment advisory and other services. Under its management contract with the fund, FMR acts as investment adviser and, subject to the supervision of the Board of Trustees, directs the investments of the fund in accordance with its investment objective, policies, and limitations. FMR also provides the fund with all necessary office facilities and personnel for servicing the fund's investments, compensates all officers of the fund and all Trustees who are "interested persons" of the trust or of FMR, and all personnel of the fund or FMR performing services relating to research, statistical, and investment activities. In addition, FMR or its affiliates, subject to the supervision of the Board of Trustees, provide the management and administrative services necessary for the operation of the fund. These services include providing facilities for maintaining the fund's organization; supervising relations with custodians, transfer and pricing agents, accountants, underwriters, and other persons dealing with the fund; preparing all general shareholder communications and conducting shareholder relations; maintaining the fund's records and the registration of the fund's shares under federal and state laws; developing management and shareholder services for the 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 the fund with certain exceptions. Specific expenses payable by FMR include, without limitation, expenses for the typesetting, printing, and mailing proxy materials to shareholders; legal expenses, and the fees of the custodian, auditor and non-interested Trustees; costs of typesetting, printing, and mailing prospectuses and statements of additional information, notices and reports to shareholders; the 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 the 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 fund's manager pursuant to a management contract dated July 15, 1993, which was approved by FMR, the then sole shareholder of the fund on August 30, 1993. 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 the contract, the fund pays FMR a monthly management fee at the annual rate of .70% of the average net assets of the fund throughout the month. For the fiscal years ended December 31, 1995, 1994, and 1993, FMR received $127,871, $150,625, and $33,664, respectively, after reduction of fees and expenses of the non-interested Trustees. FMR may, from time to time, voluntarily reimburse all or a portion of the fund's operating expenses (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 the fund's total returns and yield and repayment of the reimbursement by the fund will lower its total returns and yield. To defray shareholder service costs, FMR or its affiliates also collect the fund's $5.00 exchange fee, $5.00 account closeout fee, and $5.00 fee for wire purchases and redemptions. Shareholder transaction fees and charges collected by FMR are indicated in the table below. Period Ended Account December 31 Exchange Fees Closeout Fees Wire Fees 1995 $285 $130 $30 1994 $740 $175 $40 1993 $5 $0 $0 SUB-ADVISERS. FMR has entered into sub-advisory agreements with FMR U.K. and FMR Far East. Pursuant to the sub-advisory agreements, FMR may receive investment advice and research services outside the United States from the sub-advisers. FMR may also grant the sub-advisers investment management authority as well as the authority to buy and sell securities if FMR believes it would be beneficial to the fund. Currently, FMR U.K. and FMR Far East each focus on issuers in countries other than the United States such as those in Europe, Asia, and the Pacific Basin. FMR U.K. and FMR Far East, which were organized in 1986, are wholly owned subsidiaries of FMR. Under the sub-advisory agreements FMR pays the fees of FMR U.K. and FMR Far East. For providing non-discretionary investment advice and research services, FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs incurred in connection with providing investment advice and research services. For providing discretionary investment management and executing portfolio transactions, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its monthly management fee rate with respect to the fund's average net assets managed by the sub-adviser on a discretionary basis. For the fiscal years ended December 31, 1995, 1994, and 1993, no fees were paid by FMR to FMR U.K. and FMR Far East on behalf of the fund. DISTRIBUTION AND SERVICE PLAN 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 the Plan, if the payment of management fees by the fund to FMR is deemed to be indirect financing by the fund of the distribution of its shares, such payment is authorized by the Plan. The Plan 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 the fund. In addition, the 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 the fund, or to third parties, including banks, that render shareholder support services. No third party payments were made in fiscal 1995. Prior to approving the 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 the fund and its shareholders. In particular, the Trustees noted that the Plan does not authorize payments by the fund other than those made to FMR under its management contract with the fund. To the extent that the Plan gives FMR and FDC greater flexibility in connection with the distribution of shares of the fund, additional sales of fund shares may result. Furthermore, certain shareholder support services may be provided more effectively under the Plan by local entities with whom shareholders have other relationships. The Plan was approved by FMR as the then sole shareholder of the fund on August 30, 1993. The Glass-Steagall Act generally prohibits federally and state chartered or supervised banks from engaging in the business of underwriting, selling, or distributing securities. Although the scope of this prohibition under the Glass-Steagall Act has not been clearly defined by the courts or appropriate regulatory agencies, FDC believes that the Glass-Steagall Act should not preclude a bank from performing shareholder support services, or servicing and recordkeeping functions. FDC intends to engage banks only to perform such functions. However, changes in federal or state statutes and regulations pertaining to the permissible activities of banks and their affiliates or subsidiaries, as well as further judicial or administrative decisions or interpretations, could prevent a bank from continuing to perform all or a part of the contemplated services. If a bank were prohibited from so acting, the Trustees would consider what actions, if any, would be necessary to continue to provide efficient and effective shareholder services. In such event, changes in the operation of the fund might occur, including possible termination of any automatic investment or redemption or other services then provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. 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. The fund may execute portfolio transactions with, and purchase securities issued by, depository institutions that receive payments under the Plan. No preference for the instruments of such depository institutions will be shown in the selection of investments. CONTRACTS WITH FMR AFFILIATES FSC performs transfer agency, dividend disbursing, and shareholder servicing functions for the fund. The costs of these services are borne by FMR pursuant to its management contract with the fund. Under this arrangement, FSC receives annual account fees and asset-based fees for each retail account and certain institutional accounts based on account size. With respect to certain institutional retirement accounts, FSC receives asset-based fees only. With respect to certain other institutional retirement accounts, FSC receives annual account fees and asset based fees based on fund type. In addition, these fees are subject to increase based on postal rate changes. FSC also collects small account fees from certain accounts with balances of less than $2,500. FSC also calculates the fund's net asset value per share and dividends, maintains the fund's general accounting records, and administers the fund's securities lending program. Under this arrangement, FSC receives a fee based on the fund's average net assets. The costs of these services are also borne by FMR pursuant to its management contract with the fund. The fund has a distribution agreement with FDC, a Massachusetts corporation organized on July 18, 1960. FDC is a broker-dealer registered under the Securities and Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The distribution agreement calls for FDC to use all reasonable efforts, consistent with its other business, to secure purchasers for shares of the fund, which are continuously offered at net asset value. Promotional and administrative expenses in connection with the offer and sale of shares are paid by FMR. DESCRIPTION OF THE TRUST TRUST ORGANIZATION. Spartan Bond Strategist is a fund of Fidelity Union Street Trust II (the trust), an open-end management investment company organized as a Massachusetts business trust on September 10, 1976 under the name Fidelity Municipal Bond Fund. The trust's name was changed to Fidelity Mid-Term Municipals on February 28, 1977. The trust's name was later changed to Fidelity Limited-Term Municipals on April 15, 1977 and to Fidelity School Street Trust on June 17, 1993. Currently, there are two funds of the trust: Fidelity Limited Term Municipal Income Fund and Spartan Bond Strategist. The Declaration of Trust permits the Trustees to create additional funds. In the event that FMR ceases to be the investment adviser to the trust or a fund, the right of the trust or fund to use the identifying names "Fidelity" and "Spartan" may be withdrawn. The assets of the trust received for the issue or sale of shares of each fund and all income, earnings, profits, and proceeds thereof, subject only to the rights of creditors, are especially allocated to such fund, and constitute the underlying assets of such fund. The underlying assets of each fund are segregated on the books of account, and are to be charged with the liabilities with respect to such fund and with a share of the general expenses of the trust. Expenses with respect to the trust are to be allocated in proportion to the asset value of the respective funds, except where allocations of direct expense can otherwise be fairly made. The officers of the trust, subject to the general supervision of the Board of Trustees, have the power to determine which expenses are allocable to a given fund, or which are general or allocable to all of the funds. In the event of the dissolution or liquidation of the trust, shareholders of each fund are entitled to receive as a class the underlying assets of such fund available for distribution. SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable for the obligations of the trust. The Declaration of Trust provides that the trust shall not have any claim against shareholders except for the payment of the purchase price of shares and requires that each agreement, obligation, or instrument entered into or executed by the trust or the Trustees include a provision limiting the obligations created thereby to the trust and its assets. The Declaration of Trust provides for indemnification out of each fund's property of any shareholder 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 a fund itself would be unable to meet its obligations. FMR believes that, in view of the above, the risk of personal liability to shareholders is remote. 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. VOTING RIGHTS. Each fund's capital consists of shares of beneficial interest. As a shareholder, you receive one vote for each dollar value of net asset value you own. The shares have no preemptive or conversion rights; the 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 heading "Shareholder and Trustee Liability" above. Shareholders representing 10% or more of the trust or a fund may, as set forth in the Declaration of Trust, call meetings of the trust or a fund for any purpose related to the trust or fund, as the case may be, including, in the case of a meeting of the entire trust, the purpose of voting on removal of one or more Trustees. The trust or any fund may be terminated upon the sale of its assets to another open-end management investment company, or upon liquidation and distribution of its assets, if approved by vote of the holders of a majority of the trust or the fund, as determined by the current value of each shareholder's investment in the fund or trust. If not so terminated, the trust and its funds will continue indefinitely. Each fund may invest all of its assets in another investment company. CUSTODIAN. The Bank of New York, 110 Washington Street, New York, N.Y., is custodian of the assets of the fund. The custodian is responsible for the safekeeping of a fund's assets and the appointment of the subcustodian banks and clearing agencies. The custodian takes no part in determining the investment policies of a fund or in deciding which securities are purchased or sold by a fund. However, a fund may invest in obligations of the custodian and may purchase securities from or sell securities to the custodian. Chemical Bank, headquartered in New York, also may serve as a special purpose custodian of certain assets in connection with pooled repurchase agreement transactions. FMR, its officers and directors, its affiliated companies, and the Board of Trustees may, from time to time, conduct transactions with various banks, including banks serving as custodians for certain funds advised by FMR. Transactions that have occurred to date include mortgages and personal and general business loans. In the judgment of FMR, the terms and conditions of those transactions were not influenced by existing or potential custodial or other fund relationships. AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts serves as the trust's independent accountant. The auditor examines financial statements for the fund and provides other audit, tax, and related services. FINANCIAL STATEMENTS The fund's financial statements and financial highlights for the fiscal year ended August 31, 1995 are included in the fund's Annual Report, which is a separate report supplied with this Statement of Additional Information. The fund's financial statements and financial highlights are incorporated herein by reference. APPENDIX DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of each investment by the number of days remaining to its maturity, adding these calculations, and then dividing the total by the value of the fund's portfolio. An obligation's maturity is typically determined on a stated final maturity basis, although there are some exceptions to this rule. For example, if 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. Also, the maturities of mortgage-backed securities and some asset-backed securities, such as collateralized mortgage obligations, are determined on a weighted average life basis, which is the average time for principal to be repaid. For a mortgage security, this average time is calculated by estimating the timing of principal payments, including unscheduled prepayments, during the life of the mortgage. The weighted average life of these securities is likely to be substantially shorter than their stated final maturity. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS: AAA - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA - Bonds which are rated Baa are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA - Bonds which 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 which 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. There are nine basic rating categories for long-term obligations. They range from AAA (highest quality) to C (lowest quality). Those bonds within the AA, A, BAA, BA and B categories that Moody's believes possess the strongest credit attributes within those categories are designated by the symbols AA1, A1, BAA1, BA1 and B1. DESCRIPTION OF STANDARD & POOR'S MUNICIPAL BOND RATINGS: AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A - Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB - Debt rate BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B - Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC - Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. 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. The ratings from AA to D may be modified by the addition of a plus or minus to show relative standing within the major rating categories. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS: AAA - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA - Bonds which are rated Baa are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. BA - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. CAA - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. CA - Bonds which 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 which 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. Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating classification from Aa through C in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF STANDARD & POOR'S CORPORATE BOND RATINGS: AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A - Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB - Debt rate BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB-rating. B - Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC - Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. 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. The ratings from AA to D may be modified by the addition of a plus or minus to show relative standing within the major rating categories. (2_FIDELITY_LOGOS) SPARTAN(registered trademark) BOND STRATEGIST(trademark) ANNUAL REPORT DECEMBER 31, 1995 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on bond market strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 15 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 19 Notes to the financial statements. REPORT OF INDEPENDENT 23 The auditors' opinion. ACCOUNTANTS THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: Although the markets were fairly positive in 1995, no one can predict what lies ahead for investors. The previous year, stocks posted below-average returns and bonds had one of the worst years in history. This downturn followed a period in which the investing environment was generally very positive. These market ups and downs are a normal part of investing, and there are some basic principles that are helpful for investors to remember in different types of markets. Keeping in mind that the effects of interest rate changes on your bond investments will only be "paper" gains or losses unless you sell your shares, staying in your bond fund may be appropriate if your investment horizon is at least a year or more. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured or guaranteed by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. A fund's total return includes changes in a fund's share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value) and the effect of the fund's $5 account closeout fee. You can also look at the fund's income to measure performance. CUMULATIVE TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1995 PAST 1 YEAR LIFE OF FUND Spartan Bond Strategist 16.51% 8.92% Spartan Bond Strategist - After Taxes 12.33% 8.93% Lehman Brothers Municipal Bond Index 17.45% n/a Lehman Brothers Aggregate Bond Index 18.47% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, or since the fund started on September 9, 1993. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. After-tax returns reflect what you would have after taxes (at the 36% federal tax rate for income and short-term gains and 28% for long-term gains). They assume that taxes were withdrawn in the year that any distributions were taxable, and that you closed the account at the end of the period. If you did not close your account, the after-tax return would have been 16.29% for the past year and 8.17% for the life of the fund. The life of fund after-tax return is higher if you closed your account because you would have realized a capital loss which is a tax benefit. You can compare the fund's returns to those of the Lehman Brothers Municipal Bond Index - a broad gauge of the municipal bond market, or to the Lehman Brothers Aggregate Bond Index - a broad measure of the taxable bond market. These benchmarks include reinvested dividends and capital gains, if any. Recent U.S. Consumer Price Index (CPI) information is not available from the U.S. Department of Labor. Therefore, the CPI comparison has not been included in this report. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1995 PAST 1 YEAR LIFE OF FUND Spartan Bond Strategist 16.51% 3.77% Spartan Bond Strategist - After Taxes 12.33% 3.77% Lehman Brothers Municipal Bond Index 17.45% n/a Lehman Brothers Aggregate Bond Index 18.47% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Spartan Bond StratLB Municipal BLB Aggregate Bon 09/30/93 10000.00 10000.00 10000.00 10/31/93 10005.23 10019.30 10037.37 11/30/93 9900.08 9931.03 9951.98 12/31/93 10199.26 10140.67 10005.92 01/31/94 10322.83 10256.48 10141.01 02/28/94 9981.38 9990.84 9964.83 03/31/94 9479.35 9584.01 9719.16 04/30/94 9459.72 9665.28 9641.55 05/31/94 9596.28 9749.08 9640.19 06/30/94 9521.87 9689.51 9618.89 07/31/94 9720.61 9867.12 9809.95 08/31/94 9752.57 9901.26 9822.13 09/30/94 9603.82 9755.91 9677.56 10/31/94 9424.85 9582.65 9668.94 11/30/94 9233.36 9409.39 9647.46 12/31/94 9418.81 9616.49 9714.08 01/31/95 9692.14 9891.33 9906.33 02/28/95 9939.45 10178.97 10141.86 03/31/95 10031.59 10295.93 10204.08 04/30/95 10053.47 10308.08 10346.62 05/31/95 10392.81 10637.01 10747.00 06/30/95 10302.48 10543.94 10825.80 07/31/95 10401.43 10643.89 10801.62 08/31/95 10534.20 10778.86 10931.98 09/30/95 10576.53 10847.09 11038.33 10/31/95 10710.20 11004.80 11181.88 11/30/95 10886.66 11187.37 11349.44 12/29/95 10986.38 11294.88 11508.72 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Bond Strategist on September 30, 1993, shortly after the fund started. As the chart shows, by December 31, 1995, the value of your investment, with dividends reinvested, would have grown to $10,975 - a 9.75% increase on your initial investment. This assumes you still owned the fund on December 31, 1995 and therefore does not include the effect of the $5 account closeout fee. For comparison, look at how the Lehman Brothers Municipal Bond Index and Lehman Brothers Aggregate Bond Index did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $11,295 and $11,509 - a 12.95% and 15.09% increase, respectively. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, generally move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) INCOME 1995 TOTAL PERCENT TAX-FREE January $.044 89.75% February $.038 86.63% March $.045 73.42% April $.040 88.96% May $.039 98.30% June $.038 92.17% July $.039 94.43% August $.040 92.75% September $.038 89.65% October $.039 91.04% November $.037 96.14% December $.038 94.37% The amounts shown above reflect the total income distributed for each fund share and the percentage that was federally tax-free. YIELD PERIOD ENDED DECEMBER 31, 1995 30-day annualized yield 4.51% Tax-equivalent yield 6.92% The 30-day annualized yield is a standard formula for all bond funds based on the yields of the bonds in the fund, averaged over the past 30 days. It helps you compare funds from different companies on an equal basis. The tax-equivalent yield shows what you would have to earn on a taxable investment to equal the fund's yield, if you're in the 36% federal tax bracket. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP In sharp contrast to much of 1994, the municipal bond market posted strong returns for the 12 months ended December 31, 1995. For the period, the Lehman Brothers Municipal Bond Index - a broad measure of the tax-free market - had a total return of 17.45%. By comparison, the Lehman Brothers Aggregate Bond Index - a proxy for investment-grade taxable bonds - had a total return of 18.47%. Tax-free bonds kicked off 1995 by surging ahead of their taxable counterparts in the first quarter on signs of a slowing economy and tamer inflation expectations. By spring, however, the muni bond market began to underperform U.S. Treasury securities when Congress began consideration of tax-code changes, some of which threatened the tax-exempt status of municipal securities. This threat of tax reform dampened enthusiasm in the municipal bond market, stalling the rally and helping shorter maturity bonds to outperform their longer counterparts throughout the spring and summer months. By the fourth quarter, historically attractive valuations relative to Treasuries, continued low issuance, and stronger demand from insurance companies and retail buyers helped longer-term tax-free bonds rebound. An interview with George Fischer, Portfolio Manager of Spartan Bond Strategist Q. GEORGE, HOW DID THE FUND DO? A. For the 12 months ended December 31, 1995, Spartan Bond Strategist returned 16.51%. During the same time period, the Lehman Brothers Aggregate Bond Index, which tracks taxable issues, had a total return of 18.47% before taxes. The Lehman Brothers Municipal Bond Index, which measures tax-free bond performance, returned 17.45%. The fund's strategy is to maximize after-tax returns for investors in the 36% tax bracket. This after-tax return was 12.33% for the same 12-month period. Q. WHY DID YOU KEEP THE FUND NEARLY FULLY INVESTED IN MUNICIPAL SECURITIES DURING THE YEAR? A. My view was that, on an after-tax basis, municipal bonds continued to represent a good value for investors in the 36% and above tax brackets throughout the year. With 1995's strong bond market rally, corporate bonds traded at historically rich values - that is, expensive relative to what I believed their value to be. What's more, Treasury bonds didn't offer as much yield - on an after-tax basis - relative to municipals. Q. WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE? A. While the fund's performance was helped by the overall rise in the municipal market, there were some specific holdings that did particularly well. Philadelphia general obligation bonds were one example. I purchased these bonds in 1994 in anticipation of the city receiving a credit upgrade. When that upgrade materialized in 1995, the fund's Philadelphia holdings appreciated significantly. The fund also benefited from my trading in and out of New York City bonds. The supply of New York City municipals issued tends to fluctuate quite significantly and, as a result, price inefficiencies tend to develop. We were successful in buying New York City bonds at times when supply was heavy and their prices were cheap, and selling them once supply diminished and their prices appreciated. While New York City's bonds were downgraded by one of the major credit rating agencies last year, it didn't seem to have much of an impact on the City's bonds, since the downgrade had been anticipated and already had been factored into prices. Q. WHAT WAS YOUR STRATEGY? A. Throughout the year, the fund had a heavy emphasis on municipal bonds with maturities between 10 and 20 years. In my view, securities in that maturity range offered a good combination of yield relative to the risk involved. Bonds with shorter maturities tended to offer much less incremental yield, while many bonds with longer-maturities carried the risk that they would be called, or redeemed early, by their issuer. Q. THE FUND'S STAKE IN BONDS ISSUED IN TEXAS HAS GROWN OVER THE PERIOD. WHAT TYPES OF BONDS WERE ATTRACTIVE? A. Bonds backed by the Texas Permanent School Fund, which made up about 8% of the fund's investments at the end of the year. This program allows Texas school districts to borrow and get a guarantee from this state entity, which serves as a type of insurance that the bond's principal and interest payments will be paid. In my view, these bonds are very high-quality, but generally traded cheaper than the other higher-rated bonds. In light of that, I believed that they offered good value. Q. DO YOU HAVE ANY REGRETS? A. Although California bonds made up 5.4% of the fund's investments at the end of the period, the fund was underweighted - relative to the Lehman Brothers Municipal Bond Index - in bonds issued in the state. These bonds tended to do well last year. Their performance was driven primarily by improvements in the state's economy. California has recouped nearly all of the job losses it had sustained as a result of the defense industry's downsizing in the previous few years. Also, the state's fiscal situation improved throughout 1995, which proved to be a pleasantly surprising development. Q. WHAT'S YOUR OUTLOOK? A. The value of municipals has a lot to do with tax policy. With tax reform a hot topic of debate, the performance of municipals could be uncertain until the issue is resolved or fades from view. In light of that, the municipal market could face some continued volatility over the foreseeable future. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: maximum total return after federal income taxes by investing in both taxable and tax-free bonds START DATE: September 9, 1993 SIZE: as of December 31, 1995, more than $18 million MANAGER: George Fischer, since September 1993; manager, Fidelity Municipal Bond Fund, since October 1, 1995; Fidelity Insured Municipal Income Fund, since August 1995; municipal bond analyst 1989 to 1993; joined Fidelity in 1989 (checkmark) GEORGE FISCHER ON HIS INVESTMENT STRATEGY: "There are a variety of ways investors approach the municipal market. One strategy is to try to buy the highest yielding bonds in an attempt to maximize tax-free income. The problem with emphasizing income is that investors often are tempted to do it at the expense of total return. In other words, investors may own bonds that carry a high level of income, but not enough to justify the risk to principal those bonds may carry. I focus on total return, emphasizing bonds whose return justifies the risks taken." DISTRIBUTIONS A total of 16.46% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. The fund notified shareholders in January 1996 of the applicable percentage for use in preparing 1995 income tax returns. INVESTMENT CHANGES TOP TEN FIXED-INCOME SECURITIES AS OF DECEMBER 31, 1995 (BY ISSUER) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Knox County, Tennessee, Health Educational & 6.2 5.9 Housing Facilities Board Georgia, General Obligation 6.2 5.9 Lakeland, Florida, Electric & Water 5.7 5.4 Connecticut, General Obligation 5.6 0.0 New York, United Nations Development 5.4 5.4 Gainesville, Georgia, Water & Sewer 5.2 4.9 Leander, Texas, Independent School 5.0 4.8 Niagara Falls, New York, Public Improvement 3.2 3.1 Austin, Texas, Independent School 3.1 3.0 Indiana, Health Facilities Financing Authority 3.0 2.8 AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1995 6 MONTHS AGO Years 11.4 12.0 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF DECEMBER 31, 1995 6 MONTHS AGO Years 7.4 7.6 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. ASSET ALLOCATION AS OF DECEMBER 31, 1995 AS OF JUNE 30, 1995 Row: 1, Col: 1, Value: 5.5 Row: 1, Col: 2, Value: 54.5 Row: 1, Col: 3, Value: 40.0 Municipal securities 96.2% Short-term taxable investments 3.8% Municipal securities 94.5% Short-term taxable investments 5.5% Row: 1, Col: 1, Value: 3.8 Row: 1, Col: 2, Value: 56.2 Row: 1, Col: 3, Value: 40.0 INVESTMENTS DECEMBER 31, 1995 Showing Percentage of Total Value of Investment in Securities MUNICIPAL BONDS - 94.5% MOODY'S RATINGS PRINCIPAL VALUE (UNAUDITED) (A) AMOUNT (NOTE 1) ARIZONA - 2.6% Arizona Trans. Board Hwy. Rev. Sub-Series A, 5% 7/1/09 Aa $ 500,000 $ 498,125 CALIFORNIA - 5.4% Alameda County Ctfs. of Prtn. Rfdg. (Santa Rita Jail Proj.) 5.375% 6/1/09, (MBIA Insured) Aaa 500,000 511,875 Rancho Wtr. Dist. Fing. Auth. Rev. Rfdg. 5.875% 11/1/10, (FGIC Insured) Aaa 500,000 530,000 1,041,875 COLORADO - 2.7% Aurora Ctfs. of Prtn. Rfdg. 6% 12/1/06 A 500,000 526,875 CONNECTICUT - 8.1% Connecticut Gen. Oblig. Series A, 6.10% 3/15/02 Aa 1,000,000 1,088,750 Connecticut Health & Ed. Facs. Auth. Rev. Rfdg. (Quinnipiac College) Series D, 6% 7/1/13 BBB- 500,000 486,875 1,575,625 FLORIDA - 8.5% Broward County Resources Recovery Rev. (SES Broward Co. LP South Proj.) 7.95% 12/1/08 A 490,000 550,025 Lakeland Elec. & Wtr. Rev. Rfdg. (Jr. Sub. Lien) 6.50% 10/1/06, (FGIC Insured) (d) Aaa 1,000,000 1,110,000 1,660,025 GEORGIA - 11.3% Gainsville Wtr. & Swr. Rev. Rfdg. 5.25% 11/15/10, (FGIC Insured) Aaa 1,000,000 1,006,250 Georgia Gen. Oblig. Impt. Series B, 7.20% 3/1/05 Aaa 1,000,000 1,198,750 2,205,000 INDIANA - 3.0% Indiana Health Facs. Fing. Auth. Hosp. Rev. Rfdg. (Columbus Gen'l. Hosp.) 7% 8/15/15, (Cap. Guaranty Insured) Aaa 500,000 590,625 KENTUCKY - 2.6% Owensboro Elec. Lt. & Pwr. Rev. Rfdg. Series B, 0% 1/1/08, (AMBAC Insured) Aaa 925,000 497,187 MASSACHUSETTS - 4.8% Massachusetts Gen. Oblig. Consolidated Loan Series C, 5.625% 8/1/13, (MBIA Insured) Aaa 500,000 513,125 MUNICIPAL BONDS - CONTINUED MOODY'S RATINGS PRINCIPAL VALUE (UNAUDITED) (A) AMOUNT (NOTE 1) MASSACHUSETTS - CONTINUED Massachusetts Ind. Fin. Agcy. Rev. (Massachusetts Biomedical Research) Series A-1, 7.10% 8/1/99 A1 $ 400,000 $ 427,000 940,125 MICHIGAN - 1.3% Michigan Strategic Fund Ltd. Gen. Oblig. Rev. (Great Lakes Pulp & Fiber Proj.) 10.25% 12/1/16 (b) - 250,000 258,438 NEW JERSEY - 2.8% Union County Util. Auth. Solid Waste Rev. Series A, 7.15% 6/15/09 (b) A- 500,000 535,000 NEW YORK - 13.9% Hempstead Town Ind. Dev. Agcy. Resources Recovery Rev. (American Rfdg. Fuel Co.) 7.40% 12/1/10 Baa1 500,000 521,240 New York State Dorm. Auth. Rev. (Consolidated City Univ. Sys.) 2nd Gen. Series A, 5.75% 7/1/09 Baa1 500,000 509,375 Niagra Fall Pub Impt. 7.50% 3/1/18, (MBIA Insured) Aaa 500,000 628,750 United Nations Dev. Corp. Rev. Rfdg. (Phase 2&3 Sr. Lien) Series A, 7.875% 7/1/26, (BIG Insured) (Pre-Refunded to 7/1/96 @ 102) (c) Aaa 1,000,000 1,040,790 2,700,155 PENNSYLVANIA - 2.7% Philadelphia Muni. Auth. Rev. Rfdg. Lease Series D, 6% 7/15/03 Baa 500,000 516,250 SOUTH CAROLINA - 2.2% South Carolina Pub. Svc. Auth. Rev. Rfdg. Series A, 6.50% 1/1/08, (MBIA Insured) (d) Aaa 400,000 437,500 TENNESSEE - 6.2% Knox County Health Ed. & Hsg. Facs. Board. Hosp. Facs. Rev. Rfdg. (Ft. Sanders Alliance) Series C, 7.25% 1/1/09, (MBIA Insured) Aaa 1,000,000 1,211,250 TEXAS - 11.0% Austin Independent School Dist. School Bldg. 8.125% 8/1/01, (PSF Guaranteed) Aaa 500,000 595,000 Leander Independant School Dist. Unltd. Tax 7.50% 8/15/08, (PSF Guaranteed) Aaa 800,000 980,000 San Antonio Elec. & Gas Rev. 6.375% 2/1/06 Aa1 500,000 561,875 2,136,875 MUNICIPAL BONDS - CONTINUED MOODY'S RATINGS PRINCIPAL VALUE (UNAUDITED) (A) AMOUNT (NOTE 1) VIRGINIA - 2.5% Virginia Beach Dev. Auth. Hosp. Facs. Rev. (Virginia Beach Gen. Hosp. Proj.) 5.125% 2/15/18, (AMBAC Insured) Aaa $ 500,000 $ 487,500 WASHINGTON - 2.9% Washington Pub. Pwr. Supply Sys. Nuclear Proj. #1 Rev. Rfdg. Series A, 7% 7/1/08 Aa 500,000 568,125 TOTAL MUNICIPAL BONDS (Cost $17,723,311) 18,386,555 REPURCHASE AGREEMENTS - 5.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.88%, dated 12/29/95 due 1/2/96 $ 1,061,693 1,061,000 TOTAL INVESTMENTS IN SECURITIES - 100% (Cost $18,784,311) $ 19,447,555 LEGEND 1. Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 2. Private activity obligations whose interest is subject to the federal alternative minimum tax for individuals. 3. Security collateralized by an amount sufficient to pay interest and principal. 4. Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 80.0% AAA, AA, A 80.1% Baa 8.0% BBB 7.8% Ba 0.0% BB 0.0% B 0.0% B 0.0% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% The percentage not rated by either S&P or Moody's amounted to 1.3% The distribution of municipal securities by revenue source, as a percentage of total value of investment in securities, is as follows: General Obligation 31.0% Health Care 14.0 Others (individually less than 10%) 49.5 Repurchase Agreements 5.5 TOTAL 100.0% INCOME TAX INFORMATION At December 31, 1995, the aggregate cost of investment securities for income tax purposes was $18,784,311. Net unrealized appreciation aggregated $663,244, of which $718,020 related to appreciated investment securities and $54,776 related to depreciated investment securities. At December 31, 1995, the fund had a capital loss carryforward of approximately $1,755,000 of which $26,000, $1,196,000, and $533,000 will expire on December 31, 2001, 2002, and 2003, respectively. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 ASSETS Investment in securities, at value (including repurchase $ 19,447,555 agreements of $1,061,000) (cost $18,784,311) - See accompanying schedule Cash 717 Interest receivable 363,773 TOTAL ASSETS 19,812,045 LIABILITIES Payable for investments purchased $ 1,473,673 Delayed delivery Payable for fund shares redeemed 209,168 Distributions payable 888 Accrued management fee 10,751 TOTAL LIABILITIES 1,694,480 NET ASSETS $ 18,117,565 Net Assets consist of: Paid in capital $ 19,210,434 Distributions in excess of net investment income (1,359) Accumulated undistributed net realized gain (loss) on (1,755,144) investments and foreign currency transactions Net unrealized appreciation (depreciation) on 663,634 investments and assets and liabilities in foreign currencies NET ASSETS, for 1,871,239 shares outstanding $ 18,117,565 NET ASSET VALUE, offering price and redemption price per $9.68 share ($18,117,565 (divided by) 1,871,239 shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 INVESTMENT INCOME $ 1,060,506 Interest EXPENSES Management fee $ 127,871 Non-interested trustees' compensation 87 TOTAL EXPENSES 127,958 NET INVESTMENT INCOME 932,548 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (368,289) Futures contracts 2,630 (365,659) Change in net unrealized appreciation (depreciation) on 2,247,015 investment securities NET GAIN (LOSS) 1,881,356 NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 2,813,904 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 1994 INCREASE (DECREASE) IN NET ASSETS Operations $ 932,548 $ 1,131,884 Net investment income Net realized gain (loss) (365,659) (1,199,686) Change in net unrealized appreciation (depreciation) 2,247,015 (1,860,879) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,813,904 (1,928,681) FROM OPERATIONS Distributions to shareholders from net investment income (933,950) (1,135,626) Share transactions 1,122,275 11,393,624 Net proceeds from sales of shares Reinvestment of distributions 849,550 999,399 Cost of shares redeemed (3,456,410) (12,707,084) Redemption fees 484 20,540 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (1,484,101) (293,521) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 395,853 (3,357,828) NET ASSETS Beginning of period 17,721,712 21,079,540 End of period (including distributions in excess of net $ 18,117,565 $ 17,721,712 investment income of $1,359 and $33,070, respectively) OTHER INFORMATION Shares Sold 120,939 1,183,452 Issued in reinvestment of distributions 90,999 109,164 Redeemed (369,485) (1,376,527) Net increase (decrease) (157,547) (83,911)
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 9, 1993 DECEMBER 31, (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995 1994 1993 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 8.740 $ 9.980 $ 10.000 Income from Investment Operations .491 .481 .130 Net investment income Net realized and unrealized .924 (1.244) (.011) gain (loss) Total from investment operations 1.415 (.763) .119 Less Distributions (.475) (.486) (.130) From net investment income In excess of net investment income - - (.011) Total distributions (.475) (.486) (.141) Redemption fees added to paid in capital .000 .009 .002 Net asset value, end of period $ 9.680 $ 8.740 $ 9.980 TOTAL RETURN B 16.52% (7.65)% 1.23% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 18,118 $ 17,722 $ 21,080 Ratio of expenses to average net assets .70% .70% .70% A Ratio of net investment income to average 5.10% 5.26% 4.44% A net assets Portfolio turnover rate 79% 168% 275% A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. NOTES TO FINANCIAL STATEMENTS For the period ended December 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES. Spartan Bond Strategist (the fund) is a fund of Fidelity School Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Interest income, which includes accretion of original issue discount, is accrued as earned. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for futures transactions and market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net investment income and realized and unrealized gain (loss). Distributions in excess of net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences that will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. REDEMPTION FEES. Shares held in the fund less than 180 days are subject to a redemption fee equal to .50% of the proceeds of the redeemed shares. The fee, which is retained by the fund, is accounted for as an addition to paid in capital. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency contracts to facilitate transactions in foreign securities and to manage the fund's currency exposure. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the fund's investments against currency fluctuations. Also, a contract to buy or sell can offset a previous contract. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and any realized gain (loss) is recognized on the date of offset; otherwise, gain (loss) is recognized on settlement date. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. 2. OPERATING POLICIES - CONTINUED REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying U.S. Treasury or Federal Agency securities, the market value of which is required to be at least equal to the repurchase price. For term repurchase agreement transactions, the underlying securities are marked-to-market daily and maintained at a value at least equal to the repurchase price. FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options contracts to manage its exposure to the bond markets and to fluctuations in interest rates. Buying futures, writing puts, and buying calls tend to increase the fund's exposure to the underlying instrument. Selling futures, buying puts, and writing calls tend to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparties do not perform under the contracts' terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $14,052,158 and $14,453,209, respectively, of which U.S. government and government agency obligations aggregated $3,100,109 and $3,111,328, respectively. The market value of futures contracts opened and closed during the period amounted to $6,104,344 and $6,166,813, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses, except the compensation of the non-interested Trustees and certain exceptions such as interest, taxes, brokerage commissions and extraordinary expenses. FMR receives a fee that is computed daily at an annual rate of .70% of the fund's average net assets. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED FMR also bears the cost of providing shareholder services to the fund. To offset the cost of providing these services, FMR or its affiliates collect certain transaction fees from the fund's shareholders which amounted to $445 for the period. 5. BENEFICIAL INTEREST. At the end of the period, FMR or its affiliates were record owner of approximately 42% of the total outstanding shares. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity School Street Trust and the Shareholders of Spartan Bond Strategist: We have audited the accompanying statement of assets and liabilities of Fidelity School Street Trust: Spartan Bond Strategist, including the schedule of portfolio investments, as of December 31, 1995, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and for the period September 9, 1993 (commencement of operations) to December 31, 1993. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fidelity School Street Trust: Spartan Bond Strategist as of December 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended and for the period September 9, 1993 (commencement of operations) to December 31, 1993, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 1, 1996 TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call - you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios(registered trademark). 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO WRITE FIDELITY If more than one address is listed, please locate the address that is closest to you. We'll give your correspondence immediate attention and send you written confirmation upon completion of your request. (LETTER_GRAPHIC)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 29155 Northwestern Hwy. Southfield, MI MINNESOTA 7600 France Avenue South Edina, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 1271 Avenue of the Americas New York, NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 4611 Sharon Road Charlotte, NC 2200 West Main Street Durham, NC OHIO 600 Vine Street Cincinnati, OH 28699 Chagrin Boulevard Woodmere Village, OH 1903 East Ninth Street Cleveland, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 2701 Drexel Drive Houston, TX 1010 Lamar Street Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 511 Pine Street Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 595 North Barker Road Brookfield, WI INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc., London, England Fidelity Management & Research (Far East) Inc., Tokyo, Japan OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Fred L. Henning, Jr., Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN The Bank of New York New York, NY THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE (registered trademark) (2_FIDELITY_LOGOS) SPARTAN(registered trademark) BOND STRATEGIST(trademark) SEMIANNUAL REPORT JUNE 30, 1996 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on bond market strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 14 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 18 Notes to the financial statements. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: Although stocks have managed to post solid returns through the first six months of 1996, signs of strength in the economy have led to inflation fears, causing some uncertainty in bond markets so far this year. In 1995, both stock and bond markets posted strong results, while the year before, stocks posted below-average returns and bonds had one of the worst years in history. These market ups and downs are a normal part of investing, and there are some basic principles that are helpful for investors to remember in different types of markets. Keeping in mind that the effects of interest rate changes on your bond investments will only be "paper" gains or losses unless you sell your shares, staying in your bond fund may be appropriate if your investment horizon is at least a year or more. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured or guaranteed by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. A fund's total return includes changes in share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells securities that have grown in value) and the effect of the $5 account closeout fee on an average size account. You can also look at the fund's income to measure performance.
CUMULATIVE TOTAL RETURNS PERIODS ENDED JUNE 30, 1996 PAST 6 PAST 1 LIFE OF MONTHS YEAR FUND Spartan Bond Strategist -0.63% 5.86% 8.24% Spartan Bond Strategist - After Taxes 0.39% 5.43% 9.31% Lehman Brothers Municipal Bond -0.45% 6.64% n/a Index Lehman Brothers Aggregate Bond Index -1.21% 5.02% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, or since the fund started on September 9, 1993. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. After-tax returns reflect what you would have after taxes (at the 36% federal tax rate for income and short-term gains and 28% for long-term gains). They assume that taxes were withdrawn in the year that any distributions were taxable, and that you closed the account at the end of the period. If you did not close your account, the after-tax return would have been -0.69% for the past six months, 5.73% for the past year and 7.64% for the life of the fund. The life of fund after-tax return is higher if you closed your account because you would have realized a capital loss which is a tax benefit. You can compare the fund's returns to those of the Lehman Brothers Municipal Bond Index, which reflects the performance of the investment-grade municipal bond market, or to the Lehman Brothers Aggregate Bond Index, which includes investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities. These benchmarks include reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED JUNE 30, 1996 PAST 1 LIFE OF YEAR FUND Spartan Bond Strategist 5.86% 2.86% Spartan Bond Strategist - After Taxes 5.43% 3.22% Lehman Brothers Municipal Bond Index 6.64% n/a Lehman Brothers Aggregate Bond Index 5.02% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND IMAHDR PRASUN SHR__CHT 19960630 19960716 091923 S00000000000001 SPART. BOND STRAT LB AGGREGAT LB Municipal Bond 00447 LB001 LB015 1993/09/30 10000.00 10000.00 10000.00 1993/10/31 10005.23 10037.37 10019.30 1993/11/30 9900.08 9951.98 9931.03 1993/12/31 10199.26 10005.92 10140.67 1994/01/31 10322.83 10141.01 10256.48 1994/02/28 9981.38 9964.83 9990.84 1994/03/31 9479.35 9719.16 9584.01 1994/04/30 9459.72 9641.55 9665.28 1994/05/31 9596.28 9640.19 9749.08 1994/06/30 9521.87 9618.89 9689.51 1994/07/31 9720.61 9809.95 9867.12 1994/08/31 9752.57 9822.13 9901.26 1994/09/30 9603.82 9677.56 9755.91 1994/10/31 9424.85 9668.94 9582.65 1994/11/30 9233.36 9647.46 9409.39 1994/12/31 9418.81 9714.08 9616.49 1995/01/31 9692.14 9906.33 9891.33 1995/02/28 9939.45 10141.86 10178.97 1995/03/31 10031.59 10204.08 10295.93 1995/04/30 10053.47 10346.62 10308.08 1995/05/31 10392.81 10747.00 10637.01 1995/06/30 10302.48 10825.80 10544.47 1995/07/31 10401.43 10801.62 10644.43 1995/08/31 10534.20 10931.98 10779.40 1995/09/30 10576.53 11038.33 10847.63 1995/10/31 10710.20 11181.88 11005.36 1995/11/30 10886.66 11349.44 11187.94 1995/12/31 10975.09 11508.72 11295.45 1996/01/31 11041.57 11585.14 11380.73 1996/02/29 10979.59 11383.76 11303.91 1996/03/31 10852.84 11304.63 11159.45 1996/04/30 10793.21 11241.06 11127.87 1996/05/31 10804.59 11218.23 11123.42 1996/06/30 10907.18 11368.89 11244.55 IMATRL PRASUN SHR__CHT 19960630 19960716 091928 R00000000000123 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Spartan Bond Strategist on September 30, 1993, shortly after the fund started. As the chart shows, by June 30, 1996, the value of the investment, with dividends reinvested, would have grown to $10,907 - a 9.07% increase on the initial investment. This assumes the fund was still owned on June 30, 1996 and therefore does not include the effect of the $5 account closeout fee. For comparison, look at how the Lehman Brothers Municipal Bond Index and Lehman Brothers Aggregate Bond Index did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $11,245 and $11,370 - a 12.45% and 13.70% increase, respectively. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, generally move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) INCOME 1996 TOTAL PERCENT TAX-FREE January $.039 95.80% February $.035 94.82% March $.039 93.66% April $.038 88.69% May $.040 84.75% June $.039 92.19% The amounts shown above reflect the total income distributed for each fund share and the percentage that was federally tax-free. YIELD PERIOD ENDED JUNE 30, 1996 30-day annualized yield 5.08% Tax-equivalent yield 7.73% The 30-day annualized yield is a standard formula for all bond funds based on the yields of the bonds in the fund, averaged over the past 30 days. It helps you compare funds from different companies on an equal basis. The tax-equivalent yield shows what you would have to earn on a taxable investment to equal the fund's yield, if you're in the 36% federal tax bracket, but does not reflect payment of the federal alternative minimum tax, if applicable. FUND TALK: THE MANAGER'S OVERVIEW An interview with George Fischer, Portfolio Manager of Spartan Bond Strategist Q. HOW HAS THE FUND PERFORMED, GEORGE? A. For the six- and 12-month periods ended June 30, 1996, the fund had total returns of -0.63% and 5.86%, respectively. For the same six- and 12-month periods, the Lehman Brothers Aggregate Bond Index, which tracks taxable securities, had total returns of -1.21% and 5.02%, respectively, before taxes. The Lehman Brothers Municipal Bond Index, which measures tax-free bond performance, returned -0.45% for the six-month period and 6.64% for the 12-month period. The fund's strategy is to maximize after-tax returns for investors in the 36% federal tax bracket. For the six-month period, the fund's after-tax return was 0.39%; for the 12-month period, it was 5.43%. Q. WHAT IS MEANT BY TOTAL RETURN? A. Total return is the "total" amount of return to the fund's shareholders, and reflects both income and changes in share price. Interest income is the main source of return for a bond fund over the long term. In addition, the change in a bond fund's share price plays a role based on appreciation or depreciation of the fund's holdings. Let's look at an example. If someone invested $100 in this fund 12 months ago, reinvested the dividends and capital gains, and didn't sell before the end of the period, the investment would have been worth $105.87 as of June 30, 1996. That is what is meant by a total return of 5.87%. This return is slightly higher than the 5.86% return I provided earlier, which includes the effect of the $5 account closeout fee. Q. SO FAR IN 1996, THE BOND MARKETS HAVEN'T ENJOYED THE GAINS THEY DID IN 1995. WHAT FACTORS LED TO THE MARKETS' PERFORMANCE FOR THE FIRST HALF OF THIS YEAR? A. Basically, bond holders became increasingly more concerned that the economy was strengthening. In February and March, investors reacted to surprisingly good economic news, particularly on the employment front, by sending yields higher and bond prices lower. The February employment statistics revealed that more than 700,000 jobs were created at a level not seen in more than a decade. A faster-growing economy tends to provoke fears of inflation - which hadn't been much of a worry in 1995 - and rising interest rates. Bond holders demanded higher yields because they worried that inflation would eat away at the value of their fixed-income investment. However, during the second quarter, the economic news was mixed, and bond prices ended the quarter roughly where they had begun. Q. THE FUND CAN INVEST IN BOTH TAXABLE AND TAX-FREE SECURITIES, WHY DID YOU CONTINUE TO KEEP THE FUND MOSTLY INVESTED IN MUNICIPAL SECURITIES THROUGHOUT THE PAST SIX MONTHS? A. When viewed on an after-tax basis, I felt that municipal bonds would continue to represent a good value for investors in the 36% and above tax brackets. At the beginning of the period in January, municipals looked relatively cheap when compared to taxable U.S. Treasury securities. In my view, that was because the municipal market seemed to be overestimating the likelihood of a flat tax, which if enacted, could affect the tax-exempt status of municipal bonds. As fears of a flat tax abated, municipal bonds rallied and, for the most recent six-month period, generally performed better than Treasury securities. Q. THE FUND CONTINUED TO HAVE A BIAS TOWARD BONDS WITH MATURITIES RANGING FROM 10 TO 15 YEARS. WHAT WAS THE ATTRACTION OF THESE BONDS? A. I felt that securities in that maturity range offered a good combination of yield relative to the risk involved. Bonds with shorter maturities tended to offer much less incremental yield. On the other hand, bonds with longer maturities carried more interest-rate risk; that is, the risk that they will decline in value as a result of a rise in interest rates. That said, I did take advantage of opportunities to buy a few longer-term bonds when they appeared to be cheap late in the first quarter of the year. Q. DID YOU MAKE ANY CHANGES TO THE WAY THE FUND IS DISTRIBUTED ACROSS BONDS WITH VARIOUS CREDIT QUALITIES? A. Yes, I did. I eliminated the fund's stake in bonds with below-investment-grade ratings - those that are rated below Baa by Moody's Investors Services. Additionally, the fund's position in bonds rated Baa increased over the past six months. That was in large part due to the addition of bonds issued by New York City. At the time I bought these New York City securities, they were in fairly abundant supply and, as a result, their prices appeared cheap relative to what I thought their real value to be. Q. GEORGE, WE UNDERSTAND THERE WERE SOME INVESTMENT POLICY CHANGES . . . A. As of June 24, 1996, the fund reserves the right to invest up to 5% of its assets - down from 35% - in below-investment-grade securities. The fund does not intend to seek out the lower-quality, below-investment-grade bonds. Instead, this change gives the fund additional flexibility under unusual circumstances. Fidelity also will use two additional agencies - Duff & Phelps Rating Co. and Fitch Investors Service, L.P. as well as Moody's Investors Services and Standard & Poor's which the fund already uses - to determine the credit quality of the fund's bonds. Q. WHAT'S YOUR OUTLOOK? A. Of course, the direction of interest rates - which is impossible to predict - will have a significant bearing on the bond market's performance. But supply and demand could also be a factor. The municipal market recently has benefited from a favorable supply/demand situation. The available supply of municipals is quite low and there's not a tremendous amount of new issuance. Additionally, the municipal market has experienced rising demand. If those technical factors hold, they could help the municipal bond market, which, in turn, may help the fund. FUND FACTS GOAL: maximum total return after federal income taxes by investing in both taxable and tax-free bonds START DATE: September 9, 1993 SIZE: as of June 30, 1996, more than $8 million MANAGER: George Fischer, since 1993; manager, Fidelity Municipal Bond Fund, since 1995; Fidelity Insured Municipal Income Fund, since August 1995; municipal bond analyst 1989 to 1993; joined Fidelity in 1989 (checkmark) GEORGE FISCHER ON HIS INVESTMENT STRATEGY: "The supply of municipals has been relatively tight throughout the first six months of 1996. That has diminished somewhat the opportunities to find the types of bonds I want to own at attractive prices. So I'm trying to avoid pressing and I'm resisting the temptation to buy bonds at any price. Instead, I've taken a more patient approach by waiting for opportunities to develop. "Generally speaking, I try to find bonds that have asymmetric performance characteristics. By that I mean I target bonds that theoretically won't do as badly in a down market as they will do well in an up market. Sometimes this has to do with a bond's call features (whether or not it can be redeemed by its issuer prior to maturity), tax consequences, or other factors." THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. INVESTMENT CHANGES TOP TEN FIXED-INCOME SECURITIES AS OF JUNE 30, 1996 (BY ISSUER) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Niagara Falls, New York, Public Improvement 7.4 3.2 Austin, Texas, Independent School 7.1 3.1 Indiana Health Facilities Financing Authority 6.9 3.0 Washington Public Power 6.8 2.9 Rancho, California, Water District Financing 6.3 2.7 Authority New York Dormitory Authority 6.0 2.6 Massachusetts Industrial Finance Agency 5.1 2.2 New York City, New York, General Obligation 4.9 0.0 Alameda County, California 4.8 2.6 Leander, Texas, Independent School 4.3 5.0 AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1996 6 MONTHS AGO Years 11.8 11.4 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF JUNE 30, 1996 6 MONTHS AGO Years 7.0 7.4 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. BEGINNING WITH THE REPORTING CYCLE OF JUNE, 1996, THE MODEL USED TO CALCULATE DURATIONS MAY BE SLIGHTLY MODIFIED IN ORDER TO FURTHER REFINE THIS INFORMATION. THESE CHANGES IN METHODOLOGY MAY PRODUCE ADJUSTMENTS IN HISTORICAL DURATION FIGURES. ASSET ALLOCATION AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995 Row: 1, Col: 1, Value: 5.3 Row: 1, Col: 2, Value: 44.7 Row: 1, Col: 3, Value: 50.0 Municipal securities 94.5% Short-term taxable investments 5.5% Municipal securities 94.7% Short-term taxable investments 5.3% Row: 1, Col: 1, Value: 5.5 Row: 1, Col: 2, Value: 44.5 Row: 1, Col: 3, Value: 50.0 INVESTMENTS JUNE 30, 1996 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities MUNICIPAL BONDS - 94.7% MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) ARIZONA - 3.6% Arizona Trans. Board Hwy. Rev. Sub-Series A, 5% 7/1/09 Aa $ 300,000 $ 290,625 CALIFORNIA - 11.1% Alameda County Ctfs. of Prtn. Rfdg. (Santa Rita Jail Proj.) 5.375% 6/1/09 (MBIA Insured) Aaa 400,000 394,500 Rancho Wtr. Dist. Fing. Auth. Rev. Rfdg. 5.875% 11/1/10 (FGIC Insured) Aaa 500,000 510,625 905,125 COLORADO - 3.8% Aurora Ctfs. of Prtn. Rfdg. 6% 12/1/06 A 300,000 304,500 CONNECTICUT - 2.9% Connecticut Health & Edl. Facs. Auth. Rev. Rfdg. (Quinnipiac College) Series D, 6% 7/1/13 BBB- 250,000 237,188 DISTRICT OF COLUMBIA - 1.7% District of Columbia Redev. Land Agcy. Spl. Tax Rev. (Washington D.C. Sports Arena) 5.625% 11/1/10 Baa 150,000 141,375 FLORIDA - 3.4% Broward County Resources Recovery Rev. (SES Broward Co. LP South Proj.) 7.95% 12/1/08 A 250,000 275,000 INDIANA - 6.9% Indiana Health Facs. Fing. Auth. Hosp. Rev. Rfdg. (Columbus Reg'l. Hosp.) 7% 8/15/15 (FSA Insured) Aaa 500,000 557,500 KENTUCKY - 3.9% Owensboro Elec. Lt. & Pwr. Rev. Rfdg. Series B, 0% 1/1/08 (AMBAC Insured) Aaa 600,000 315,000 MASSACHUSETTS - 5.1% Massachusetts Ind. Fin. Agcy. Rev. (Massachusetts Biomedical Research) Series A-1, 7.10% 8/1/99 A1 400,000 419,000 NEW YORK - 18.3% New York City Gen. Oblig. Series B, 5.50% 8/15/01 Baa1 400,000 400,500 New York State Dorm. Auth. Rev. (Consolidated City Univ. Sys.) 2nd Gen. Series A, 5.75% 7/1/09 Baa1 500,000 490,000 Niagara Falls Pub. Impt. 7.50% 3/1/18 (MBIA Insured) Aaa 500,000 601,875 1,492,375 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) PENNSYLVANIA - 3.1% Philadelphia Muni. Auth. Rev. Rfdg. Lease Series D, 6% 7/15/03 Baa $ 250,000 $ 250,000 SOUTH CAROLINA - 2.7% South Carolina Pub. Svc. Auth. Rev. Rfdg. Series A, 6.50% 1/1/08 (MBIA Insured) Aaa 200,000 217,750 TEXAS - 15.4% Austin Independent School Dist. School Bldg. 8.125% 8/1/01 (PSF Guaranteed) Aaa 500,000 573,750 Leander Independent School Dist. Unltd. Tax 7.50% 8/15/08 (PSF Guaranteed) Aaa 300,000 354,000 San Antonio Elec. & Gas Rev. 6.375% 2/1/06 Aa1 300,000 325,125 1,252,875 VIRGINIA - 6.0% Fairfax County Econ. Dev. Auth. Resource Recovery Rev. (Ogden Martin Sys. Proj.) Series A, 7.75% 2/1/11 (b) A1 200,000 216,250 Virginia Beach Dev. Auth. Hosp. Facs. Rev. (Virginia Beach Gen. Hosp. Proj.) 5.125% 2/15/18 (AMBAC Insured) Aaa 300,000 272,250 488,500 WASHINGTON - 6.8% Washington Pub. Pwr. Supply Sys. Nuclear Proj. #1 Rev. Rfdg. Series A, 7% 7/1/08 Aa 500,000 556,250 TOTAL MUNICIPAL BONDS (Cost $7,698,197) 7,703,063 REPURCHASE AGREEMENTS - 5.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.46%, dated 6/28/96 due 7/1/96 $ 435,198 435,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $8,133,197) $ 8,138,063 LEGEND 1. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 2. Private activity obligations whose interest is subject to the federal alternative minimum tax for individuals. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 76.0% AAA, AA, A 76.0% Baa 15.8% BBB 16.9% Ba 0.0% BB 0.0% B 0.0% B 1.7% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% The percentage not rated by either S&P or Moody's amounted to 0.0% The distribution of municipal securities by revenue source, as a percentage of total value of investment in securities, is as follows: General Obligation 34.6% Electric Revenue 17.4 Health Care 15.3 Lease Revenue 8.6 Water and Sewer 6.3 Resources Recovery 6.0 Repurchase Agreements 5.3 Others (individually less than 5%) 6.5 TOTAL 100.0% INCOME TAX INFORMATION At June 30,1996, the aggregate cost of investment securities for income tax purposes was $8,133,197. Net unrealized appreciation aggregated $4,866, of which $161,092 related to appreciated investment securities and $156,226 related to depreciated investment securities. At December 31, 1995, the fund had a capital loss carryforward of approximately $1,755,000 of which $26,000, $1,196,000, and $533,000 will expire on December 31, 2001, 2002, and 2003, respectively. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase $ 8,138,063 agreements of $435,000) (cost $8,133,197) - See accompanying schedule Cash 35,373 Receivable for investments sold 1,103,820 Interest receivable 160,902 TOTAL ASSETS 9,438,158 LIABILITIES Payable for investments purchased $ 1,053,380 Accrued management fee 5,146 TOTAL LIABILITIES 1,058,526 NET ASSETS $ 8,379,632 Net Assets consist of: Paid in capital $ 10,025,645 Distributions in excess of net investment income (1,956) Accumulated undistributed net realized gain (loss) on (1,649,313) investments and foreign currency transactions Net unrealized appreciation (depreciation) 5,256 on investments NET ASSETS, for 892,569 shares outstanding $ 8,379,632 NET ASSET VALUE, offering price and redemption price $9.39 per share ($8,379,632 (divided by) 892,569 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) INVESTMENT INCOME $ 432,045 Interest EXPENSES Management fee $ 54,711 Non-interested trustees' compensation 35 TOTAL EXPENSES 54,746 NET INVESTMENT INCOME 377,299 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 70,722 Futures contracts 35,109 105,831 Change in net unrealized appreciation (depreciation) on (658,378) investment securities NET GAIN (LOSS) (552,547) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (175,248) FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1996 1995 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 377,299 $ 932,548 Net investment income Net realized gain (loss) 105,831 (365,659) Change in net unrealized appreciation (depreciation) (658,378) 2,247,015 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (175,248) 2,813,904 FROM OPERATIONS Distributions to shareholders from net investment income (377,896) (933,950) Share transactions 492,393 1,122,275 Net proceeds from sales of shares Reinvestment of distributions 341,355 849,550 Cost of shares redeemed (10,023,556) (3,456,410) Redemption fees 5,019 484 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (9,184,789) (1,484,101) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS (9,737,933) 395,853 NET ASSETS Beginning of period 18,117,565 17,721,712 End of period (including distributions in excess of net $ 8,379,632 $ 18,117,565 investment income of $1,956 and $1,359, respectively) OTHER INFORMATION Shares Sold 51,255 120,939 Issued in reinvestment of distributions 35,991 90,999 Redeemed (1,065,916) (369,485) Net increase (decrease) (978,670) (157,547)
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED SEPTEMBER 9, 1993 ENDED DECEMBER 31, JUNE 30, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, (UNAUDITED) 1995 1994 1993
SELECTED PER-SHARE DATA Net asset value, beginning of period $ 9.680 $ 8.740 $ 9.980 $ 10.000 Income from Investment Operations .228 .491 .481 .130 Net investment income Net realized and unrealized gain (loss) (.291) .924 (1.244) (.011) Total from investment operations (.063) 1.415 (.763) .119 Less Distributions (.230) (.475) (.486) (.130) From net investment income In excess of net investment income - - - (.011) Total distributions (.230) (.475) (.486) (.141) Redemption fees added to paid in capital .003 .000 .009 .002 Net asset value, end of period $ 9.390 $ 9.680 $ 8.740 $ 9.980 TOTAL RETURN B (.62)% 16.52% (7.65)% 1.23% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 8,380 $ 18,118 $ 17,722 $ 21,080 Ratio of expenses to average net assets .70 A .70% .70% .70% A Ratio of net investment income to 4.82% A 5.10% 5.26% 4.44% average A net assets Portfolio turnover rate 41% A 79% 168% 275% A
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. NOTES TO FINANCIAL STATEMENTS For the period ended June 30, 1996 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES. Spartan Bond Strategist (the fund) is a fund of Fidelity School Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Interest income, which includes accretion of original issue discount, is accrued as earned. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for futures and options transactions and market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net investment income and realized and unrealized gain (loss). Distributions in excess of net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences that will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. REDEMPTION FEES. Shares held in the fund less than 180 days are subject to a redemption fee equal to .50% of the proceeds of the redeemed shares. The fee, which is retained by the fund, is accounted for as an addition to paid in capital. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to 2. OPERATING POLICIES - CONTINUED DELAYED DELIVERY TRANSACTIONS - CONTINUED changes in the market value of the underlying securities or if the counterparty does not perform under the contract. FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options contracts to manage its exposure to the bond market and to fluctuations in interest rates. Buying futures, writing puts, and buying calls tend to increase the fund's exposure to the underlying instrument. Selling futures, buying puts, and writing calls tend to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparties do not perform under the contracts' terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $2,992,681 and $13,065,531, respectively, of which U.S. government and government agency obligations aggregated $1,000,331 and $999,605, respectively. The market value of futures contracts opened and closed during the period amounted to $2,751,204 and $2,785,671, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses, except the compensation of the non-interested Trustees and certain exceptions such as interest, taxes, brokerage commissions and extraordinary expenses. FMR receives a fee that is computed daily at an annual rate of .70% of the fund's average net assets. FMR also bears the cost of providing shareholder services to the fund. To offset the cost of providing these services, FMR or its affiliates collect certain transaction fees from the fund's shareholders which amounted to $355 for the period. OTHER TRANSACTIONS. At the commencement of the period, FMR and its affiliates were record owners of approximately 42% of the total outstanding shares of the fund. These shares were redeemed during the period. 5. PROPOSED REORGANIZATION. The Board of Trustees of Spartan Bond Strategist has approved an Agreement and Plan of Reorganization ("Agreement") between the fund and Spartan Municipal Income Fund ("Reorganization"). The Agreement provides for the transfer of substantially all of the assets and the assumption of substantially all of the liabilities of the fund to Spartan 5. PROPOSED REORGANIZATION - CONTINUED Municipal Income Fund in exchange solely for the number of shares of Spartan Municipal Income Fund having the same aggregate net asset value as the outstanding shares of the fund at the close of business on the day that the Reorganization is effective. The Reorganization can be consummated only if, among other things, it is approved by the vote of a majority (as defined by the Investment Company Act of 1940) of outstanding voting securities of the fund. A Special Meeting of Shareholders ("Meeting") of the fund will be held on December 18, 1996 to vote on the Agreement. A detailed description of the proposed transaction and voting information will be sent to shareholders of the fund in October 1996. If the Agreement is approved at the Meeting, the Reorganization is expected to become effective on or about December 31, 1996. Effective September 16, 1996, the fund's shares will no longer be available for purchase or exchange. However, existing shareholders of the fund may continue to purchase additional shares through the reinvestment of dividends and other distributions. TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call - you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios(registered trademark). 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO WRITE FIDELITY If more than one address is listed, please locate the address that is closest to you. We'll give your correspondence immediate attention and send you written confirmation upon completion of your request. (LETTER_GRAPHIC)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc., London, England Fidelity Management & Research (Far East) Inc., Tokyo, Japan OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Fred L. Henning, Jr., Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * ADVISORY BOARD William O. McCoy GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN The Bank of New York New York, NY THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE (registered trademark) (2_FIDELITY_LOGOS)SPARTAN(registered trademark) MUNICIPAL INCOME FUND (FORMERLY SPARTAN MUNICIPAL INCOME PORTFOLIO) SEMIANNUAL REPORT FEBRUARY 29, 1996 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 25 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 29 Notes to the financial statements. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: Although the markets were fairly positive during 1995, no one can predict what lies ahead for investors. The previous year, stocks posted below-average returns and bonds had one of the worst years in history. This downturn followed a period in which the investing environment was generally very positive. These market ups and downs are a normal part of investing, and there are some basic principles that are helpful for investors to remember in different types of markets. Keeping in mind that the effects of interest rate changes on your bond investments will only be "paper" gains or losses unless you sell your shares, staying in your bond fund may be appropriate if your investment horizon is at least a year or more. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured or guaranteed by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. A fund's total return includes changes in a fund's share price, reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value), and the effect of the $5 account closeout fee on an average sized account. You can also look at the fund's income to measure performance. If Fidelity had not reimbursed certain fund expenses during the periods shown, the total returns and dividends would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED FEBRUARY 29, 1996 PAST 6 PAST 1 PAST 5 LIFE OF MONTHS YEAR YEARS FUND Spartan Municipal Income 5.44% 11.52% 49.95% 60.80% Lehman Brothers Municipal Bond 4.87% 11.05% 50.71% n/a Index General Municipal Debt Funds Average 4.99% 9.87% 47.30% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years or since the fund started on June 4, 1990. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Lehman Brothers Municipal Bond Index, which reflects the performance of the investment-grade municipal bond market. To measure how the fund's performance stacked up against its peers, you can compare it to the general municipal debt funds average, which reflects the performance of 238 funds with similar objectives tracked by Lipper Analytical Services over the past six months. Both benchmarks include reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED FEBRUARY 29, 1996 PAST 1 PAST 5 LIFE OF YEAR YEARS FUND Spartan Municipal Income 11.52% 8.44% 8.62% Lehman Brothers Municipal Bond 11.05% 8.55% n/a Index General Municipal Debt Funds Average 9.87% 8.04% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Spartan MunicipLB Municipal Bo 06/30/90 10000.00 10000.00 07/31/90 10181.47 10147.50 08/31/90 9974.13 10000.16 09/30/90 10017.45 10005.86 10/31/90 10121.86 10187.36 11/30/90 10359.04 10392.23 12/31/90 10425.75 10437.44 01/31/91 10552.62 10577.51 02/28/91 10615.55 10669.53 03/31/91 10668.63 10673.37 04/30/91 10826.11 10815.86 05/31/91 10964.35 10912.02 06/30/91 10953.33 10901.21 07/31/91 11104.20 11033.99 08/31/91 11235.65 11179.31 09/30/91 11366.05 11324.86 10/31/91 11464.38 11426.79 11/30/91 11473.44 11458.67 12/31/91 11749.13 11704.57 01/31/92 11748.25 11731.26 02/29/92 11767.00 11735.01 03/31/92 11790.50 11739.35 04/30/92 11901.94 11843.83 05/31/92 12060.81 11983.24 06/30/92 12251.66 12184.31 07/31/92 12617.10 12549.60 08/31/92 12463.72 12427.24 09/30/92 12528.58 12508.52 10/31/92 12314.68 12385.56 11/30/92 12593.65 12607.38 12/31/92 12733.75 12736.10 01/31/93 12911.12 12884.22 02/28/93 13428.86 13350.25 03/31/93 13302.85 13209.13 04/30/93 13405.29 13342.41 05/31/93 13522.57 13417.40 06/30/93 13771.87 13641.34 07/31/93 13813.52 13659.21 08/31/93 14152.89 13943.59 09/30/93 14341.53 14102.41 10/31/93 14355.75 14129.63 11/30/93 14225.03 14005.14 12/31/93 14556.48 14300.79 01/31/94 14731.96 14464.11 02/28/94 14312.81 14089.49 03/31/94 13549.60 13515.76 04/30/94 13630.73 13630.38 05/31/94 13756.37 13748.55 06/30/94 13646.90 13664.55 07/31/94 13923.30 13915.02 08/31/94 13952.58 13963.17 09/30/94 13717.14 13758.19 10/31/94 13384.65 13513.84 11/30/94 13046.95 13269.51 12/31/94 13377.33 13561.57 01/31/95 13835.66 13949.16 02/28/95 14273.14 14354.80 03/31/95 14444.05 14519.74 04/30/95 14453.93 14536.87 05/31/95 14932.12 15000.75 06/30/95 14780.26 14869.49 07/31/95 14908.87 15010.45 08/31/95 15096.82 15200.78 09/30/95 15238.94 15297.00 10/31/95 15441.75 15519.42 11/30/95 15716.87 15776.89 12/31/95 15863.39 15928.51 01/31/96 16007.18 16048.77 02/29/96 15918.95 15940.44 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Municipal Income Fund on June 30, 1990, shortly after the fund started. As the chart shows, by February 29, 1996, the value of your investment would have grown to $15,919 - a 59.19% increase on your initial investment. This assumes you still owned the fund on February 29, 1996, and therefore does not include the effect of the $5 account closeout fee on an average sized account. For comparison, look at how the Lehman Brothers Municipal Bond Index did over the same period. With dividends reinvested, the same $10,000 would have grown to $15,940 - a 59.40% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, generally move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS YEARS ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 29, 1996 1995 1994 1993 1992 1991 Dividend return 2.68% 6.26% 5.54% 6.69% 7.15% 7.90% Capital appreciation return 2.76% 1.93% -6.96% 6.86% 3.77% 4.74% Total return 5.44% 8.19% -1.42% 13.55% 10.92% 12.64% DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee on an average sized account. DIVIDENDS AND YIELD
PERIODS ENDED FEBRUARY 29, 1996 PAST PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 4.18(cents) 26.84(cents) 55.33(cents) Annualized dividend rate 4.98% 5.18% 5.41% 30-day annualized yield 4.77% - - 30-day annualized tax-equivalent yield 7.45% - -
DIVIDENDS per share show the income paid by the fund for a set period. If you annualize this number, based on an average share price of $10.56 over the past month, $10.40 over the past six months and $10.23 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. The tax-equivalent yield shows what you would have to earn on a taxable investment to equal the fund's tax-free yield, if you're in the 36% federal tax bracket, but does not reflect payment of the federal alternative minimum tax, if applicable. FUND TALK: THE MANAGER'S OVERVIEW An interview with David Murphy, Portfolio Manager of Spartan Municipal Income Fund Q. DAVID, HOW DID THE FUND PERFORM? A. Quite well. For the six- and 12-month periods ended February 29, 1996, the fund had total returns of 5.44% and 11.52%, respectively. For the same periods, the general municipal debt funds average returned 4.99% and 9.87%, as tracked by Lipper Analytical Services. The Lehman Brothers Municipal Bond Index returned 4.87% and 11.05%, for the same six- and 12-month periods. Q. WHAT KIND OF PERIOD WAS IT FOR MUNICIPAL BONDS? A. It was generally a good period for municipal bonds. Interest rates continued to decline, although not to the same extent that they had fallen in the previous six months. Inflation remained low and the economy was growing at a slow but steady pace. In the last month of the period, municipal bonds outperformed Treasuries. Municipals had lagged Treasuries during much of 1995, primarily because of fears that the flat tax proposal could hurt the prices of municipals. Recently, however, investors appear to be less concerned that the more dramatic proposals - those that have the potential to hurt municipal bonds the most - will be enacted. Q. WHAT CONTRIBUTED TO THE FUND'S SUCCESS? A. One of the primary factors was the fund's growing stake in investment-grade bonds, which performed better than non-investment grade bonds during the period. The term "investment-grade" refers to ratings given by Moody's Investors Service, Inc. and other rating agencies of an issuer's ability to pay a bond's principal and interest in a timely fashion. Bonds below the Moody's rating "Baa" are considered speculative, or non-investment grade. Last fall, I began to reduce the fund's holdings in securities rated below investment-grade and replace them with investment-grade securities. In my view, an investor was not rewarded with enough incremental yield for taking on the additional risk of the non-investment grade bonds. Q. DID ANY INDIVIDUAL BONDS HELP PERFORMANCE DURING THE PERIOD? A. The Space Center Houston - whose tax-exempt bonds are issued under the authority of the Harris County Cultural and Educational Facilities - enjoyed a turnaround and the bonds were some of the fund's best performers during the period. The bonds had gone into technical default last year, which meant that for a time they were paying interest out of a debt service reserve fund. In a restructuring move, the issuer offered to exchange its existing holdings for cash or new securities, a transaction known as a tender offer. This tender successfully lowered the Center's debt costs, which in turn led to price appreciation for the new bonds. Q. THROUGHOUT THE PERIOD, THERE WAS AN INCREASE IN THE FUND'S INVESTMENTS IN GENERAL OBLIGATION BONDS (GOS). WHAT MADE THEM ATTRACTIVE? A. GOs are backed by the full faith and credit (which includes the taxing and further borrowing power) of a municipality or state. GOs in general have benefited from the improving economy as tax revenues have risen. For example, I bought bonds issued by the state of California, which is enjoying an economic turnaround that I believed could soon be reflected in the state's fiscal health. I focused on buying bonds issued by the state because that's where the effects of an improving economy will be noticeable first. State revenues, including income taxes, tend to be more economically sensitive than local revenues, such as property taxes. The fund's California bonds performed well during the past six months. I also increased the fund's stake in New York City bonds, which are attractive partly because of their relatively high yields. Even though the city is not really experiencing a strong economic recovery, it has been able to successfully manage its budget to yield a surplus for many years. In light of that factor and other fiscal safeguards, I view New York City as a stable situation. Q. ON THE OTHER HAND, THE FUND'S INVESTMENTS IN HEALTH CARE BONDS DECLINED DURING THE PERIOD. WHAT PROMPTED THAT MOVE? A. I sold some of our health care bonds at attractive prices. In addition, one of the fund's holdings - HealthOne, a Denver-based hospital - recently was acquired by the corporate healthcare chain Columbia/HCA. Most of our HealthOne holdings were bought by Columbia at a substantial gain for the fund. Q. WHEN SELECTING INVESTMENTS FOR THE FUND, DID YOU CONCENTRATE ON ANY PARTICULAR MATURITY RANGE? A. Yes. I focused on buying bonds with intermediate maturities between five and 15 years. Longer-maturity bonds are generally more sensitive to changing interest rates than intermediate-maturity bonds. But in my opinion, the incremental yield that 20- to 30-year bonds offered during the period wasn't enough to compensate for their additional interest rate risk. Q. WHAT'S YOUR OUTLOOK? A. There are several developments I'll be watching in 1996. One is the political scene. While tax reform fears seem to have abated at this juncture, the issue could re-emerge as the presidential campaign continues. Another is the supply of municipal bonds. I anticipate that new-issue supply will be more or less equal to last year's new-issue supply, although the total outstanding amount of municipal bonds available should decline as issuers redeem bonds or as the bonds mature. That decline in supply could provide some support for the municipal market this year. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: to provide high current income exempt from federal income taxes START DATE: June 4, 1990 SIZE: as of February 29, 1996, more than $578 million MANAGER: David Murphy, since October 1, 1995; manager, Fidelity High Yield Tax-Free Fund, since October, 1995; Fidelity Limited Term Municipal Income Fund, since 1989; Fidelity Advisor Intermediate Municipal Income Fund, since March 1995; Spartan Intermediate Municipal Income and Spartan New York Intermediate Municipal Income funds, 1993 to 1995; Spartan Short-Intermediate Municipal Income Fund, 1989 to 1995; joined Fidelity in 1989 (checkmark) DAVID MURPHY ON HIS INVESTMENT STYLE: "I describe myself as a total return investor. That means I focus both on income and the effects of price changes of bonds in the portfolio. Income is, of course, extremely important both as a component of total return and for its tax advantages to municipal bond investors. I only go after bonds whose return justifies the risks taken. My goal is to provide returns that are higher than the overall market. "In determining the risks and rewards available in the market, I use the Lehman Brothers Municipal Bond Index as a proxy for the overall market. I believe this index is the best available benchmark for managing a national municipal bond fund." INVESTMENT CHANGES TOP FIVE STATES AS OF FEBRUARY 29, 1996 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO New York 12.4 9.7 Texas 11.2 4.1 California 10.9 6.2 Florida 6.1 3.6 Washington 5.3 8.8 TOP FIVE SECTORS AS OF FEBRUARY 29, 1996 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO General Obligation 34.1 22.8 Electric Revenue 11.0 18.6 Industrial Development 8.3 9.2 Water and Sewer 7.8 6.6 Special Tax 7.2 4.1 AVERAGE YEARS TO MATURITY AS OF FEBRUARY 29, 1996 6 MONTHS AGO Years 13.3 14.6 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF FEBRUARY 29, 1996 6 MONTHS AGO Years 7.6 7.7 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. QUALITY DIVERSIFICATION (MOODY'S RATINGS) AS OF FEBRUARY 29, 1996 AS OF AUGUST 31, 1995 Row: 1, Col: 1, Value: 6.4 Row: 1, Col: 2, Value: 3.4 Row: 1, Col: 3, Value: 0.0 Row: 1, Col: 4, Value: 15.6 Row: 1, Col: 5, Value: 74.59999999999999 Row: 1, Col: 1, Value: 5.3 Row: 1, Col: 2, Value: 10.7 Row: 1, Col: 3, Value: 1.8 Row: 1, Col: 4, Value: 17.0 Row: 1, Col: 5, Value: 65.2 Aaa, Aa, A 74.6% Baa 15.6% Ba, B 0.0% Non-rated 3.4% Short-term investments 6.4% Aaa, Aa, A 66.2% Baa 17.0% Ba, B 0.8% Non-rated 10.7% Short-term investments 5.3% SHOWN AS A PERCENTAGE OF THE FUND'S INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE EQUIVALENT TO BA AND BELOW ACCOUNTED FOR 1.9% AND 9.3% OF THE FUND'S INVESTMENTS ON FEBRUARY 29, 1996, AND AUGUST 31, 1995, RESPECTIVELY. INVESTMENTS FEBRUARY 29, 1996 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities MUNICIPAL BONDS - 93.6% MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) ALABAMA - 0.6% Alabama State Gen. Oblig. Rfdg. 6% 3/1/00 Aaa $ 3,420,000 $ 3,638,025 ALASKA - 1.1% Alaska Student Loan Corp. Student Loan Rev. Series A (c): 7.30% 7/1/00, (AMBAC Insured) Aaa 1,100,000 1,192,125 5.90% 7/1/03, (AMBAC Insured) Aaa 1,070,000 1,099,425 North Slope Borough Gen. Oblig. (Cap. Appreciation): Series A, 0% 6/30/99, (MBIA Insured) Aaa 3,500,000 3,031,875 Series B, 0% 6/30/05, (Cap. Guaranty Insured) Aaa 2,500,000 1,578,125 6,901,550 ARIZONA - 2.6% Arizona State Univ. Rev. Rfdg. Sys. 6% 7/1/07 A1 1,250,000 1,370,313 Chandler: 7.375% 7/1/09, (FGIC Insured) Aaa 1,000,000 1,220,000 4.375% 7/1/12, (FGIC Insured) Aaa 1,000,000 871,250 Maricopa County Series C, 8.90% 7/1/99 A 3,950,000 4,522,750 Pima County Unified School Dist. Tucson Proj. of 1989 Series G, 8% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,465,000 Tucson Ltd. Tax Rfdg. 7.50% 7/1/01 A1 2,525,000 2,900,594 Tucson Wtr. Rev. Series D: 9.75% 7/1/07 A1 500,000 701,875 9.75% 7/1/08 A1 500,000 712,500 9.75% 7/1/09 A1 750,000 1,081,875 15,846,157 ARKANSAS - 0.3% Arkansas State College Savings (Cap. Appreciation) Series A: 0% 6/1/03 Aa 1,280,000 897,600 0% 6/1/04 Aa 1,110,000 733,988 1,631,588 CALIFORNIA - 10.9% California Gen. Oblig.: 6.50% 3/1/02, (AMBAC Insured) Aaa 2,525,000 2,790,125 6.75% 5/1/03 A1 1,000,000 1,130,000 6.60% 2/1/10 A1 5,205,000 5,927,194 5.25% 10/1/16 A1 3,200,000 3,064,000 5.25% 10/1/17 A1 3,500,000 3,325,000 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) CALIFORNIA - CONTINUED California Hsg. Fin. Agcy. Rev. (Home Mtg.): Series 1983 A, 0% 2/1/15 Aa $ 187,000 $ 29,116 Series A, 5.30% 8/1/14, (MBIA Insured) (b) Aaa 1,000,000 985,000 California Pub. Wks. Board Lease Rev.: (California University Proj.) Series A, 5.50% 6/1/14 A1 5,500,000 5,390,000 (Secretary of State) Series A, 6% 5/1/13 A1 3,500,000 3,552,500 (Various California State Univ. Projs.) Series B: 5.55% 6/6/10 A1 1,500,000 1,526,250 6% 10/1/14 A 1,000,000 1,016,250 California Rural Home Mtg. Fin. Auth. Lease Rev. Series A, 4.45% 8/1/01, (MBIA Insured) Aaa 1,000,000 993,750 Contra Costa Trans. Auth. Sales Tax Rev. Series A, 6% 3/1/07, (FGIC Insured) (b) Aaa 3,500,000 3,819,375 East Bay Mun. Util. Dist. Wtr. Sys. Rev. Rfdg. 6.10% 6/1/07 A1 1,250,000 1,346,875 Industry Urban Ind. Dev. Agcy. Rev. (Civic Recreational Proj. #1-B) 7.375% 5/1/15 - 1,140,000 1,194,150 Long Beach Harbor Rev. (c): 9% 5/15/02, (MBIA Insured) Aaa 1,275,000 1,568,250 8.50% 5/15/03, (MBIA Insured) Aaa 1,235,000 1,512,875 Sacramento Pwr. Auth. (Cogeneration Proj.) 5.875% 7/1/15 BBB- 1,600,000 1,550,000 San Francisco City & County Swr. Rev. Rfdg. 5.90% 10/1/08, (AMBAC Insured) Aaa 5,000,000 5,306,250 San Joaquin County Ctfs. of Prtn. (Cap. Facs. Proj.) 4.90% 11/15/08, (MBIA Insured) Aaa 4,000,000 3,920,000 South Orange County Pub. Fing. Auth. Spl. Tax Rev. (Foothill Area) Series C, 7.50% 8/15/07, (FGIC Insured) Aaa 2,500,000 3,037,500 University of California Rev. Rfdg. (Multiple Purp. Projs.) Series C, 5.125% 9/1/13, (AMBAC Insured) Aaa 1,800,000 1,723,500 West & Central Basin Fin. Auth. Series C (e): 5.20% 8/1/07, (AMBAC Insured) Aaa 5,800,000 5,901,500 5.25% 8/1/08, (AMBAC Insured) Aaa 6,100,000 6,183,875 66,793,335 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) COLORADO - 2.9% Adams County Single Family Mtg. Rev. Rfdg. Series A-2, 8.70% 6/1/12, (FSA Insured) Aaa $ 100,000 $ 109,125 Colorado Health Facs. Auth. Rev. (Rocky Mountain Adventist) 6.625% 2/1/13 Baa 7,500,000 7,687,500 Denver City & County Arpt. Rev. (c): Series A: 6.60% 11/15/97 Baa 1,000,000 1,028,750 6.90% 11/15/98 Baa 1,000,000 1,048,750 (Cap. Appreciation): 0% 11/15/02, (MBIA Insured) Aaa 4,900,000 3,534,125 0% 11/15/05, (MBIA Insured) Aaa 3,000,000 1,826,250 Series D, 7% 11/15/25 Baa 2,500,000 2,768,750 18,003,250 CONNECTICUT - 1.4% Connecticut Gen. Oblig. Series A, 7% 3/15/03 Aa 3,000,000 3,438,750 Connecticut Health & Ed. Facs. Auth. Rev. (St. Raphael Hosp.) 5.30% 7/1/10, (AMBAC Insured) Aaa 2,990,000 3,016,163 Connecticut Spl. Tax Oblig. Rev. Rfdg. (Trans. Infrastructure) Series A, 5.25% 9/1/07, (MBIA Insured) Aaa 1,750,000 1,813,438 8,268,351 DISTRICT OF COLUMBIA - 1.8% District of Columbia Hosp. Rev. (Hosp. for Sick Children) Series A, 8.875% 1/1/21 - 3,395,000 3,662,356 District of Columbia Redev. Land Agcy. Spl. Tax Rev. (Washington D.C. Sports Arena): 4.50% 11/1/96 Baa 1,700,000 1,700,459 5.40% 11/1/00 Baa 1,000,000 1,002,500 5.625% 11/1/10 Baa 1,250,000 1,217,188 Metropolitan Washington Arpt. Auth. Gen. Arpt. Rev. Series A, 7.25% 10/1/10, (FGIC Insured) (c) Aaa 3,000,000 3,333,750 10,916,253 FLORIDA - 5.5% Broward County Resource Recovery Rev. (SES Broward Co. LP South Proj.) 7.95% 12/1/08 A 3,335,000 3,706,019 Florida Board of Ed. Cap. Outlay (Pub. Ed.) Series C, 5.40% 6/1/10, (MBIA Insured) Aaa 2,300,000 2,317,250 Florida Muni. Pwr. Agcy. Rev. Rfdg. (Stanton II Proj.) 4.50% 10/1/16, (AMBAC Insured) Aaa 3,000,000 2,628,750 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) FLORIDA - CONTINUED Jacksonville Port Auth. Rev. (b)(c): 5.75% 11/1/09, (MBIA Insured) Aaa $ 1,000,000 $ 1,022,500 5.625% 11/1/12, (MBIA Insured) Aaa 2,155,000 2,114,594 5.625% 11/1/18, (MBIA Insured) Aaa 3,000,000 2,906,250 Lakeland Elec. & Wtr. Rev. Rfdg. Jr. Sub. Lien (b): 6.50% 10/1/04, (FGIC Insured) Aaa 13,755,000 15,250,856 6.50% 10/1/06, (FGIC Insured) Aaa 1,000,000 1,111,250 6.50% 10/1/09, (FGIC Insured) Aaa 2,500,000 2,768,750 33,826,219 GEORGIA - 3.4% Fulton County School Dist. Rfdg. 6.375% 5/1/14 Aa 2,000,000 2,230,000 Fulton Wtr. & Swr. 6.25% 1/1/08, (FGIC Insured) Aaa 2,100,000 2,336,250 Georgia Gen. Oblig.: Series B, 7.20% 3/1/06 Aaa 5,000,000 6,018,750 Series C, 7.70% 4/1/96 Aaa 1,500,000 1,505,460 Series D, 6.50% 8/1/02 Aaa 2,000,000 2,242,500 Series E, 6.75% 12/1/01 Aaa 3,585,000 4,046,569 Georgia Residential Fin. Auth. Home Ownership Mtg. (Cap. Appreciation) Series 1984 B, 0% 12/1/15 Aa 22,505,000 2,646,138 21,025,667 HAWAII - 0.3% Hawaii Arpts. Sys. Rev. 2nd Series, 7.50% 7/1/20, (FGIC Insured) (c) Aaa 1,500,000 1,674,375 IDAHO - 0.6% Idaho Falls Elec. Rfdg. 0% 4/1/07,(FGIC Insured)Aaa 2,500,000 1,459,375 Idaho Hsg. Agcy. Single Family Mtg. Series 1991 B, 7.50% 7/1/24 (c) AA 2,240,000 2,340,800 3,800,175 ILLINOIS - 3.9% Chicago Gen. Oblig. Rfdg. Series B, 5.125% 1/1/15, (AMBAC Insured) Aaa 2,250,000 2,171,250 Chicago O'Hare Int'l. Arpt.: Rev. Rfdg.: 2nd Lien (Gen. Arpt. Projs.) Series A, 6.375% 1/1/15, (MBIA Insured) Aaa 1,500,000 1,586,250 Sr. Lien Series A, 5% 1/1/12 A1 4,500,000 4,314,375 Spl. Facs. Rev. (United Airlines, Inc.) 8.25% 5/1/99 (c) Baa3 3,650,000 3,964,813 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) ILLINOIS - CONTINUED Chicago Park Dist. Rfdg. (b): 5.50% 1/1/99, (FGIC Insured) Aaa $ 1,000,000 $ 1,036,250 5.50% 1/1/00, (FGIC Insured) Aaa 500,000 520,625 6.25% 1/1/09, (FGIC Insured) Aaa 750,000 818,438 Chicago Residential Mtg. Rev. Rfdg. (Cap. Appreciation) Series B, 0% 10/1/09, (MBIA Insured) Aaa 8,530,000 3,348,025 Chicago Single Family Mtg. Rev. (Cap. Appreciation) Series A, 0% 12/1/16, (FGIC Insured) Aaa 13,450,000 1,832,563 DeKalb Single Family Mtg. Rev. 7.45% 12/1/09, (GNMA Coll.) (c) Aaa 1,780,000 1,889,025 Metropolitan Pier & Exposition Auth. Dedicated Tax Rev. 0% 6/15/00, (AMBAC Insured) Aaa 2,700,000 2,224,125 23,705,739 INDIANA - 0.2% Indianapolis Resource Recovery Rev. Rfdg. (Ogden Martin Sys. Inc. Proj.) 6.75% 12/1/06, (AMBAC Insured) (b) Aaa 1,000,000 1,121,250 IOWA - 0.1% Iowa Fin. Auth. Rev. (Iowa State Revolving Fund) 4.95% 5/1/07 A 750,000 757,500 KANSAS - 0.9% Johnson County Unified School Dist. #512 (Shawnee Mission): 8% 10/1/03 Aa1 1,015,000 1,247,181 8% 10/1/04 Aa1 1,225,000 1,526,656 8% 10/1/05 Aa1 1,250,000 1,575,000 Reno County Mtg. Rev. Rfdg. (Single Family) Series B, 8.70% 9/1/11 Aa 810,000 872,775 5,221,612 KENTUCKY - 1.1% Kentucky Tpk. Auth. Toll Rd. Rev. Series A, 8.50% 7/1/96 (Pre-Refunded to 7/1/96 @ 102) (d) Aaa 5,000,000 5,183,550 Owensboro Elec. Lt. & Pwr. Rev. Series B, 0% 1/1/10, (AMBAC Insured) Aaa 4,000,000 1,870,000 7,053,550 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) LOUISIANA - 1.4% Louisiana Gen. Oblig. Series A, 6.75% 5/15/04, (MBIA Insured) Aaa $ 7,865,000 $ 8,995,594 MARYLAND - 1.6% Baltimore Pub. Impt. 7.25% 10/15/05, (FGIC Insured) Aaa 3,100,000 3,704,500 Maryland Health & Higher Ed. Facs. Auth. Rev. Rfdg. (Doctors Commty. Hosp.): 5.75% 7/1/13 Baa 2,000,000 1,847,500 5.50% 7/1/24 Baa 1,500,000 1,291,875 Montgomery County (Construction & Pub. Impt.) Series B, 6.80% 11/1/06 (Pre-Refunded to 11/1/99 @ 102) (d) Aaa 2,660,000 2,945,950 9,789,825 MASSACHUSETTS - 5.3% Massachusetts Bay Trans. Auth. Rfdg. (Gen. Trans. Sys.) Series A, 5.50% 3/1/12 A1 5,000,000 5,056,250 Massachusetts Edl. Loan Auth. (Edl. Loan Rev.) Issue E, Series B (c): 5.75% 7/1/05, (AMBAC Insured) Aaa 3,090,000 3,229,050 5.85% 7/1/06, (AMBAC Insured) Aaa 3,680,000 3,859,400 5.95% 7/1/09, (AMBAC Insured) Aaa 3,980,000 4,174,025 Massachusetts Gen. Oblig.: Rfdg. Series A, 6.25% 7/1/03 A1 1,600,000 1,760,000 Consolidated Loan Series A, 6% 6/1/11 A1 1,400,000 1,442,000 Massachusetts Ind. Fin. Agcy. Rev. (Reeds Landing Proj.) 8.625% 10/1/23 - 1,445,000 1,524,475 Massachusetts Wtr. Poll. Abatement Trust Rev. (Massachusetts Wtr. Resource Auth. Loan Prog.) Series A, 5.45% 2/1/13 Aa 5,825,000 5,781,313 New England Edl. Loan Marketing Corp. Rev. Rfdg. (Student Loan): Series A, 5.70% 7/1/05 (c) A1 4,375,000 4,457,031 Series B, 5.40% 6/1/00 A1 1,000,000 1,031,250 32,314,794 MICHIGAN - 0.2% Michigan Hosp. Fin. Auth. Rev. Rfdg. (Pontiac Osteopathic Hosp.) Series A, 6% 2/1/14 Baa1 1,500,000 1,381,875 MINNESOTA - 0.4% Minneapolis Rfdg. (Sports Arena Proj.) (Cap. Appreciation) Series B, 0% 12/1/03 Aaa 1,175,000 815,156 Northern Minnesota Muni. Pwr. Agcy. Elec. Sys. Rev. Rfdg. Series A, 7.25% 1/1/16 A 1,700,000 1,814,750 2,629,906 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) MISSISSIPPI - 0.3% Mississippi Hosp. Equip. & Facs. Auth. Rev. (Rush Med. Foundation Proj.) Series A, 8.75% 1/1/16 Baa $ 1,500,000 $ 1,650,000 MISSOURI - 0.4% Missouri Reg'l. Convention & Sports Complex Auth. Rfdg. (Convention & Sports Proj.) Series A, 5.50% 8/15/13 A1 2,000,000 1,935,000 St. Louis Regional Convention & Sports Complex Auth. Series C, 7.75% 8/15/01 - 770,000 814,275 2,749,275 MONTANA - 1.6% Montana Board of Investment Payroll Tax (Workers Compensation): 6.875% 6/1/20, (MBIA Insured) (Escrowed to Maturity) (d) Aaa 2,005,000 2,273,169 6.875% 6/1/20, (MBIA Insured) Aaa 5,125,000 5,611,875 Montana Coal Severance Tax Rfdg. (Broadwater Pwr. Proj.) Series A, 6.875% 12/1/11 (c) A1 2,000,000 2,122,500 10,007,544 NEBRASKA - 0.9% Omaha Pub. Pwr. Dist. Elec. Rev. Series C, 5.50% 2/1/14 Aa 5,650,000 5,699,438 NEW JERSEY - 1.1% Camden County Impt. Auth. Lease Rev. (Dockside Refrigerated Holt) 8.40% 4/1/24 (c) - 3,000,000 3,063,750 New Jersey State Trans. Trust Fund Auth. Rfdg. Series B, 6.50% 6/15/10, (MBIA Insured) Aaa 3,000,000 3,401,250 6,465,000 NEW MEXICO - 1.0% Albuquerque Arpt. Rev. Series A, 6.60% 7/1/16, (AMBAC Insured) (c) Aaa 2,375,000 2,565,000 Hobbs Single Family Mtg. Rev. Rfdg. 8.75% 7/1/11 A 1,605,000 1,733,400 New Mexico Edl. Assistance Foundation Student Loan Rev. Series B, 5.25% 4/1/05, (AMBAC Insured) (c) Aaa 1,600,000 1,598,000 5,896,400 NEW YORK - 12.4% Metropolitan Trans. Auth Svc. Contract Rfdg. (Trans. Facs.) Series O, 5.75% 7/1/08 Baa1 3,840,000 3,892,800 New York City Gen. Oblig.: Series A, 7.75% 8/15/07 Baa1 4,000,000 4,525,000 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) NEW YORK - CONTINUED New York City Gen. Oblig.: - continued Series B: 5.70% 8/15/02 Baa1 $ 2,000,000 $ 2,035,000 7.50% 2/1/04 Baa1 1,500,000 1,657,500 Series E, 5.40% 2/15/03 Baa1 2,285,000 2,273,575 Series G: 5.40% 2/1/01 Baa1 3,000,000 3,015,000 5.60% 2/1/02 Baa1 1,875,000 1,896,094 7.50% 2/1/03 Baa1 5,000,000 5,550,000 New York City Ind. Dev. Agcy. Spl. Facs. Rev. (Terminal One Group Assoc. Proj.) (c): 6% 1/1/19 A 5,000,000 5,012,500 6.125% 1/1/24 A 1,000,000 1,007,500 New York City Muni. Wtr. Fin. Auth. Wtr. & Swr. Sys. Rev., Series C, 6.50% 6/15/21, (AMBAC Insured) Aaa 2,460,000 2,555,325 New York State Dorm. Auth. Rev.: Rfdg. (State Univ. Edl. Facs.) Series A: 5.50% 5/15/09 Baa1 4,000,000 3,940,000 5.50% 5/15/13 Baa1 13,100,000 12,657,875 5.875% 5/15/17 Baa1 5,890,000 5,897,363 (Suffolk County Judicial Facs.) Series A, 9.50% 4/15/14 Baa1 7,000,000 8,157,170 New York State Local Gov't. Assistance Corp. Rfdg.: Series B, 6% 4/1/18 A 1,500,000 1,535,625 Series C, 5.50% 4/1/17 A 5,000,000 4,912,500 Series E, 5.25% 4/1/16 A 4,075,000 3,886,531 Triborough Bridge & Tunnel Auth. Rev. (Gen. Purp.) Series X, 6% 1/1/14 Aa 1,575,000 1,624,219 76,031,577 NORTH CAROLINA - 1.1% North Carolina Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev. Rfdg. Series C, 7% 1/1/07 A 2,000,000 2,212,500 North Carolina Muni. Pwr. Agcy. #1 Catawba Elec. Rev. 5.25% 1/1/09, (MBIA Insured) Aaa 4,655,000 4,719,006 6,931,506 NORTH DAKOTA - 1.2% Mercer County Poll. Cont. Rev. Rfdg. (Basin Electric Pwr.): (Antelope Valley Station Proj.) 7.20% 6/30/13, (AMBAC Insured) Aaa 5,000,000 6,050,000 2nd Series, 6.05% 1/1/19, (AMBAC Insured) Aaa 1,000,000 1,031,250 7,081,250 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) OHIO - 2.4% Bedford Hosp. Impt. Rev. Rfdg. (Bedford Commty. Hosp.) Series 1990, 8.50% 5/15/09, (Escrowed to Maturity) (d) - $ 1,020,000 $ 1,173,000 Euclid City School Dist. (Cap. Appreciation): 0% 12/1/02, (AMBAC Insured) Aaa 1,265,000 934,519 0% 12/1/03, (AMBAC Insured) Aaa 1,265,000 885,500 Ohio Hsg. Fin. Agcy. Mtg. Rev. (Oakleaf-Toledo Apts. Proj.) 10.25% 12/20/25, (GNMA Coll.) Aaa 1,585,000 1,826,713 Ohio State Bldg. Auth.: (Adult Correctional Facs.) Series A, 5.95% 10/1/14, (MBIA Insured) Aaa 4,000,000 4,140,000 (Workers Compensation Bldg. A) 4.75% 4/1/14 A 5,000,000 4,587,500 Ohio Wtr. Dev. Auth. Rev. Rfdg. (Impt. Pure Wtr.) 5.75% 6/1/06, (MBIA Insured) Aaa 1,000,000 1,053,750 14,600,982 OREGON - 1.5% Port Morrow Poll. Ctr. Rev. (Pacific Northwest) Series A, 8% 7/15/11 AA- 3,420,000 3,950,100 Portland Series B: 7% 6/1/00 Aaa 1,385,000 1,540,813 7% 6/1/01 Aaa 1,480,000 1,674,250 Portland Swr. Sys. Rev. Series A, 6.25% 6/1/15 A1 1,875,000 1,999,219 9,164,382 PENNSYLVANIA - 3.5% Clarion County Hosp. Auth. Hosp. Rev. (Clarion Hosp. Proj.) 8.50% 7/1/21 BBB- 2,500,000 2,750,000 Pennsylvania Intergovernmental Coop Spl. Tax Rev. Rfdg. Series A, 5% 6/15/13 A 3,000,000 2,808,750 Philadelphia Hosp. & Higher Ed. Facs. Auth. Hosp. Rev. (Temple Univ. Hosp.) Series A, 6.50% 11/15/08 Baa1 2,000,000 2,102,500 Philadelphia Wtr. & Wastewtr. Rev. 5.65% 6/15/12, (FGIC Insured) Aaa 12,000,000 12,060,000 Somerset County Pennsylvania Hosp. Auth. Rev. (Health Care 1st Mtg.) 8.50% 6/1/24 - 2,000,000 2,060,000 21,781,250 TENNESSEE - 0.4% Tennessee Gen. Oblig. Series B, 6.10% 6/1/00 Aaa 2,025,000 2,169,281 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) TEXAS - 9.1% Austin Arpt. Sys. Rev. Series A, 6.20% 11/15/15, (MBIA Insured) (c) Aaa $ 3,400,000 $ 3,531,750 Austin Indpt. School Dist. Rfdg. (Cap. Appreciation) 0% 8/1/02, (PSF Guaranteed) Aaa 2,100,000 1,559,250 Austin Util. Sys. Rev. Rfdg. (Cap. Appreciation): Series A, 0% 11/15/08, (MBIA Insured) Aaa 3,895,000 1,991,319 0% 11/15/09, (AMBAC Insured) Aaa 4,000,000 1,915,000 Corpus Christi Indpt. School Dist. Rfdg. (Cap. Appreciation): 0% 8/15/01, (PSF Guaranteed) Aaa 1,535,000 1,201,138 0% 8/15/02, (PSF Guaranteed) Aaa 2,165,000 1,607,513 Cypress-Fairbanks Indpt. School Dist. Unltd. Tax Rfdg. (Cap. Appreciation) 0% 2/1/04, (PSF Guaranteed) Aaa 1,250,000 854,688 Dallas-Fort Worth Int'l. Arpt. Facs. Impt. Corp. Rev. (AMR Corp. Guaranteed) 7.50% 11/1/25 (c) Baa2 7,000,000 7,463,750 Dallas-Fort Worth Reg. Arpt. Rev. Rfdg. Series A, 5.75% 11/1/02, (MBIA Insured) Aaa 1,750,000 1,874,688 Dallas Indpt. School Dist. Rfdg. 0% 8/15/07, (PSF Guaranteed) Aaa 1,000,000 556,250 East Texas Health Facs. Dev. Corp. Hosp. Rev. (Palestine) 7.80% 8/15/18 - 3,000,000 2,647,500 El Paso Prop. Fin. Auth. Single Family Mtg. Rev. Series A, 8.70% 12/1/18, (GNMA Coll.) (c) Aaa 1,275,000 1,375,406 Grapevine-Colleyville Indpt. School Dist. Rfdg. (Cap. Appreciation) 0% 8/15/06 Aaa 2,580,000 1,525,425 Harris County Cultural & Edl. Facs. Fin. Corp. Rev. Rfdg. (Space Ctr. Houston Proj.): Series A, 9.25% 8/15/23 - 940,000 928,250 Series B, 0% 8/15/23 - 2,375,000 644,219 Houston Indpt. School Dist. Rfdg. (Cap. Appreciation) Series A, 0% 8/15/11, (PSF Guaranteed) Aaa 6,400,000 2,768,000 Lower Colorado River Auth. Rev. Rfdg. (Cap. Appreciation) 0% 1/1/09, (MBIA Insured) Aaa 1,000,000 520,000 Lower Neches Valley Ind. Dev. Rev. (Mobil Oil Refining Corp. Proj.) 6.40% 3/1/30 (c) Aa2 8,785,000 9,125,419 Midlothian Indpt. School Dist. Rfdg. (Cap. Appreciation): 0% 2/15/07, (PSF Guaranteed) Aaa 1,935,000 1,110,206 0% 2/15/08, (PSF Guaranteed) Aaa 1,520,000 818,900 0% 2/15/10, (PSF Guaranteed) Aaa 1,525,000 726,281 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) TEXAS - CONTINUED San Antonio Elec. & Gas Rev. Rfdg. Series B, 0% 2/1/09, (FGIC Insured) Aaa $ 2,000,000 $ 1,000,000 Spring Branch Indpt. School Dist. Rfdg. (Cap. Appreciation) 0% 2/1/05, (PSF Guaranteed) (b) Aaa 5,725,000 3,706,938 Spring Indpt. School Dist. 4.875% 8/15/10, (PSF Guaranteed) Aaa 2,500,000 2,393,750 Texas A&M Univ. Permanent Univ. Fund 5.50% 7/1/04 (b) Aaa 1,275,000 1,332,375 Univ. of Texas Univ. Rev. Rfdg. (Fing. Sys.) Series A: 6% 8/15/04 Aa1 1,170,000 1,285,538 6% 8/15/05 Aa1 1,000,000 1,100,000 Winters Wtrwks. & Swr. Sys. Rev. Rfdg. 8.50% 8/1/17, (Pre-Refunded to 8/1/03 @ 100) (d) - 500,000 619,375 56,182,928 UTAH - 3.2% Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev. Rfdg. Series B, 5.55% 7/1/11 Aa 10,000,000 9,987,500 Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev. Rfdg. Series B (b): 6.50% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,235,000 6.50% 7/1/05, (MBIA Insured) Aaa 4,000,000 4,475,000 6.50% 7/1/10, (MBIA Insured) Aaa 1,500,000 1,687,500 Utah Hsg. Fin. Agcy.: (Residential Mtg.) (Cap. Appreciation) Series 1983 A, 0% 7/1/16 A+ 4,035,042 509,424 (Single Family Mtg.) Series G, 9.25% 7/1/19, (FHA Guaranteed) (c) Aaa 810,000 875,813 19,770,237 VERMONT - 0.7% Vermont Hsg. Fin. Agcy. Single Family Series 2, 7.30% 5/1/25 (c) A1 1,500,000 1,556,250 Vermont Ind. Dev. Auth. Ind. Dev. Rev. (Radisson Hotel) Series B-1, 7.75% 11/15/15 - 2,350,000 2,582,063 4,138,313 VIRGINIA - 1.0% Richmond Rfdg. Series B, 5.50% 1/15/05, (FGIC Insured) Aaa 1,600,000 1,688,000 Virginia Hsg. Dev. Auth. Residential Mtg. (Single Family Mtg.) (Cap. Appreciation) Series 1983 B, 0% 9/1/14 Aaa 2,430,000 364,500 Virginia State Pub. Facs. Gen. Oblig. 6% 6/1/03 Aaa 4,000,000 4,390,000 6,442,500 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) WASHINGTON - 5.3% Douglas County Pub. Util. Dist. #1 Wells Hydroelec. Rev. Rfdg. (Pacific Pwr. & Lt. Co.) 8.75% 9/1/18 A $ 1,395,000 $ 1,780,369 Washington Gen. Oblig. Series 96 A, 6.75% 7/1/02 Aa 3,560,000 4,018,350 Washington Motor Vehicle Fuel Tax Gen. Oblig. Series B, 6.50% 9/1/03 Aa 5,000,000 5,631,250 Washington Pub. Pwr. Supply Sys. Rev. Nuclear Proj. #2: Rfdg. Series C, 0% 7/1/05, (MBIA Insured) Aaa 11,000,000 6,875,000 5.40% 7/1/12 Aa 10,000,000 9,650,000 Nuclear Proj. #3 5.40% 7/1/12 Aa 5,000,000 4,750,000 32,704,969 TOTAL MUNICIPAL BONDS (Cost $559,567,396) 574,763,422 MUNICIPAL NOTES (E) - 6.4% ALABAMA - 0.2% Phenix City Ind. Dev. Board Envir. Impt. (Mead Coated Board Proj.) 3.55%, LOC Toronto Dominion Bank, VRDN (c) A-1+ 1,300,000 1,300,000 ARIZONA - 0.3% Coconino County Poll. Cont. Corp. Rev. (Arizona Pub. Svc. Co. Navajo Proj.) Series A, 3.60%, LOC Bank of America Nat'l. Trust & Savings, VRDN P-1 2,200,000 2,200,000 COLORADO - 0.7% Colorado Gen. Oblig. TRAN 4.50%, 6/27/96 SP-1+ 4,300,000 4,314,953 DELAWARE - 0.2% Delaware Econ. Dev. Auth. (Delmarva Pwr. & Light Proj.) Series 1994, 3.60%, VRDN (c) VMIG 1 1,000,000 1,000,000 FLORIDA - 0.6% Sunshine St. Gov't. Fin. Comm. Rev. Series B, LOC Union Bank of Switzerland 3.70% 4/4/96 CP A-1+ 4,000,000 4,001,800 KENTUCKY - 0.6% Daviess County Solid Wst. Disp. Facs. Rev. (Scott Paper Co.) Series 1993-B, 3.60%, LOC ABN AMRO Bank, VRDN (c) VMIG 1 3,600,000 3,600,000 MUNICIPAL NOTES (E) - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) LOUISIANA - 0.2% Plaquemines Parish Environmental Rev. (BP Expl. & Oil, Inc. Proj.) Series 1994, 3.60%, VRDN (c) P-1 $ 1,400,000 $ 1,400,000 MISSOURI - 0.7% Missouri Higher Ed. Loan Auth. Student Loan Rev. Series B, 3.20%, LOC Nat'l Westminster Bank, VRDN (c) VMIG 1 4,000,000 4,000,000 SOUTH CAROLINA - 0.4% South Carolina Jobs Econ. Dev. Auth. (Wellman, Inc. Proj.) Series 1992, 3.50%, LOC Wachovia Bank & Trust NA, VRDN (c) - 2,200,000 2,200,000 TEXAS - 2.1% Brazos River Auth. Poll. Cont. Rev. Rfdg. (Texas Utils. Elec. Co. Proj.) (c): Series 1995-A, 3.55%, LOC Morgan Guaranty Trust Co., VRDN VMIG 1 1,500,000 1,500,000 Series 1995-C, 3.55%, LOC Swiss Bank, VRDN VMIG 1 3,800,000 3,800,000 Brazos River Hbr. Navigation Dist. of Brazoria (Dow Chemical Co. Proj.) Series 1993, 3.60%, VRDN (c) P-1 600,000 600,000 Gulf Coast Waste Disp. Auth. Poll. Cont. Rev. (AMOCO Oil Co. Proj.) 3.55%, VRDN (c) A-1+ 300,000 300,000 Harris County Ind. Dev. Corp. Poll. Cont. Rev. (Exxon Proj.) Series 1987, 3.55%, VRDN (c) A-1+ 1,900,000 1,900,000 Texas Gen. Oblig. TRAN Series 1995 A, 4.75% 8/30/96 MIG 1 1,000,000 1,007,310 Texas Pub. Fin. Auth. Series 1993-A, 3.60% 4/4/96 CP P-1 4,000,000 4,001,440 13,108,750 WEST VIRGINIA - 0.4% West Virginia Pub. Energy Auth. Rev. (Morgantown Energy Assoc. Proj. A) 3.40%, LOC Swiss Bank, VRDN (c) A-1+ 2,500,000 2,500,250 TOTAL MUNICIPAL NOTES (Cost $39,625,764) 39,625,753 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $599,193,160) $ 614,389,175 SECURITY TYPE ABBREVIATIONS CP - Commercial Paper TRAN - Tax and Revenue Anticipation Notes VRDN - Variable Rate Demand Notes LEGEND 1. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 2. Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). 3. Private activity obligations whose interest is subject to the federal alternative minimum tax for individuals. 4. Security collateralized by an amount sufficient to pay interest and principal. 5. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 72.9% AAA, AA, A 73.0% Baa 14.9% BBB 11.5% Ba 0.0% BB 1.9% B 0.0% B 0.2% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% The percentage not rated by either S&P or Moody's amounted to 3.4%. The distribution of municipal securities by revenue source, as a percentage of total value of investment in securities, is as follows: General Obligation 34.1% Electric Revenue 11.0 Industrial Development 8.3 Water and Sewer 7.8 Special Tax 7.2 Transportation 7.0 Other 5.7 Health Care 5.1 Others (individually less than 5%) 13.8 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $599,193,160. Net unrealized appreciation aggregated $15,196,015, of which $18,259,095 related to appreciated investment securities and $3,063,080 related to depreciated investment securities. At August 31, 1995, the fund had a capital loss carryforward of approximately $2,188,000 which will expire on August 31, 2003. The fund intends to elect to defer to its fiscal year ending August 31, 1996 approximately $21,291,000 of losses recognized during the period November 1, 1994 to August 31, 1995. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED) ASSETS Investment in securities, at value (cost $599,193,160) - $ 614,389,175 See accompanying schedule Receivable for investments sold 5,468,035 Interest receivable 7,413,292 TOTAL ASSETS 627,270,502 LIABILITIES Payable to custodian bank $ 42,064 Payable for investments purchased 2,585,700 Regular delivery Delayed delivery 45,321,360 Payable for fund shares redeemed 231,071 Distributions payable 611,060 Accrued management fee 253,751 TOTAL LIABILITIES 49,045,006 NET ASSETS $ 578,225,496 Net Assets consist of: Paid in capital $ 583,190,175 Accumulated undistributed net realized gain (loss) on (20,160,694) investments Net unrealized appreciation (depreciation) on 15,196,015 investments NET ASSETS, for 55,266,970 shares outstanding $ 578,225,496 NET ASSET VALUE, offering price and redemption price per $10.46 share ($578,225,496 (divided by) 55,266,970 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED) INTEREST INCOME $ 16,460,004 EXPENSES Management fee $ 1,582,806 Non-interested Trustees' compensation 1,072 Total expenses before reductions 1,583,878 Expense reductions (59,880) 1,523,998 NET INTEREST INCOME 14,936,006 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 3,700,086 Futures contracts 190,018 3,890,104 Change in net unrealized appreciation (depreciation) on: Investment securities 11,997,230 Futures contracts (108,178) 11,889,052 NET GAIN (LOSS) 15,779,156 NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 30,715,162 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED FEBRUARY AUGUST 31, 29,1996 1995 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 14,936,006 $ 35,085,345 Net interest income Net realized gain (loss) 3,890,104 (23,234,406) Change in net unrealized appreciation (depreciation) 11,889,052 27,681,497 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 30,715,162 39,532,436 FROM OPERATIONS Distributions to shareholders (14,936,006) (35,181,331) From net interest income From net realized gain (112,137) (5,213,637) TOTAL DISTRIBUTIONS (15,048,143) (40,394,968) Share transactions 29,322,815 82,506,178 Net proceeds from sales of shares Reinvestment of distributions 11,070,201 29,999,336 Cost of shares redeemed (51,899,606) (217,831,944) Redemption fees 8,949 69,284 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (11,497,641) (105,257,146) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 4,169,378 (106,119,678) NET ASSETS Beginning of period 574,056,118 680,175,796 End of period $ 578,225,496 $ 574,056,118 OTHER INFORMATION Shares Sold 2,812,912 8,465,664 Issued in reinvestment of distributions 1,062,370 3,070,143 Redeemed (4,983,660) (22,701,405) Net increase (decrease) (1,108,378) (11,165,598)
FINANCIAL HIGHLIGHTS SIX MONTHS YEARS ENDED AUGUST 31, ENDED FEBRUARY 29, 1996 (UNAUDITED) 1995 1994 D 1993 1992 1991
SELECTED PER-SHARE DATA Net asset value, $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 beginning of period Income from .268 .587 .611 .663 .704 .739 Investment Operations Net interest income Net realized .282 .189 (.752) .727 .387 .463 and unrealized gain (loss) Total from .550 .776 (.141) 1.390 1.091 1.202 investment operations Less Distributions (.268) (.587) (.611) (.663) (.704) (.739) From net interest income From net (.002) (.080) (.550) (.070) (.040) - realized gain Total distributions (.270) (.667) (1.161) (.733) (.744) (.739) Redemption fees - .001 .002 .003 .003 .007 added to paid in capital Net asset value, end $ 10.460 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 of period TOTAL RETURN B, C 5.45% 8.20% (1.42) 13.55% 10.93% 12.65% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of $ 578,225 $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930 period (000 omitted) Ratio of expenses to .53% A, .55% .55% .47% .36% .23% average net assets E E E E Ratio of net interest 5.19% A 5.99% 5.76% 6.09% 6.68% 7.24% income to average net assets Portfolio turnover rate 69% A 69% 48% 50% 62% 78%
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D EFFECTIVE SEPTEMBER 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. E 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 (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). NOTES TO FINANCIAL STATEMENTS For the period ended February 29, 1996 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES. Spartan Municipal Income Fund (the fund) (formerly Spartan Municipal Income Portfolio) is a fund of Fidelity Union Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which quotations are not readily available through the pricing service are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INTEREST INCOME. Interest income, which includes amortization of premium and accretion of original issue discount, is accrued as earned. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net interest income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for futures and options transactions and market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net interest income and realized and unrealized gain (loss). Accumulated undistributed net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED REDEMPTION FEES. Shares held in the fund less than 180 days are subject to a redemption fee equal to .50% of the proceeds of the redeemed shares. The fee, which is retained by the fund, is accounted for as an addition to paid in capital. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The market value of the securities purchased or sold on a when-issued or forward commitment basis are identified as such in the fund's schedule of investments. The fund may receive compensation for interest forgone in the purchase of a delayed delivery security. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options contracts to manage its exposure to the bond market and to fluctuations in interest rates. Buying futures, writing puts, and buying calls tend to increase the fund's exposure to the underlying instrument. Selling futures, buying puts, and writing calls tend to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparties do not perform under the contracts' terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $195,279,201 and $196,313,261, respectively. The market value of futures contracts opened and closed during the period amounted to $35,329,423 and $43,908,629, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management & Research Company (FMR) pays all expenses, except the compensation of the non-interested Trustees and certain exceptions such as interest, taxes, brokerage commissions and extraordinary expenses. FMR receives a fee that is computed daily at an annual rate of .55% of the fund's average net assets. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED FMR also bears the cost of providing shareholder services to the fund. To offset the cost of providing these services, FMR or its affiliates collect certain transaction fees from the fund's shareholders which amounted to $3,010 for the period. 5. EXPENSE REDUCTIONS. FMR agreed to reimburse a portion of the fund's expenses. For the period, the reimbursement reduced expenses by $59,880. INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Fred L. Henning, Jr., Vice President David Murphy, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA and UMB Bank, n.a. Kansas City, MO (registered trademark) Corporate Headquarters 82 Devonshire St., Boston, MA 02109 CUSTODIAN UMB Bank, n.a. Kansas City, MO FIDELITY'S TAX-FREE BOND FUNDS Aggressive Municipal California Insured Municipal Income California Municipal Income High Yield Tax-Free Insured Municipal Income Limited Term Municipal Income Massachusetts Municipal Income Michigan Municipal Income Minnesota Municipal Income Municipal Bond New York Insured Municipal Income New York Municipal Income Ohio Municipal Income Spartan Aggressive Municipal (registered trademark) Spartan Arizona Municipal Income Spartan California Intermediate Municipal Spartan California Municipal Income Spartan Connecticut Municipal Income Spartan Florida Municipal Income Spartan Intermediate Municipal Income Spartan Maryland Municipal Income Spartan Municipal Income Spartan New Jersey Municipal Income Spartan New York Intermediate Municipal Spartan New York Municipal Income Spartan Pennsylvania Municipal Income Spartan Short-Intermediate Municipal THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)SPARTAN(registered trademark) MUNICIPAL INCOME FUND (FORMERLY SPARTAN MUNICIPAL INCOME PORTFOLIO) SEMIANNUAL REPORT FEBRUARY 29, 1996 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 25 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 29 Notes to the financial statements. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: Although the markets were fairly positive during 1995, no one can predict what lies ahead for investors. The previous year, stocks posted below-average returns and bonds had one of the worst years in history. This downturn followed a period in which the investing environment was generally very positive. These market ups and downs are a normal part of investing, and there are some basic principles that are helpful for investors to remember in different types of markets. Keeping in mind that the effects of interest rate changes on your bond investments will only be "paper" gains or losses unless you sell your shares, staying in your bond fund may be appropriate if your investment horizon is at least a year or more. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured or guaranteed by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. A fund's total return includes changes in a fund's share price, reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value), and the effect of the $5 account closeout fee on an average sized account. You can also look at the fund's income to measure performance. If Fidelity had not reimbursed certain fund expenses during the periods shown, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS PERIODS ENDED FEBRUARY 29, 1996 PAST 6 PAST 1 PAST 5 LIFE OF MONTHS YEAR YEARS FUND Spartan Municipal Income 5.44% 11.52% 49.95% 60.80% Lehman Brothers Municipal Bond 4.87% 11.05% 50.71% n/a Index General Municipal Debt Funds Average 4.99% 9.87% 47.30% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years or since the fund started on June 4, 1990. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Lehman Brothers Municipal Bond Index, which reflects the performance of the investment-grade municipal bond market. To measure how the fund's performance stacked up against its peers, you can compare it to the general municipal debt funds average, which reflects the performance of 238 funds with similar objectives tracked by Lipper Analytical Services over the past six months. Both benchmarks include reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED FEBRUARY 29, 1996 PAST 1 PAST 5 LIFE OF YEAR YEARS FUND Spartan Municipal Income 11.52% 8.44% 8.62% Lehman Brothers Municipal Bond 11.05% 8.55% n/a Index General Municipal Debt Funds Average 9.87% 8.04% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Spartan MunicipLB Municipal Bo 06/30/90 10000.00 10000.00 07/31/90 10181.47 10147.50 08/31/90 9974.13 10000.16 09/30/90 10017.45 10005.86 10/31/90 10121.86 10187.36 11/30/90 10359.04 10392.23 12/31/90 10425.75 10437.44 01/31/91 10552.62 10577.51 02/28/91 10615.55 10669.53 03/31/91 10668.63 10673.37 04/30/91 10826.11 10815.86 05/31/91 10964.35 10912.02 06/30/91 10953.33 10901.21 07/31/91 11104.20 11033.99 08/31/91 11235.65 11179.31 09/30/91 11366.05 11324.86 10/31/91 11464.38 11426.79 11/30/91 11473.44 11458.67 12/31/91 11749.13 11704.57 01/31/92 11748.25 11731.26 02/29/92 11767.00 11735.01 03/31/92 11790.50 11739.35 04/30/92 11901.94 11843.83 05/31/92 12060.81 11983.24 06/30/92 12251.66 12184.31 07/31/92 12617.10 12549.60 08/31/92 12463.72 12427.24 09/30/92 12528.58 12508.52 10/31/92 12314.68 12385.56 11/30/92 12593.65 12607.38 12/31/92 12733.75 12736.10 01/31/93 12911.12 12884.22 02/28/93 13428.86 13350.25 03/31/93 13302.85 13209.13 04/30/93 13405.29 13342.41 05/31/93 13522.57 13417.40 06/30/93 13771.87 13641.34 07/31/93 13813.52 13659.21 08/31/93 14152.89 13943.59 09/30/93 14341.53 14102.41 10/31/93 14355.75 14129.63 11/30/93 14225.03 14005.14 12/31/93 14556.48 14300.79 01/31/94 14731.96 14464.11 02/28/94 14312.81 14089.49 03/31/94 13549.60 13515.76 04/30/94 13630.73 13630.38 05/31/94 13756.37 13748.55 06/30/94 13646.90 13664.55 07/31/94 13923.30 13915.02 08/31/94 13952.58 13963.17 09/30/94 13717.14 13758.19 10/31/94 13384.65 13513.84 11/30/94 13046.95 13269.51 12/31/94 13377.33 13561.57 01/31/95 13835.66 13949.16 02/28/95 14273.14 14354.80 03/31/95 14444.05 14519.74 04/30/95 14453.93 14536.87 05/31/95 14932.12 15000.75 06/30/95 14780.26 14869.49 07/31/95 14908.87 15010.45 08/31/95 15096.82 15200.78 09/30/95 15238.94 15297.00 10/31/95 15441.75 15519.42 11/30/95 15716.87 15776.89 12/31/95 15863.39 15928.51 01/31/96 16007.18 16048.77 02/29/96 15918.95 15940.44 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Municipal Income Fund on June 30, 1990, shortly after the fund started. As the chart shows, by February 29, 1996, the value of your investment would have grown to $15,919 - a 59.19% increase on your initial investment. This assumes you still owned the fund on February 29, 1996, and therefore does not include the effect of the $5 account closeout fee on an average sized account. For comparison, look at how the Lehman Brothers Municipal Bond Index did over the same period. With dividends reinvested, the same $10,000 would have grown to $15,940 - a 59.40% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, generally move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS
YEARS ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 29, 1996 1995 1994 1993 1992 1991 Dividend return 2.68% 6.26% 5.54% 6.69% 7.15% 7.90% Capital appreciation return 2.76% 1.93% -6.96% 6.86% 3.77% 4.74% Total return 5.44% 8.19% -1.42% 13.55% 10.92% 12.64%
DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee on an average sized account. DIVIDENDS AND YIELD
PERIODS ENDED FEBRUARY 29, 1996 PAST PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 4.18(cents) 26.84(cents) 55.33(cents) Annualized dividend rate 4.98% 5.18% 5.41% 30-day annualized yield 4.77% - - 30-day annualized tax-equivalent yield 7.45% - -
DIVIDENDS per share show the income paid by the fund for a set period. If you annualize this number, based on an average share price of $10.56 over the past month, $10.40 over the past six months and $10.23 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. The tax-equivalent yield shows what you would have to earn on a taxable investment to equal the fund's tax-free yield, if you're in the 36% federal tax bracket, but does not reflect payment of the federal alternative minimum tax, if applicable. FUND TALK: THE MANAGER'S OVERVIEW An interview with David Murphy, Portfolio Manager of Spartan Municipal Income Fund Q. DAVID, HOW DID THE FUND PERFORM? A. Quite well. For the six- and 12-month periods ended February 29, 1996, the fund had total returns of 5.44% and 11.52%, respectively. For the same periods, the general municipal debt funds average returned 4.99% and 9.87%, as tracked by Lipper Analytical Services. The Lehman Brothers Municipal Bond Index returned 4.87% and 11.05%, for the same six- and 12-month periods. Q. WHAT KIND OF PERIOD WAS IT FOR MUNICIPAL BONDS? A. It was generally a good period for municipal bonds. Interest rates continued to decline, although not to the same extent that they had fallen in the previous six months. Inflation remained low and the economy was growing at a slow but steady pace. In the last month of the period, municipal bonds outperformed Treasuries. Municipals had lagged Treasuries during much of 1995, primarily because of fears that the flat tax proposal could hurt the prices of municipals. Recently, however, investors appear to be less concerned that the more dramatic proposals - those that have the potential to hurt municipal bonds the most - will be enacted. Q. WHAT CONTRIBUTED TO THE FUND'S SUCCESS? A. One of the primary factors was the fund's growing stake in investment-grade bonds, which performed better than non-investment grade bonds during the period. The term "investment-grade" refers to ratings given by Moody's Investors Service, Inc. and other rating agencies of an issuer's ability to pay a bond's principal and interest in a timely fashion. Bonds below the Moody's rating "Baa" are considered speculative, or non-investment grade. Last fall, I began to reduce the fund's holdings in securities rated below investment-grade and replace them with investment-grade securities. In my view, an investor was not rewarded with enough incremental yield for taking on the additional risk of the non-investment grade bonds. Q. DID ANY INDIVIDUAL BONDS HELP PERFORMANCE DURING THE PERIOD? A. The Space Center Houston - whose tax-exempt bonds are issued under the authority of the Harris County Cultural and Educational Facilities - enjoyed a turnaround and the bonds were some of the fund's best performers during the period. The bonds had gone into technical default last year, which meant that for a time they were paying interest out of a debt service reserve fund. In a restructuring move, the issuer offered to exchange its existing holdings for cash or new securities, a transaction known as a tender offer. This tender successfully lowered the Center's debt costs, which in turn led to price appreciation for the new bonds. Q. THROUGHOUT THE PERIOD, THERE WAS AN INCREASE IN THE FUND'S INVESTMENTS IN GENERAL OBLIGATION BONDS (GOS). WHAT MADE THEM ATTRACTIVE? A. GOs are backed by the full faith and credit (which includes the taxing and further borrowing power) of a municipality or state. GOs in general have benefited from the improving economy as tax revenues have risen. For example, I bought bonds issued by the state of California, which is enjoying an economic turnaround that I believed could soon be reflected in the state's fiscal health. I focused on buying bonds issued by the state because that's where the effects of an improving economy will be noticeable first. State revenues, including income taxes, tend to be more economically sensitive than local revenues, such as property taxes. The fund's California bonds performed well during the past six months. I also increased the fund's stake in New York City bonds, which are attractive partly because of their relatively high yields. Even though the city is not really experiencing a strong economic recovery, it has been able to successfully manage its budget to yield a surplus for many years. In light of that factor and other fiscal safeguards, I view New York City as a stable situation. Q. ON THE OTHER HAND, THE FUND'S INVESTMENTS IN HEALTH CARE BONDS DECLINED DURING THE PERIOD. WHAT PROMPTED THAT MOVE? A. I sold some of our health care bonds at attractive prices. In addition, one of the fund's holdings - HealthOne, a Denver-based hospital - recently was acquired by the corporate healthcare chain Columbia/HCA. Most of our HealthOne holdings were bought by Columbia at a substantial gain for the fund. Q. WHEN SELECTING INVESTMENTS FOR THE FUND, DID YOU CONCENTRATE ON ANY PARTICULAR MATURITY RANGE? A. Yes. I focused on buying bonds with intermediate maturities between five and 15 years. Longer-maturity bonds are generally more sensitive to changing interest rates than intermediate-maturity bonds. But in my opinion, the incremental yield that 20- to 30-year bonds offered during the period wasn't enough to compensate for their additional interest rate risk. Q. WHAT'S YOUR OUTLOOK? A. There are several developments I'll be watching in 1996. One is the political scene. While tax reform fears seem to have abated at this juncture, the issue could re-emerge as the presidential campaign continues. Another is the supply of municipal bonds. I anticipate that new-issue supply will be more or less equal to last year's new-issue supply, although the total outstanding amount of municipal bonds available should decline as issuers redeem bonds or as the bonds mature. That decline in supply could provide some support for the municipal market this year. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: to provide high current income exempt from federal income taxes START DATE: June 4, 1990 SIZE: as of February 29, 1996, more than $578 million MANAGER: David Murphy, since October 1, 1995; manager, Fidelity High Yield Tax-Free Fund, since October, 1995; Fidelity Limited Term Municipal Income Fund, since 1989; Fidelity Advisor Intermediate Municipal Income Fund, since March 1995; Spartan Intermediate Municipal Income and Spartan New York Intermediate Municipal Income funds, 1993 to 1995; Spartan Short-Intermediate Municipal Income Fund, 1989 to 1995; joined Fidelity in 1989 (checkmark) DAVID MURPHY ON HIS INVESTMENT STYLE: "I describe myself as a total return investor. That means I focus both on income and the effects of price changes of bonds in the portfolio. Income is, of course, extremely important both as a component of total return and for its tax advantages to municipal bond investors. I only go after bonds whose return justifies the risks taken. My goal is to provide returns that are higher than the overall market. "In determining the risks and rewards available in the market, I use the Lehman Brothers Municipal Bond Index as a proxy for the overall market. I believe this index is the best available benchmark for managing a national municipal bond fund." INVESTMENT CHANGES TOP FIVE STATES AS OF FEBRUARY 29, 1996 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO New York 12.4 9.7 Texas 11.2 4.1 California 10.9 6.2 Florida 6.1 3.6 Washington 5.3 8.8 TOP FIVE SECTORS AS OF FEBRUARY 29, 1996 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO General Obligation 34.1 22.8 Electric Revenue 11.0 18.6 Industrial Development 8.3 9.2 Water and Sewer 7.8 6.6 Special Tax 7.2 4.1 AVERAGE YEARS TO MATURITY AS OF FEBRUARY 29, 1996 6 MONTHS AGO Years 13.3 14.6 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF FEBRUARY 29, 1996 6 MONTHS AGO Years 7.6 7.7 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. QUALITY DIVERSIFICATION (MOODY'S RATINGS) AS OF FEBRUARY 29, 1996 AS OF AUGUST 31, 1995 Row: 1, Col: 1, Value: 6.4 Row: 1, Col: 2, Value: 3.4 Row: 1, Col: 3, Value: 0.0 Row: 1, Col: 4, Value: 15.6 Row: 1, Col: 5, Value: 74.59999999999999 Row: 1, Col: 1, Value: 5.3 Row: 1, Col: 2, Value: 10.7 Row: 1, Col: 3, Value: 1.8 Row: 1, Col: 4, Value: 17.0 Row: 1, Col: 5, Value: 65.2 Aaa, Aa, A 74.6% Baa 15.6% Ba, B 0.0% Non-rated 3.4% Short-term investments 6.4% Aaa, Aa, A 66.2% Baa 17.0% Ba, B 0.8% Non-rated 10.7% Short-term investments 5.3% SHOWN AS A PERCENTAGE OF THE FUND'S INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE EQUIVALENT TO BA AND BELOW ACCOUNTED FOR 1.9% AND 9.3% OF THE FUND'S INVESTMENTS ON FEBRUARY 29, 1996, AND AUGUST 31, 1995, RESPECTIVELY. INVESTMENTS FEBRUARY 29, 1996 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities MUNICIPAL BONDS - 93.6% MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) ALABAMA - 0.6% Alabama State Gen. Oblig. Rfdg. 6% 3/1/00 Aaa $ 3,420,000 $ 3,638,025 ALASKA - 1.1% Alaska Student Loan Corp. Student Loan Rev. Series A (c): 7.30% 7/1/00, (AMBAC Insured) Aaa 1,100,000 1,192,125 5.90% 7/1/03, (AMBAC Insured) Aaa 1,070,000 1,099,425 North Slope Borough Gen. Oblig. (Cap. Appreciation): Series A, 0% 6/30/99, (MBIA Insured) Aaa 3,500,000 3,031,875 Series B, 0% 6/30/05, (Cap. Guaranty Insured) Aaa 2,500,000 1,578,125 6,901,550 ARIZONA - 2.6% Arizona State Univ. Rev. Rfdg. Sys. 6% 7/1/07 A1 1,250,000 1,370,313 Chandler: 7.375% 7/1/09, (FGIC Insured) Aaa 1,000,000 1,220,000 4.375% 7/1/12, (FGIC Insured) Aaa 1,000,000 871,250 Maricopa County Series C, 8.90% 7/1/99 A 3,950,000 4,522,750 Pima County Unified School Dist. Tucson Proj. of 1989 Series G, 8% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,465,000 Tucson Ltd. Tax Rfdg. 7.50% 7/1/01 A1 2,525,000 2,900,594 Tucson Wtr. Rev. Series D: 9.75% 7/1/07 A1 500,000 701,875 9.75% 7/1/08 A1 500,000 712,500 9.75% 7/1/09 A1 750,000 1,081,875 15,846,157 ARKANSAS - 0.3% Arkansas State College Savings (Cap. Appreciation) Series A: 0% 6/1/03 Aa 1,280,000 897,600 0% 6/1/04 Aa 1,110,000 733,988 1,631,588 CALIFORNIA - 10.9% California Gen. Oblig.: 6.50% 3/1/02, (AMBAC Insured) Aaa 2,525,000 2,790,125 6.75% 5/1/03 A1 1,000,000 1,130,000 6.60% 2/1/10 A1 5,205,000 5,927,194 5.25% 10/1/16 A1 3,200,000 3,064,000 5.25% 10/1/17 A1 3,500,000 3,325,000 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) CALIFORNIA - CONTINUED California Hsg. Fin. Agcy. Rev. (Home Mtg.): Series 1983 A, 0% 2/1/15 Aa $ 187,000 $ 29,116 Series A, 5.30% 8/1/14, (MBIA Insured)(b) Aaa 1,000,000 985,000 California Pub. Wks. Board Lease Rev.: (California University Proj.) Series A, 5.50% 6/1/14 A1 5,500,000 5,390,000 (Secretary of State) Series A, 6% 5/1/13 A1 3,500,000 3,552,500 (Various California State Univ. Projs.) Series B: 5.55% 6/6/10 A1 1,500,000 1,526,250 6% 10/1/14 A 1,000,000 1,016,250 California Rural Home Mtg. Fin. Auth. Lease Rev. Series A, 4.45% 8/1/01, (MBIA Insured) Aaa 1,000,000 993,750 Contra Costa Trans. Auth. Sales Tax Rev. Series A, 6% 3/1/07, (FGIC Insured) (b) Aaa 3,500,000 3,819,375 East Bay Mun. Util. Dist. Wtr. Sys. Rev. Rfdg. 6.10% 6/1/07 A1 1,250,000 1,346,875 Industry Urban Ind. Dev. Agcy. Rev. (Civic Recreational Proj. #1-B) 7.375% 5/1/15 - 1,140,000 1,194,150 Long Beach Harbor Rev. (c): 9% 5/15/02, (MBIA Insured) Aaa 1,275,000 1,568,250 8.50% 5/15/03, (MBIA Insured) Aaa 1,235,000 1,512,875 Sacramento Pwr. Auth. (Cogeneration Proj.) 5.875% 7/1/15 BBB- 1,600,000 1,550,000 San Francisco City & County Swr. Rev. Rfdg. 5.90% 10/1/08, (AMBAC Insured) Aaa 5,000,000 5,306,250 San Joaquin County Ctfs. of Prtn. (Cap. Facs. Proj.) 4.90% 11/15/08, (MBIA Insured) Aaa 4,000,000 3,920,000 South Orange County Pub. Fing. Auth. Spl. Tax Rev. (Foothill Area) Series C, 7.50% 8/15/07, (FGIC Insured) Aaa 2,500,000 3,037,500 University of California Rev. Rfdg. (Multiple Purp. Projs.) Series C, 5.125% 9/1/13, (AMBAC Insured) Aaa 1,800,000 1,723,500 West & Central Basin Fin. Auth. Series C (e): 5.20% 8/1/07, (AMBAC Insured) Aaa 5,800,000 5,901,500 5.25% 8/1/08, (AMBAC Insured) Aaa 6,100,000 6,183,875 66,793,335 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) COLORADO - 2.9% Adams County Single Family Mtg. Rev. Rfdg. Series A-2, 8.70% 6/1/12, (FSA Insured) Aaa $ 100,000 $ 109,125 Colorado Health Facs. Auth. Rev. (Rocky Mountain Adventist) 6.625% 2/1/13 Baa 7,500,000 7,687,500 Denver City & County Arpt. Rev. (c): Series A: 6.60% 11/15/97 Baa 1,000,000 1,028,750 6.90% 11/15/98 Baa 1,000,000 1,048,750 (Cap. Appreciation): 0% 11/15/02, (MBIA Insured) Aaa 4,900,000 3,534,125 0% 11/15/05, (MBIA Insured) Aaa 3,000,000 1,826,250 Series D, 7% 11/15/25 Baa 2,500,000 2,768,750 18,003,250 CONNECTICUT - 1.4% Connecticut Gen. Oblig. Series A, 7% 3/15/03 Aa 3,000,000 3,438,750 Connecticut Health & Ed. Facs. Auth. Rev. (St. Raphael Hosp.) 5.30% 7/1/10, (AMBAC Insured) Aaa 2,990,000 3,016,163 Connecticut Spl. Tax Oblig. Rev. Rfdg. (Trans. Infrastructure) Series A, 5.25% 9/1/07, (MBIA Insured) Aaa 1,750,000 1,813,438 8,268,351 DISTRICT OF COLUMBIA - 1.8% District of Columbia Hosp. Rev. (Hosp. for Sick Children) Series A, 8.875% 1/1/21 - 3,395,000 3,662,356 District of Columbia Redev. Land Agcy. Spl. Tax Rev. (Washington D.C. Sports Arena): 4.50% 11/1/96 Baa 1,700,000 1,700,459 5.40% 11/1/00 Baa 1,000,000 1,002,500 5.625% 11/1/10 Baa 1,250,000 1,217,188 Metropolitan Washington Arpt. Auth. Gen. Arpt. Rev. Series A, 7.25% 10/1/10, (FGIC Insured) (c) Aaa 3,000,000 3,333,750 10,916,253 FLORIDA - 5.5% Broward County Resource Recovery Rev. (SES Broward Co. LP South Proj.) 7.95% 12/1/08 A 3,335,000 3,706,019 Florida Board of Ed. Cap. Outlay (Pub. Ed.) Series C, 5.40% 6/1/10, (MBIA Insured) Aaa 2,300,000 2,317,250 Florida Muni. Pwr. Agcy. Rev. Rfdg. (Stanton II Proj.) 4.50% 10/1/16, (AMBAC Insured) Aaa 3,000,000 2,628,750 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) FLORIDA - CONTINUED Jacksonville Port Auth. Rev. (b)(c): 5.75% 11/1/09, (MBIA Insured) Aaa $ 1,000,000 $ 1,022,500 5.625% 11/1/12, (MBIA Insured) Aaa 2,155,000 2,114,594 5.625% 11/1/18, (MBIA Insured) Aaa 3,000,000 2,906,250 Lakeland Elec. & Wtr. Rev. Rfdg. Jr. Sub. Lien (b): 6.50% 10/1/04, (FGIC Insured) Aaa 13,755,000 15,250,856 6.50% 10/1/06, (FGIC Insured) Aaa 1,000,000 1,111,250 6.50% 10/1/09, (FGIC Insured) Aaa 2,500,000 2,768,750 33,826,219 GEORGIA - 3.4% Fulton County School Dist. Rfdg. 6.375% 5/1/14 Aa 2,000,000 2,230,000 Fulton Wtr. & Swr. 6.25% 1/1/08, (FGIC Insured) Aaa 2,100,000 2,336,250 Georgia Gen. Oblig.: Series B, 7.20% 3/1/06 Aaa 5,000,000 6,018,750 Series C, 7.70% 4/1/96 Aaa 1,500,000 1,505,460 Series D, 6.50% 8/1/02 Aaa 2,000,000 2,242,500 Series E, 6.75% 12/1/01 Aaa 3,585,000 4,046,569 Georgia Residential Fin. Auth. Home Ownership Mtg. (Cap. Appreciation) Series 1984 B, 0% 12/1/15 Aa 22,505,000 2,646,138 21,025,667 HAWAII - 0.3% Hawaii Arpts. Sys. Rev. 2nd Series, 7.50% 7/1/20, (FGIC Insured) (c) Aaa 1,500,000 1,674,375 IDAHO - 0.6% Idaho Falls Elec. Rfdg. 0% 4/1/07, (FGIC Insured) Aaa 2,500,000 1,459,375 Idaho Hsg. Agcy. Single Family Mtg. Series 1991 B, 7.50% 7/1/24 (c) AA 2,240,000 2,340,800 3,800,175 ILLINOIS - 3.9% Chicago Gen. Oblig. Rfdg. Series B, 5.125% 1/1/15, (AMBAC Insured) Aaa 2,250,000 2,171,250 Chicago O'Hare Int'l. Arpt.: Rev. Rfdg.: 2nd Lien (Gen. Arpt. Projs.) Series A, 6.375% 1/1/15, (MBIA Insured) Aaa 1,500,000 1,586,250 Sr. Lien Series A, 5% 1/1/12 A1 4,500,000 4,314,375 Spl. Facs. Rev. (United Airlines, Inc.) 8.25% 5/1/99 (c) Baa3 3,650,000 3,964,813 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) ILLINOIS - CONTINUED Chicago Park Dist. Rfdg. (b): 5.50% 1/1/99, (FGIC Insured) Aaa $ 1,000,000 $ 1,036,250 5.50% 1/1/00, (FGIC Insured) Aaa 500,000 520,625 6.25% 1/1/09, (FGIC Insured) Aaa 750,000 818,438 Chicago Residential Mtg. Rev. Rfdg. (Cap. Appreciation) Series B, 0% 10/1/09, (MBIA Insured) Aaa 8,530,000 3,348,025 Chicago Single Family Mtg. Rev. (Cap. Appreciation) Series A, 0% 12/1/16, (FGIC Insured) Aaa 13,450,000 1,832,563 DeKalb Single Family Mtg. Rev. 7.45% 12/1/09, (GNMA Coll.) (c) Aaa 1,780,000 1,889,025 Metropolitan Pier & Exposition Auth. Dedicated Tax Rev. 0% 6/15/00, (AMBAC Insured) Aaa 2,700,000 2,224,125 23,705,739 INDIANA - 0.2% Indianapolis Resource Recovery Rev. Rfdg. (Ogden Martin Sys. Inc. Proj.) 6.75% 12/1/06, (AMBAC Insured) (b) Aaa 1,000,000 1,121,250 IOWA - 0.1% Iowa Fin. Auth. Rev. (Iowa State Revolving Fund) 4.95% 5/1/07 A 750,000 757,500 KANSAS - 0.9% Johnson County Unified School Dist. #512 (Shawnee Mission): 8% 10/1/03 Aa1 1,015,000 1,247,181 8% 10/1/04 Aa1 1,225,000 1,526,656 8% 10/1/05 Aa1 1,250,000 1,575,000 Reno County Mtg. Rev. Rfdg. (Single Family) Series B, 8.70% 9/1/11 Aa 810,000 872,775 5,221,612 KENTUCKY - 1.1% Kentucky Tpk. Auth. Toll Rd. Rev. Series A, 8.50% 7/1/96 (Pre-Refunded to 7/1/96 @ 102) (d) Aaa 5,000,000 5,183,550 Owensboro Elec. Lt. & Pwr. Rev. Series B, 0% 1/1/10, (AMBAC Insured) Aaa 4,000,000 1,870,000 7,053,550 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) LOUISIANA - 1.4% Louisiana Gen. Oblig. Series A, 6.75% 5/15/04, (MBIA Insured) Aaa $ 7,865,000 $ 8,995,594 MARYLAND - 1.6% Baltimore Pub. Impt. 7.25% 10/15/05, (FGIC Insured) Aaa 3,100,000 3,704,500 Maryland Health & Higher Ed. Facs. Auth. Rev. Rfdg. (Doctors Commty. Hosp.): 5.75% 7/1/13 Baa 2,000,000 1,847,500 5.50% 7/1/24 Baa 1,500,000 1,291,875 Montgomery County (Construction & Pub. Impt.) Series B, 6.80% 11/1/06 (Pre-Refunded to 11/1/99 @ 102) (d) Aaa 2,660,000 2,945,950 9,789,825 MASSACHUSETTS - 5.3% Massachusetts Bay Trans. Auth. Rfdg. (Gen. Trans. Sys.) Series A, 5.50% 3/1/12 A1 5,000,000 5,056,250 Massachusetts Edl. Loan Auth. (Edl. Loan Rev.) Issue E, Series B (c): 5.75% 7/1/05, (AMBAC Insured) Aaa 3,090,000 3,229,050 5.85% 7/1/06, (AMBAC Insured) Aaa 3,680,000 3,859,400 5.95% 7/1/09, (AMBAC Insured) Aaa 3,980,000 4,174,025 Massachusetts Gen. Oblig.: Rfdg. Series A, 6.25% 7/1/03 A1 1,600,000 1,760,000 Consolidated Loan Series A, 6% 6/1/11 A1 1,400,000 1,442,000 Massachusetts Ind. Fin. Agcy. Rev. (Reeds Landing Proj.) 8.625% 10/1/23 - 1,445,000 1,524,475 Massachusetts Wtr. Poll. Abatement Trust Rev. (Massachusetts Wtr. Resource Auth. Loan Prog.) Series A, 5.45% 2/1/13 Aa 5,825,000 5,781,313 New England Edl. Loan Marketing Corp. Rev. Rfdg. (Student Loan): Series A, 5.70% 7/1/05 (c) A1 4,375,000 4,457,031 Series B, 5.40% 6/1/00 A1 1,000,000 1,031,250 32,314,794 MICHIGAN - 0.2% Michigan Hosp. Fin. Auth. Rev. Rfdg. (Pontiac Osteopathic Hosp.) Series A, 6% 2/1/14 Baa1 1,500,000 1,381,875 MINNESOTA - 0.4% Minneapolis Rfdg. (Sports Arena Proj.) (Cap. Appreciation) Series B, 0% 12/1/03 Aaa 1,175,000 815,156 Northern Minnesota Muni. Pwr. Agcy. Elec. Sys. Rev. Rfdg. Series A, 7.25% 1/1/16 A 1,700,000 1,814,750 2,629,906 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) MISSISSIPPI - 0.3% Mississippi Hosp. Equip. & Facs. Auth. Rev. (Rush Med. Foundation Proj.) Series A, 8.75% 1/1/16 Baa $ 1,500,000 $ 1,650,000 MISSOURI - 0.4% Missouri Reg'l. Convention & Sports Complex Auth. Rfdg. (Convention & Sports Proj.) Series A, 5.50% 8/15/13 A1 2,000,000 1,935,000 St. Louis Regional Convention & Sports Complex Auth. Series C, 7.75% 8/15/01 - 770,000 814,275 2,749,275 MONTANA - 1.6% Montana Board of Investment Payroll Tax (Workers Compensation): 6.875% 6/1/20, (MBIA Insured) (Escrowed to Maturity) (d) Aaa 2,005,000 2,273,169 6.875% 6/1/20, (MBIA Insured) Aaa 5,125,000 5,611,875 Montana Coal Severance Tax Rfdg. (Broadwater Pwr. Proj.) Series A, 6.875% 12/1/11 (c) A1 2,000,000 2,122,500 10,007,544 NEBRASKA - 0.9% Omaha Pub. Pwr. Dist. Elec. Rev. Series C, 5.50% 2/1/14 Aa 5,650,000 5,699,438 NEW JERSEY - 1.1% Camden County Impt. Auth. Lease Rev. (Dockside Refrigerated Holt) 8.40% 4/1/24 (c) - 3,000,000 3,063,750 New Jersey State Trans. Trust Fund Auth. Rfdg. Series B, 6.50% 6/15/10, (MBIA Insured) Aaa 3,000,000 3,401,250 6,465,000 NEW MEXICO - 1.0% Albuquerque Arpt. Rev. Series A, 6.60% 7/1/16, (AMBAC Insured) (c) Aaa 2,375,000 2,565,000 Hobbs Single Family Mtg. Rev. Rfdg. 8.75% 7/1/11 A 1,605,000 1,733,400 New Mexico Edl. Assistance Foundation Student Loan Rev. Series B, 5.25% 4/1/05, (AMBAC Insured) (c) Aaa 1,600,000 1,598,000 5,896,400 NEW YORK - 12.4% Metropolitan Trans. Auth Svc. Contract Rfdg. (Trans. Facs.) Series O, 5.75% 7/1/08 Baa1 3,840,000 3,892,800 New York City Gen. Oblig.: Series A, 7.75% 8/15/07 Baa1 4,000,000 4,525,000 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) NEW YORK - CONTINUED New York City Gen. Oblig.: - continued Series B: 5.70% 8/15/02 Baa1 $ 2,000,000 $ 2,035,000 7.50% 2/1/04 Baa1 1,500,000 1,657,500 Series E, 5.40% 2/15/03 Baa1 2,285,000 2,273,575 Series G: 5.40% 2/1/01 Baa1 3,000,000 3,015,000 5.60% 2/1/02 Baa1 1,875,000 1,896,094 7.50% 2/1/03 Baa1 5,000,000 5,550,000 New York City Ind. Dev. Agcy. Spl. Facs. Rev. (Terminal One Group Assoc. Proj.) (c): 6% 1/1/19 A 5,000,000 5,012,500 6.125% 1/1/24 A 1,000,000 1,007,500 New York City Muni. Wtr. Fin. Auth. Wtr. & Swr. Sys. Rev., Series C, 6.50% 6/15/21, (AMBAC Insured) Aaa 2,460,000 2,555,325 New York State Dorm. Auth. Rev.: Rfdg. (State Univ. Edl. Facs.) Series A: 5.50% 5/15/09 Baa1 4,000,000 3,940,000 5.50% 5/15/13 Baa1 13,100,000 12,657,875 5.875% 5/15/17 Baa1 5,890,000 5,897,363 (Suffolk County Judicial Facs.) Series A, 9.50% 4/15/14 Baa1 7,000,000 8,157,170 New York State Local Gov't. Assistance Corp. Rfdg.: Series B, 6% 4/1/18 A 1,500,000 1,535,625 Series C, 5.50% 4/1/17 A 5,000,000 4,912,500 Series E, 5.25% 4/1/16 A 4,075,000 3,886,531 Triborough Bridge & Tunnel Auth. Rev. (Gen. Purp.) Series X, 6% 1/1/14 Aa 1,575,000 1,624,219 76,031,577 NORTH CAROLINA - 1.1% North Carolina Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev. Rfdg. Series C, 7% 1/1/07 A 2,000,000 2,212,500 North Carolina Muni. Pwr. Agcy. #1 Catawba Elec. Rev. 5.25% 1/1/09, (MBIA Insured) Aaa 4,655,000 4,719,006 6,931,506 NORTH DAKOTA - 1.2% Mercer County Poll. Cont. Rev. Rfdg. (Basin Electric Pwr.): (Antelope Valley Station Proj.) 7.20% 6/30/13, (AMBAC Insured) Aaa 5,000,000 6,050,000 2nd Series, 6.05% 1/1/19, (AMBAC Insured) Aaa 1,000,000 1,031,250 7,081,250 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) OHIO - 2.4% Bedford Hosp. Impt. Rev. Rfdg. (Bedford Commty. Hosp.) Series 1990, 8.50% 5/15/09, (Escrowed to Maturity) (d) - $ 1,020,000 $ 1,173,000 Euclid City School Dist. (Cap. Appreciation): 0% 12/1/02, (AMBAC Insured) Aaa 1,265,000 934,519 0% 12/1/03, (AMBAC Insured) Aaa 1,265,000 885,500 Ohio Hsg. Fin. Agcy. Mtg. Rev. (Oakleaf-Toledo Apts. Proj.) 10.25% 12/20/25, (GNMA Coll.)Aaa 1,585,000 1,826,713 Ohio State Bldg. Auth.: (Adult Correctional Facs.) Series A, 5.95% 10/1/14, (MBIA Insured) Aaa 4,000,000 4,140,000 (Workers Compensation Bldg. A) 4.75% 4/1/14 A 5,000,000 4,587,500 Ohio Wtr. Dev. Auth. Rev. Rfdg. (Impt. Pure Wtr.) 5.75% 6/1/06, (MBIA Insured) Aaa 1,000,000 1,053,750 14,600,982 OREGON - 1.5% Port Morrow Poll. Ctr. Rev. (Pacific Northwest) Series A, 8% 7/15/11 AA- 3,420,000 3,950,100 Portland Series B: 7% 6/1/00 Aaa 1,385,000 1,540,813 7% 6/1/01 Aaa 1,480,000 1,674,250 Portland Swr. Sys. Rev. Series A, 6.25% 6/1/15 A1 1,875,000 1,999,219 9,164,382 PENNSYLVANIA - 3.5% Clarion County Hosp. Auth. Hosp. Rev. (Clarion Hosp. Proj.) 8.50% 7/1/21 BBB- 2,500,000 2,750,000 Pennsylvania Intergovernmental Coop Spl. Tax Rev. Rfdg. Series A, 5% 6/15/13 A 3,000,000 2,808,750 Philadelphia Hosp. & Higher Ed. Facs. Auth. Hosp. Rev. (Temple Univ. Hosp.) Series A, 6.50% 11/15/08 Baa1 2,000,000 2,102,500 Philadelphia Wtr. & Wastewtr. Rev. 5.65% 6/15/12, (FGIC Insured) Aaa 12,000,000 12,060,000 Somerset County Pennsylvania Hosp. Auth. Rev. (Health Care 1st Mtg.) 8.50% 6/1/24 - 2,000,000 2,060,000 21,781,250 TENNESSEE - 0.4% Tennessee Gen. Oblig. Series B, 6.10% 6/1/00 Aaa 2,025,000 2,169,281 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) TEXAS - 9.1% Austin Arpt. Sys. Rev. Series A, 6.20% 11/15/15, (MBIA Insured) (c) Aaa $ 3,400,000 $ 3,531,750 Austin Indpt. School Dist. Rfdg. (Cap. Appreciation) 0% 8/1/02, (PSF Guaranteed) Aaa 2,100,000 1,559,250 Austin Util. Sys. Rev. Rfdg. (Cap. Appreciation): Series A, 0% 11/15/08, (MBIA Insured) Aaa 3,895,000 1,991,319 0% 11/15/09, (AMBAC Insured) Aaa 4,000,000 1,915,000 Corpus Christi Indpt. School Dist. Rfdg. (Cap. Appreciation): 0% 8/15/01, (PSF Guaranteed) Aaa 1,535,000 1,201,138 0% 8/15/02, (PSF Guaranteed) Aaa 2,165,000 1,607,513 Cypress-Fairbanks Indpt. School Dist. Unltd. Tax Rfdg. (Cap. Appreciation) 0% 2/1/04, (PSF Guaranteed) Aaa 1,250,000 854,688 Dallas-Fort Worth Int'l. Arpt. Facs. Impt. Corp. Rev. (AMR Corp. Guaranteed) 7.50% 11/1/25 (c) Baa2 7,000,000 7,463,750 Dallas-Fort Worth Reg. Arpt. Rev. Rfdg. Series A, 5.75% 11/1/02, (MBIA Insured) Aaa 1,750,000 1,874,688 Dallas Indpt. School Dist. Rfdg. 0% 8/15/07, (PSF Guaranteed) Aaa 1,000,000 556,250 East Texas Health Facs. Dev. Corp. Hosp. Rev. (Palestine) 7.80% 8/15/18 - 3,000,000 2,647,500 El Paso Prop. Fin. Auth. Single Family Mtg. Rev. Series A, 8.70% 12/1/18, (GNMA Coll.)(c) Aaa 1,275,000 1,375,406 Grapevine-Colleyville Indpt. School Dist. Rfdg. (Cap. Appreciation) 0% 8/15/06 Aaa 2,580,000 1,525,425 Harris County Cultural & Edl. Facs. Fin. Corp. Rev. Rfdg. (Space Ctr. Houston Proj.): Series A, 9.25% 8/15/23 - 940,000 928,250 Series B, 0% 8/15/23 - 2,375,000 644,219 Houston Indpt. School Dist. Rfdg. (Cap. Appreciation) Series A, 0% 8/15/11, (PSF Guaranteed) Aaa 6,400,000 2,768,000 Lower Colorado River Auth. Rev. Rfdg. (Cap. Appreciation) 0% 1/1/09, (MBIA Insured) Aaa 1,000,000 520,000 Lower Neches Valley Ind. Dev. Rev. (Mobil Oil Refining Corp. Proj.) 6.40% 3/1/30 (c) Aa2 8,785,000 9,125,419 Midlothian Indpt. School Dist. Rfdg. (Cap. Appreciation): 0% 2/15/07, (PSF Guaranteed) Aaa 1,935,000 1,110,206 0% 2/15/08, (PSF Guaranteed) Aaa 1,520,000 818,900 0% 2/15/10, (PSF Guaranteed) Aaa 1,525,000 726,281 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) TEXAS - CONTINUED San Antonio Elec. & Gas Rev. Rfdg. Series B, 0% 2/1/09, (FGIC Insured) Aaa $ 2,000,000 $ 1,000,000 Spring Branch Indpt. School Dist. Rfdg. (Cap. Appreciation) 0% 2/1/05, (PSF Guaranteed) (b) Aaa 5,725,000 3,706,938 Spring Indpt. School Dist. 4.875% 8/15/10, (PSF Guaranteed) Aaa 2,500,000 2,393,750 Texas A&M Univ. Permanent Univ. Fund 5.50% 7/1/04 (b) Aaa 1,275,000 1,332,375 Univ. of Texas Univ. Rev. Rfdg. (Fing. Sys.) Series A: 6% 8/15/04 Aa1 1,170,000 1,285,538 6% 8/15/05 Aa1 1,000,000 1,100,000 Winters Wtrwks. & Swr. Sys. Rev. Rfdg. 8.50% 8/1/17, (Pre-Refunded to 8/1/03 @ 100) (d) - 500,000 619,375 56,182,928 UTAH - 3.2% Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev. Rfdg. Series B, 5.55% 7/1/11 Aa 10,000,000 9,987,500 Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev. Rfdg. Series B (b): 6.50% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,235,000 6.50% 7/1/05, (MBIA Insured) Aaa 4,000,000 4,475,000 6.50% 7/1/10, (MBIA Insured) Aaa 1,500,000 1,687,500 Utah Hsg. Fin. Agcy.: (Residential Mtg.) (Cap. Appreciation) Series 1983 A, 0% 7/1/16 A+ 4,035,042 509,424 (Single Family Mtg.) Series G, 9.25% 7/1/19, (FHA Guaranteed) (c) Aaa 810,000 875,813 19,770,237 VERMONT - 0.7% Vermont Hsg. Fin. Agcy. Single Family Series 2, 7.30% 5/1/25 (c) A1 1,500,000 1,556,250 Vermont Ind. Dev. Auth. Ind. Dev. Rev. (Radisson Hotel) Series B-1, 7.75% 11/15/15 - 2,350,000 2,582,063 4,138,313 VIRGINIA - 1.0% Richmond Rfdg. Series B, 5.50% 1/15/05, (FGIC Insured) Aaa 1,600,000 1,688,000 Virginia Hsg. Dev. Auth. Residential Mtg. (Single Family Mtg.) (Cap. Appreciation) Series 1983 B, 0% 9/1/14 Aaa 2,430,000 364,500 Virginia State Pub. Facs. Gen. Oblig. 6% 6/1/03 Aaa 4,000,000 4,390,000 6,442,500 MUNICIPAL BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) WASHINGTON - 5.3% Douglas County Pub. Util. Dist. #1 Wells Hydroelec. Rev. Rfdg. (Pacific Pwr. & Lt. Co.) 8.75% 9/1/18 A $ 1,395,000 $ 1,780,369 Washington Gen. Oblig. Series 96 A, 6.75% 7/1/02 Aa 3,560,000 4,018,350 Washington Motor Vehicle Fuel Tax Gen. Oblig. Series B, 6.50% 9/1/03 Aa 5,000,000 5,631,250 Washington Pub. Pwr. Supply Sys. Rev. Nuclear Proj. #2: Rfdg. Series C, 0% 7/1/05, (MBIA Insured) Aaa 11,000,000 6,875,000 5.40% 7/1/12 Aa 10,000,000 9,650,000 Nuclear Proj. #3 5.40% 7/1/12 Aa 5,000,000 4,750,000 32,704,969 TOTAL MUNICIPAL BONDS (Cost $559,567,396) 574,763,422 MUNICIPAL NOTES (E) - 6.4% ALABAMA - 0.2% Phenix City Ind. Dev. Board Envir. Impt. (Mead Coated Board Proj.) 3.55%, LOC Toronto Dominion Bank, VRDN (c) A-1+ 1,300,000 1,300,000 ARIZONA - 0.3% Coconino County Poll. Cont. Corp. Rev. (Arizona Pub. Svc. Co. Navajo Proj.) Series A, 3.60%, LOC Bank of America Nat'l. Trust & Savings, VRDN P-1 2,200,000 2,200,000 COLORADO - 0.7% Colorado Gen. Oblig. TRAN 4.50%, 6/27/96 SP-1+ 4,300,000 4,314,953 DELAWARE - 0.2% Delaware Econ. Dev. Auth. (Delmarva Pwr. & Light Proj.) Series 1994, 3.60%, VRDN (c) VMIG 1 1,000,000 1,000,000 FLORIDA - 0.6% Sunshine St. Gov't. Fin. Comm. Rev. Series B, LOC Union Bank of Switzerland 3.70% 4/4/96 CP A-1+ 4,000,000 4,001,800 KENTUCKY - 0.6% Daviess County Solid Wst. Disp. Facs. Rev. (Scott Paper Co.) Series 1993-B, 3.60%, LOC ABN AMRO Bank, VRDN (c) VMIG 1 3,600,000 3,600,000 MUNICIPAL NOTES (E) - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (A) AMOUNT (NOTE 1) LOUISIANA - 0.2% Plaquemines Parish Environmental Rev. (BP Expl. & Oil, Inc. Proj.) Series 1994, 3.60%, VRDN (c) P-1 $ 1,400,000 $ 1,400,000 MISSOURI - 0.7% Missouri Higher Ed. Loan Auth. Student Loan Rev. Series B, 3.20%, LOC Nat'l Westminster Bank, VRDN (c) VMIG 1 4,000,000 4,000,000 SOUTH CAROLINA - 0.4% South Carolina Jobs Econ. Dev. Auth. (Wellman, Inc. Proj.) Series 1992, 3.50%, LOC Wachovia Bank & Trust NA, VRDN (c) - 2,200,000 2,200,000 TEXAS - 2.1% Brazos River Auth. Poll. Cont. Rev. Rfdg. (Texas Utils. Elec. Co. Proj.) (c): Series 1995-A, 3.55%, LOC Morgan Guaranty Trust Co., VRDN VMIG 1 1,500,000 1,500,000 Series 1995-C, 3.55%, LOC Swiss Bank, VRDN VMIG 1 3,800,000 3,800,000 Brazos River Hbr. Navigation Dist. of Brazoria (Dow Chemical Co. Proj.) Series 1993, 3.60%, VRDN (c) P-1 600,000 600,000 Gulf Coast Waste Disp. Auth. Poll. Cont. Rev. (AMOCO Oil Co. Proj.) 3.55%, VRDN (c) A-1+ 300,000 300,000 Harris County Ind. Dev. Corp. Poll. Cont. Rev. (Exxon Proj.) Series 1987, 3.55%, VRDN(c) A-1+ 1,900,000 1,900,000 Texas Gen. Oblig. TRAN Series 1995 A, 4.75% 8/30/96 MIG 1 1,000,000 1,007,310 Texas Pub. Fin. Auth. Series 1993-A, 3.60% 4/4/96 CP P-1 4,000,000 4,001,440 13,108,750 WEST VIRGINIA - 0.4% West Virginia Pub. Energy Auth. Rev. (Morgantown Energy Assoc. Proj. A) 3.40%, LOC Swiss Bank, VRDN (c) A-1+ 2,500,000 2,500,250 TOTAL MUNICIPAL NOTES (Cost $39,625,764) 39,625,753 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $599,193,160) $ 614,389,175 SECURITY TYPE ABBREVIATIONS CP - Commercial Paper TRAN - Tax and Revenue Anticipation Notes VRDN - Variable Rate Demand Notes LEGEND 1. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 2. Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). 3. Private activity obligations whose interest is subject to the federal alternative minimum tax for individuals. 4. Security collateralized by an amount sufficient to pay interest and principal. 5. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 72.9% AAA, AA, A 73.0% Baa 14.9% BBB 11.5% Ba 0.0% BB 1.9% B 0.0% B 0.2% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% The percentage not rated by either S&P or Moody's amounted to 3.4%. The distribution of municipal securities by revenue source, as a percentage of total value of investment in securities, is as follows: General Obligation 34.1% Electric Revenue 11.0 Industrial Development 8.3 Water and Sewer 7.8 Special Tax 7.2 Transportation 7.0 Other 5.7 Health Care 5.1 Others (individually less than 5%) 13.8 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $599,193,160. Net unrealized appreciation aggregated $15,196,015, of which $18,259,095 related to appreciated investment securities and $3,063,080 related to depreciated investment securities. At August 31, 1995, the fund had a capital loss carryforward of approximately $2,188,000 which will expire on August 31, 2003. The fund intends to elect to defer to its fiscal year ending August 31, 1996 approximately $21,291,000 of losses recognized during the period November 1, 1994 to August 31, 1995. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED) ASSETS Investment in securities, at value (cost $599,193,160) - $ 614,389,175 See accompanying schedule Receivable for investments sold 5,468,035 Interest receivable 7,413,292 TOTAL ASSETS 627,270,502 LIABILITIES Payable to custodian bank $ 42,064 Payable for investments purchased 2,585,700 Regular delivery Delayed delivery 45,321,360 Payable for fund shares redeemed 231,071 Distributions payable 611,060 Accrued management fee 253,751 TOTAL LIABILITIES 49,045,006 NET ASSETS $ 578,225,496 Net Assets consist of: Paid in capital $ 583,190,175 Accumulated undistributed net realized gain (loss) on (20,160,694) investments Net unrealized appreciation (depreciation) on 15,196,015 investments NET ASSETS, for 55,266,970 shares outstanding $ 578,225,496 NET ASSET VALUE, offering price and redemption price per $10.46 share ($578,225,496 (divided by) 55,266,970 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED) INTEREST INCOME $ 16,460,004 EXPENSES Management fee $ 1,582,806 Non-interested Trustees' compensation 1,072 Total expenses before reductions 1,583,878 Expense reductions (59,880) 1,523,998 NET INTEREST INCOME 14,936,006 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 3,700,086 Futures contracts 190,018 3,890,104 Change in net unrealized appreciation (depreciation) on: Investment securities 11,997,230 Futures contracts (108,178) 11,889,052 NET GAIN (LOSS) 15,779,156 NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 30,715,162 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED FEBRUARY AUGUST 31, 29,1996 1995 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 14,936,006 $ 35,085,345 Net interest income Net realized gain (loss) 3,890,104 (23,234,406) Change in net unrealized appreciation (depreciation) 11,889,052 27,681,497 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 30,715,162 39,532,436 FROM OPERATIONS Distributions to shareholders (14,936,006) (35,181,331) From net interest income From net realized gain (112,137) (5,213,637) TOTAL DISTRIBUTIONS (15,048,143) (40,394,968) Share transactions 29,322,815 82,506,178 Net proceeds from sales of shares Reinvestment of distributions 11,070,201 29,999,336 Cost of shares redeemed (51,899,606) (217,831,944) Redemption fees 8,949 69,284 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (11,497,641) (105,257,146) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 4,169,378 (106,119,678) NET ASSETS Beginning of period 574,056,118 680,175,796 End of period $ 578,225,496 $ 574,056,118 OTHER INFORMATION Shares Sold 2,812,912 8,465,664 Issued in reinvestment of distributions 1,062,370 3,070,143 Redeemed (4,983,660) (22,701,405) Net increase (decrease) (1,108,378) (11,165,598)
FINANCIAL HIGHLIGHTS SIX MONTHS YEARS ENDED AUGUST 31, ENDED FEBRUARY 29, 1996 (UNAUDITED) 1995 1994 D 1993 1992 1991
SELECTED PER-SHARE DATA Net asset value, $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 beginning of period Income from .268 .587 .611 .663 .704 .739 Investment Operations Net interest income Net realized .282 .189 (.752) .727 .387 .463 and unrealized gain (loss) Total from .550 .776 (.141) 1.390 1.091 1.202 investment operations Less Distributions (.268) (.587) (.611) (.663) (.704) (.739) From net interest income From net (.002) (.080) (.550) (.070) (.040) - realized gain Total distributions (.270) (.667) (1.161) (.733) (.744) (.739) Redemption fees - .001 .002 .003 .003 .007 added to paid in capital Net asset value, end $ 10.460 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 of period TOTAL RETURN B, C 5.45% 8.20% (1.42) 13.55% 10.93% 12.65% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of $ 578,225 $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930 period (000 omitted) Ratio of expenses to .53% A, .55% .55% .47% .36% .23% average net assets E E E E Ratio of net interest 5.19% A 5.99% 5.76% 6.09% 6.68% 7.24% income to average net assets Portfolio turnover rate 69% A 69% 48% 50% 62% 78%
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D EFFECTIVE SEPTEMBER 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. E 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 (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). NOTES TO FINANCIAL STATEMENTS For the period ended February 29, 1996 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES. Spartan Municipal Income Fund (the fund) (formerly Spartan Municipal Income Portfolio) is a fund of Fidelity Union Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which quotations are not readily available through the pricing service are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INTEREST INCOME. Interest income, which includes amortization of premium and accretion of original issue discount, is accrued as earned. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net interest income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for futures and options transactions and market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net interest income and realized and unrealized gain (loss). Accumulated undistributed net realized gain (loss) on investments may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED REDEMPTION FEES. Shares held in the fund less than 180 days are subject to a redemption fee equal to .50% of the proceeds of the redeemed shares. The fee, which is retained by the fund, is accounted for as an addition to paid in capital. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The market value of the securities purchased or sold on a when-issued or forward commitment basis are identified as such in the fund's schedule of investments. The fund may receive compensation for interest forgone in the purchase of a delayed delivery security. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options contracts to manage its exposure to the bond market and to fluctuations in interest rates. Buying futures, writing puts, and buying calls tend to increase the fund's exposure to the underlying instrument. Selling futures, buying puts, and writing calls tend to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparties do not perform under the contracts' terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $195,279,201 and $196,313,261, respectively. The market value of futures contracts opened and closed during the period amounted to $35,329,423 and $43,908,629, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management & Research Company (FMR) pays all expenses, except the compensation of the non-interested Trustees and certain exceptions such as interest, taxes, brokerage commissions and extraordinary expenses. FMR receives a fee that is computed daily at an annual rate of .55% of the fund's average net assets. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED FMR also bears the cost of providing shareholder services to the fund. To offset the cost of providing these services, FMR or its affiliates collect certain transaction fees from the fund's shareholders which amounted to $3,010 for the period. 5. EXPENSE REDUCTIONS. FMR agreed to reimburse a portion of the fund's expenses. For the period, the reimbursement reduced expenses by $59,880. INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Fred L. Henning, Jr., Vice President David Murphy, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA and UMB Bank, n.a. Kansas City, MO (registered trademark) Corporate Headquarters 82 Devonshire St., Boston, MA 02109 CUSTODIAN UMB Bank, n.a. Kansas City, MO FIDELITY'S TAX-FREE BOND FUNDS Aggressive Municipal California Insured Municipal Income California Municipal Income High Yield Tax-Free Insured Municipal Income Limited Term Municipal Income Massachusetts Municipal Income Michigan Municipal Income Minnesota Municipal Income Municipal Bond New York Insured Municipal Income New York Municipal Income Ohio Municipal Income Spartan Aggressive Municipal (registered trademark) Spartan Arizona Municipal Income Spartan California Intermediate Municipal Spartan California Municipal Income Spartan Connecticut Municipal Income Spartan Florida Municipal Income Spartan Intermediate Municipal Income Spartan Maryland Municipal Income Spartan Municipal Income Spartan New Jersey Municipal Income Spartan New York Intermediate Municipal Spartan New York Municipal Income Spartan Pennsylvania Municipal Income Spartan Short-Intermediate Municipal THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE PART C. OTHER INFORMATION Item 15. Indemnification Article XI, Section 2 of the Declaration of Trust sets forth the reasonable and fair means for determining whether indemnification shall be provided to any past or present Trustee or officer. It states that the Registrant shall indemnify any present or past Trustee or officer to the fullest extent permitted by law against liability and all expenses reasonably incurred by him in connection with any claim, action, suit, or proceeding in which he is involved by virtue of his service as a Trustee, an officer, or both. Additionally, amounts paid or incurred in settlement of such matters are covered by this indemnification. Indemnification will not be provided in certain circumstances, however. These include instances of willful misfeasance, bad faith, gross negligence, and reckless disregard of the duties involved in the conduct of the particular office involved. 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 willful misfeasance, bad faith, gross negligence, and reckless disregard of the obligations and duties under the Distribution Agreement. Pursuant to the agreement by which Fidelity Service Company ("Service") is appointed sub-transfer agent, the Transfer Agent agrees to indemnify Service for its losses, claims, damages, liabilities and expenses to the extent the Transfer Agent is entitled to and receives indemnification from the Registrant 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 resulting from: (1) any claim, demand, action or suit brought by any person other than the Registrant, 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, negligence or reckless disregard of its 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, negligence or reckless disregard of its 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 16. Exhibits (1) Amended and Restated Declaration of Trust, dated September 14, 1995, is incorporated herein by reference to Exhibit (1) of Post-Effective Amendment No. 92. (2) By-laws of the Trust, as amended, are incorporated herein by reference to Exhibit 2(a) of Post-Effective Amendment No. 87. (3) Not applicable. (4) Agreement and Plan of Reorganization between Fidelity Union Street Trust: Spartan Municipal Income Fund and Fidelity School Street Trust: Spartan Bond Strategist is filed herein as Exhibit 1 to the Proxy Statement and Prospectus. (5) Not applicable. (6)(a) Management Contract, dated April 19, 1990, between Spartan Municipal Income Portfolio and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(a) to Post-Effective Amendment No. 89. (b) Management Contract, dated December 13, 1990, between Spartan Ginnie Mae Fund and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(b) to Post-Effective Amendment No. 89. (c) Management Contract, dated March 18, 1993, between Spartan Maryland Municipal Income Fund and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(c) to Post-Effective Amendment No. 89. (d) Management Contract, dated March 18, 1993, between Spartan Aggressive Municipal Fund and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(f) to Post-Effective Amendment No. 84. (e) Management Contract, dated March 18, 1993, between Spartan Intermediate Municipal Fund and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(g) to Post-Effective Amendment No. 84. (f) Management Contract, dated October 18, 1993, between Spartan Short-Intermediate Municipal Fund and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(f) to Post-Effective Amendment No. 89. (g) Management Contract, dated July 14, 1994, between Fidelity Export Fund and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(g) to Post-Effective Amendment No. 89. (h) Sub-Advisory Agreement, dated July 14, 1994, between Fidelity Management & Research Company, Fidelity Management & Research Company (U.K.) Inc., and Fidelity Union Street Trust on behalf of Fidelity Export Fund is incorporated herein by reference to Exhibit 5(h) to Post-Effective Amendment No. 89. (i) Sub-Advisory Agreement, dated July 14, 1994, between Fidelity Management & Research Company, Fidelity Management & Research Company (Far East) Inc., and Fidelity Union Street Trust on behalf of Fidelity Export Fund is incorporated herein by reference to Exhibit 5(i) to Post-Effective Amendment No. 89. (j) Management Contract, dated September 16, 1994, between Spartan Arizona Municipal Income Portfolio and Fidelity Management & Research Company is incorporated herein by reference to Exhibit 5(j) to Post-Effective Amendment No. 89. (7)(a) General Distribution Agreement, dated April 19, 1990, between Fidelity Union Street Trust, on behalf of Spartan Municipal Income Portfolio and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(a) to Post-Effective Amendment No. 89. (b) General Distribution Agreement, dated December 13, 1990, between Fidelity Union Street Trust, on behalf of Spartan Ginnie Mae Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(b) to Post-Effective Amendment No. 84. (c) Amendment, dated May 10, 1994, to the General Distribution Agreement, dated December 13, 1990, between Spartan Ginnie Mae Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(c) to Post-Effective Amendment No. 89. (d) General Distribution Agreement, dated March 18, 1993, between Fidelity Union Street Trust, on behalf of Spartan Maryland Municipal Income Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(d) to Post-Effective Amendment No. 89. (e) General Distribution Agreement, dated March 18, 1993, between Fidelity Union Street Trust, on behalf of Spartan Aggressive Municipal Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(e) to Post-Effective Amendment No. 84. (f) Amendment, dated May 10, 1994, to the General Distribution Agreement, dated March 18, 1993, between Spartan Aggressive Municipal Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(f) to Post-Effective Amendment No. 89. (g) General Distribution Agreement, dated March 18, 1993, between Fidelity Union Street Trust, on behalf of Spartan Intermediate Municipal Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(f) to Post-Effective Amendment No. 84. (h) Amendment, dated May 10, 1994, to the General Distribution Agreement, dated March 18, 1993, between Fidelity Union Street Trust, on behalf of Spartan Intermediate Municipal Fund and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(h) to Post-Effective Amendment No. 89. (i) General Distribution Agreement, dated July 14, 1994, between Fidelity Union Street Trust, on behalf of Fidelity Export Fund, and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(i) to Post-Effective Amendment No. 92. (j) General Distribution Agreement, dated September 16, 1994, between Fidelity Union Street Trust, on behalf of Spartan Arizona Municipal Income Portfolio, and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(j) to Post-Effective Amendment No. 91. (k) General Distribution Agreement, dated October 18, 1993, between Fidelity Union Street Trust, on behalf of Spartan Short-Intermediate Municipal Fund, and Fidelity Distributors Corporation is incorporated herein by reference to Exhibit 6(k) to Post-Effective Amendment No. 92. (8)(a) Retirement Plan for Non-Interested Person Trustees, Directors, or General Partners is incorporated herein by reference to Exhibit 7 of Post Effective Amendment No. 87 (File No. 2-50318). (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. (9)(a) Custodian Agreement, Appendix A, and Appendix C, dated December 1, 1994, between The Bank of New York and Fidelity Union Street Trust on behalf of Spartan Ginnie Mae Fund is incorporated herein by reference to Exhibit 8(a) to Fidelity Hereford Street Trust's Post-Effective Amendment No. 4 (File No. 33-52577). (b) Appendix B, dated April 20, 1995, to the Custodian Agreement, dated December 1, 1994, between The Bank of New York and Fidelity Union Street Trust on behalf of Spartan Ginnie Mae Fund is incorporated herein by reference to Exhibit 8(b) to Fidelity Hereford Street Trust's Post-Effective Amendment No. 5 (File No. 33-52577). (c) Custodian Agreement, Appendix A, Appendix B, and Appendix C, dated December 1, 1994, between UMB Bank, n.a. and Fidelity Union Street Trust on behalf of Spartan Short-Intermediate Municipal Fund, Spartan Aggressive Municipal Fund, Spartan Intermediate Municipal Fund, Spartan Municipal Income Portfolio, Spartan Maryland Municipal Income Fund, and Spartan Arizona Municipal Income Portfolio is incorporated herein by reference to Exhibit 8 to Fidelity California Municipal Trust's Post-Effective Amendment No. 28 (File No. 2-83367). (d) Custodian Agreement, Appendix A, and Appendix C, dated August 1, 1994, between The Chase Manhattan Bank, N.A. and Fidelity Union Street Trust on behalf of Fidelity Export Fund is incorporated herein by reference to Exhibit 8(a) to Fidelity Investment Trust's Post-Effective Amendment No. 59 (File No. 2-90649). (e) Appendix B, dated April 20, 1995, to the Custodian Agreement, dated August 1, 1994, between The Chase Manhattan Bank, N.A. and Fidelity Union Street Trust on behalf of Fidelity Export Fund is incorporated herein be reference to Exhibit 8(b) to Fidelity Investment Trusts Post-Effective Amendment No. 59 (File No. 2-90649). (10) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Municipal Income Portfolio is incorporated herein by reference to Exhibit 15(a) to Post-Effective Amendment No. 89. (b) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Ginnie Mae Fund is incorporated herein by reference to Exhibit 15(b) to Post-Effective Amendment No. 89. (c) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Maryland Municipal Income Fund is incorporated herein by reference to Exhibit 15(c) to Post-Effective Amendment No. 83. (d) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Aggressive Municipal Fund is incorporated herein by reference to Exhibit 15(d) to Post-Effective Amendment No. 89. (e) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Intermediate Municipal Fund is incorporated herein by reference to Exhibit 15(e) to Post-Effective Amendment No. 89. (f) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Arizona Municipal Income Portfolio is incorporated herein by reference to Exhibit 15(f) of Post-Effective Amendment No. 92. (g) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Short-Intermediate Municipal Fund is incorporated herein by reference to Exhibit 15(g) to Post-Effective Amendment No. 89. (11) Opinion and consent of Kirkpatrick & Lockhart LLP as to the legality of shares being registered if filed herein as Exhibit 11. (12) Opinion and Consent of Kirkpatrick & Lockhart LLP as to tax matters in connection with the reorganization of Spartan Bond Strategist is filed herein as Exhibit 12. (13) Not applicable. (14) Consent of Coopers & Lybrand L.L.P. is filed herein as Exhibit 14. (15) Not applicable. (16) Powers of Attorney, dated December 15, 1994, are filed herein as Exhibit 16. (17) Rule 24f-2 Notice for Registrant's most recent fiscal year ended August 31, 1995 is filed herein as Exhibit 17. Item 17. Undertakings (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of the prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for reoffering by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each Post-Effective Amendment shall be deemed to be a new Registration Statement for the securities offered therein, and the offering of securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and Massachusetts, on the 6th day of September 1996. FIDELITY UNION STREET TRUST By /s/Edward C. Johnson 3d (dagger) Edward C. Johnson 3d, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
(Signature) (Title) (Date) /s/Edward C. Johnson 3d(dagger) President and Trustee September 6, 1996 Edward C. Johnson 3d (Principal Executive Officer) /s/Kenneth A. Rathgeber Treasurer September 6, 1996 Kenneth A. Rathgeber /s/J. Gary Burkhead Trustee September 6, 1996 J. Gary Burkhead /s/Ralph F. Cox * Trustee September 6, 1996 Ralph F. Cox /s/Phyllis Burke Davis * Trustee September 6, 1996 Phyllis Burke Davis /s/Richard J. Flynn * Trustee September 6, 1996 Richard J. Flynn /s/E. Bradley Jones * Trustee September 6, 1996 E. Bradley Jones /s/Donald J. Kirk * Trustee September 6, 1996 Donald J. Kirk /s/Peter S. Lynch * Trustee September 6, 1996 Peter S. Lynch /s/Edward H. Malone * Trustee September 6, 1996 Edward H. Malone /s/Marvin L. Mann_____ * Trustee September 6, 1996 Marvin L. Mann /s/Gerald C. McDonough* Trustee September 6, 1996 Gerald C. McDonough /s/Thomas R. Williams * Trustee September 6, 1996 Thomas R. Williams (dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of attorney dated December 15, 1994 and filed herewith. * Signature affixed by Robert C. Hacker pursuant to a power of attorney dated December 15, 1994 and filed herewith.
EX-99.11 2 Exhibit 11 August 30, 1996 Fidelity Union Street Trust 82 Devonshire Street Boston, Massachusetts 02109 Ladies and Gentlemen: You have requested our opinion regarding certain matters in connection with the issuance of shares of Spartan Municipal Income Fund ("Municipal Income"), a series of Fidelity Union Street Trust (the "Trust"), pursuant to a Registration Statement to be filed by the Trust on Form N-14 ("Registration Statement") under the Securities Act of 1933 ("1933 Act"). These shares will be issued in connection with the proposed acquisition by Municipal Income of all of the assets of Spartan Bond Strategist ("Bond Strategist"), a series of Fidelity School Street Trust, and the assumption by Municipal Income of the liabilities of Bond Strategist solely in exchange for Municipal Income shares. In connection with our services as counsel for the Trust, we have examined, among other things, originals or copies of such documents, certificates and corporate and other records as we deemed necessary or appropriate for purposes of this opinion. We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us, the conformity to original documents of all documents presented to us as copies thereof and the authenticity of the original documents from which any such copies were made, which assumptions we have not independently verified. As to various matters of fact material to this opinion, we have relied upon statements and certificates of officers of the Trust. Based upon this examination, we are of the opinion that the shares to be issued pursuant to the Registration Statement, when issued upon the terms provided in the Registration Statement, subject to compliance with the 1933 Act, the Investment Company Act of 1940, and applicable state law regulating the offer and sale of securities, will be legally issued, fully paid, and non-assessable. The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of a business trust may be held personally liable for the obligations of the Trust. The Trust's Declaration of Trust provides that the Trustees shall have no power to bind any shareholder personally or to call upon any shareholder for the payment of any sum of money or assessment whatsoever other than such as the shareholder may at any time personally agree to pay by way of subscription for any shares or otherwise. The Declaration of Trust also requires that every note, bond, contract or other undertaking issued by or on behalf of the Trust or the Trustees relating to the Trust include a recitation limiting the obligation represented thereby to the Trust and its assets (although the omission of such recitation shall not operate to bind any shareholder). The Declaration of Trust provides that: (i) in case any shareholder or any former shareholder of any Series of the Trust shall be held to be personally liable solely by reason of his being or having been a shareholder and not because of his acts or omissions or for some other reason, the shareholder or former shareholder (or his heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the assets belonging to the applicable Series to be held harmless from and indemnified against all loss and expense arising from such liability; and (ii) a Series shall, upon request by the shareholder, assume the defense of any claim made against the shareholder for any act or obligation of the Series and satisfy any judgment thereon. We hereby consent to the reference to our firm under the captions "Federal Income Tax Consequences of the Reorganization," "Federal Income Tax Considerations" and "Legal Matters" in the Proxy Statement and Prospectus which constitute a part of the Registration Statement. We further consent to your filing a copy of this opinion as an exhibit to the Registration Statement. Yours truly, /s/Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP EX-99.12 3 Exhibit 12 September 6, 1996 Fidelity School Street Trust Fidelity Union Street Trust 82 Devonshire Street Boston, MA 02109 Ladies and Gentlemen: Fidelity School Street Trust ("FSST"), a Massachusetts business trust, on behalf of Spartan Bond Strategist ("Acquired"), a series of FSST, and Fidelity Union Street Trust ("FUST"), a Massachusetts business trust, on behalf of Spartan Municipal Income Fund ("Acquiring"), a series of FUST, have requested our opinion as to certain federal income tax consequences of a transaction ("Reorganization") in which Acquiring will acquire all of the assets and assume all of the liabilities of Acquired in exchange solely for shares of beneficial interest in Acquiring ("Acquiring Shares") pursuant to an Agreement and Plan of Reorganization ("Agreement") to be entered into between Acquired and Acquiring on October 18, 1996. In rendering this opinion, we have examined a draft of the Agreement ("Draft Agreement"), the prospectus/proxy statement to be filed with the Securities and Exchange Commission in connection with the Reorganization, the currently effective prospectuses and statements of additional information of Acquired and Acquiring, and such other documents as we have deemed necessary. We have also relied, with your consent, on certificates of officers of FSST and FUST. OPINION Based solely on the facts and representations set forth in the reviewed documents and the certificates of officers of FSST and FUST, and assuming that (i) those representations are true on the date of the Reorganization, (ii) the Reorganization is consummated in accordance with the Agreement, and (iii) the Agreement does not differ materially from the Draft Agreement, our opinion with respect to the federal income tax consequences of the Reorganization is as follows. 1. The Reorganization will be a reorganization under section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"), and Acquired and Acquiring will each be parties to the Reorganization under section 368(b) of the Code. 2. No gain or loss will be recognized by Acquired upon the transfer of all of its assets to Acquiring in exchange solely for Acquiring Shares and Acquiring's assumption of Acquired's liabilities followed by the distribution of those Acquiring Shares to the Acquired shareholders in liquidation of Acquired. 3. No gain or loss will be recognized by Acquiring on the receipt of Acquired's assets in exchange solely for Acquiring Shares and the assumption of Acquired's liabilities. 4. The basis of Acquired's assets in the hands of Acquiring will be the same as the basis of such assets in Acquired's hands immediately prior to the Reorganization. 5. Acquiring's holding period in the assets to be received from Acquired will include Acquired's holding period in such assets. 6. The Acquired shareholders will recognize no gain or loss on the exchange of the shares of beneficial interest in Acquired ("Acquired Shares") solely for the Acquiring Shares in the Reorganization. 7. The Acquired shareholders' basis in the Acquiring Shares to be received by them will be the same as their basis in the Acquired Shares to be surrendered in exchange therefor. 8. The holding period of the Acquiring Shares to be received by the Acquired shareholders will include the holding period of the Acquired Shares to be surrendered in exchange therefor, provided those Acquired Shares were held as capital assets on the date of the Reorganization. The foregoing opinion is based on, and is conditioned on the continued applicability of, the provisions of the Code and the regulations thereunder, case law precedent, and the Internal Revenue Service pronouncements in existence at the date hereof. We express no opinion as to whether Acquired will recognize gain or loss under section 1256 of the Code on the transfer, if any, of futures, forwards or options to Acquiring in the Reorganization. Nor do we express any opinion other than those contained herein. We consent to the inclusion of this opinion in the registration statement on Form N-14 filed with the Securities and Exchange Commission and the inclusion of the name "Kirkpatrick & Lockhart LLP" in the "Comparison of Other Policies of the Funds -- Federal Income Tax Consequences of the Reorganization" and "The Proposed Transaction -- Federal Income Tax Considerations" sections of that registration statement. Very truly yours, /s/Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP EX-99.14 4 Exhibit 14 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference, into the Proxy Statement and Prospectus (the Proxy/Prospectus) constituting part of this Registration Statement on Form N-14 (the Registration Statement) of Fidelity Union Street Trust: Spartan Municipal Income Fund, of our report dated October 2, 1995 on the financial statements and financial highlights included in the August 31, 1995 Annual Report to Shareholders of Fidelity Union Street Trust: Spartan Municipal Income Fund. We also consent to the incorporation by reference in the Registration Statement, of our report dated February 1, 1996 on the financial statements and financial highlights included in the December 31, 1995 Annual Report to Shareholders of Fidelity School Street Trust: Spartan Bond Strategist. We further consent to the references to our Firm under the headings "Experts" and "Financial Highlights" in the Proxy/Prospectus and to the references to our Firm under the headings "Financial Highlights" in the Prospectuses and "Auditor" in the Statements of Additional Information for Fidelity Union Street Trust: Spartan Municipal Income Fund and Fidelity School Street Trust: Spartan Bond Strategist, which are also incorporated by reference into the Proxy/Prospectus. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. Boston, Massachusetts September 6, 1996 EX-99.16 5 POWER OF ATTORNEY We, the undersigned Directors, Trustees or General Partners, as the case may be, of the following investment companies:
Fidelity Advisor Annuity Fund Fidelity Income Fund Fidelity Advisor Series I Fidelity Institutional Trust Fidelity Advisor Series II Fidelity Investment Trust Fidelity Advisor Series III Fidelity Magellan Fund Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust Fidelity Advisor Series VI Fidelity Municipal Trust Fidelity Advisor Series VII Fidelity New York Municipal Trust Fidelity Advisor Series VIII Fidelity Puritan Trust Fidelity California Municipal Trust Fidelity School Street Trust Fidelity Capital Trust Fidelity Securities Fund Fidelity Charles Street Trust Fidelity Select Portfolios Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P. Fidelity Congress Street Fund Fidelity Summer Street Trust Fidelity Contrafund Fidelity Trend Fund Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities Fidelity Deutsche Mark Performance Fund, L.P. Portfolio, L.P. Fidelity Union Street Trust Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P. Fidelity Exchange Fund Spartan U.S. Treasury Money Market Fidelity Financial Trust Fund Fidelity Fixed-Income Trust Variable Insurance Products Fund Fidelity Government Securities Fund Variable Insurance Products Fund II Fidelity Hastings Street Trust
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individuals serve as Board Members (collectively, the "Funds"), hereby severally constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Djinis, 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 Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, 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 deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and Investment Company Act of 1940, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. WITNESS our hands on this fifteenth day of December, 1994. /s/Edward C. Johnson 3d /s/Donald J. Kirk Edward C. Johnson 3d Donald J. Kirk /s/J. Gary Burkhead /s/Peter S. Lynch J. Gary Burkhead Peter S. Lynch /s/Ralph F. Cox /s/Marvin L. Mann Ralph F. Cox Marvin L. Mann /s/Phyllis Burke Davis /s/Edward H. Malone Phyllis Burke Davis Edward H. Malone /s/Richard J. Flynn /s/Gerald C. McDonough Richard J. Flynn Gerald C. McDonough /s/E. Bradley Jones /s/Thomas R. Williams E. Bradley Jones Thomas R. Williams Exhibit 16 POWER OF ATTORNEY I, the undersigned President and Director, Trustee or General Partner, as the case may be, of the following investment companies:
Fidelity Advisor Annuity Fund Fidelity Institutional Trust Fidelity Advisor Series I Fidelity Investment Trust Fidelity Advisor Series II Fidelity Magellan Fund Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust Fidelity Advisor Series IV Fidelity Money Market Trust Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust Fidelity Advisor Series VI Fidelity Municipal Trust Fidelity Advisor Series VII Fidelity New York Municipal Trust Fidelity Advisor Series VIII Fidelity Puritan Trust Fidelity California Municipal Trust Fidelity School Street Trust Fidelity Capital Trust Fidelity Securities Fund Fidelity Charles Street Trust Fidelity Select Portfolios Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P. Fidelity Congress Street Fund Fidelity Summer Street Trust Fidelity Contrafund Fidelity Trend Fund Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P. Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities Fidelity Destiny Portfolios Fund, L.P. Fidelity Deutsche Mark Performance Fidelity Union Street Trust Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P. Fidelity Devonshire Trust Spartan U.S. Treasury Money Market Fidelity Exchange Fund Fund Fidelity Financial Trust Variable Insurance Products Fund Fidelity Fixed-Income Trust Variable Insurance Products Fund II Fidelity Government Securities Fund Fidelity Hastings Street Trust Fidelity Income Fund
plus any other investment company for which Fidelity Management & Research Company acts as investment adviser and for which the undersigned individual serves as President and Board Member (collectively, the "Funds"), hereby severally constitute and appoint J. Gary Burkhead, my true and lawful attorney-in-fact, with full power of substitution, and with full power to sign for me and in my name in the appropriate capacity, all Pre-Effective Amendments to any Registration Statements of the Funds, any and all subsequent Post-Effective Amendments to said Registration Statements, 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 deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933 and 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. WITNESS my hand on the date set forth below. /s/Edward C. Johnson 3d December 15, 1994 Edward C. Johnson 3d EX-99.17 6 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 "Rule 24f-2 Notice" Fidelity Union Street Trust (Name of Registrant) File No. 2-50318 FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Aggressive Municipal Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 No shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 No shares (iv) Number of Securities Sold During Fiscal Year 4,907,461 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 4,907,461 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 4,907,461 $47,030,882 Redemptions: (3,987,462) $ (37,965,544) Net Sales Pursuant to Rule 24f-2: 919,999 $ 9,065,338
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $3,125.98 Fidelity Union Street Trust : Spartan Aggressive Municipal Fund By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Ginnie Mae Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 19,100,968 shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 27,366,726 shares (iv) Number of Securities Sold During Fiscal Year 10,429,984 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 10,429,984 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 10,429,984 $ 101,131,175 Redemptions See Note (2) : (10,429,984) $ (101,131,175) Note (2) : The total number of shares redeemed for the total dollar amount of redemptions for the fiscal period ended August 31, 1995 , aggregated 12,104,724 and $115,626,833 , respectively. An additional filing pursuant to Rule 24e-2 can be made to register a number of shares additional filing that will include the share redemptions not utilized under Rule 24f-2. Net Sales Pursuant to Rule 24f-2: 0 $0
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $0 Fidelity Union Street Trust : Spartan Ginnie Mae Fund By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Intermediate Municipal Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 No shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 No shares (iv) Number of Securities Sold During Fiscal Year 18,707,976 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 18,707,976 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 18,707,976 $ 180,517,302 Redemptions See Note (2) : (18,707,976) $ (180,517,302) Note (2) : The total number of shares redeemed for the total dollar amount of redemptions for the fiscal period ended August 31, 1995 , aggregated 23,828,782 and $229,621,967 , respectively. An additional filing pursuant to Rule 24e-2 can be made to register a number of shares that will include the share redemptions not utilized under Rule 24f-2. Net Sales Pursuant to Rule 24f-2: 0 $ 0
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $0 Fidelity Union Street Trust : Spartan Intermediate Municipal Fund By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Maryland Municipal Income Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 No shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 No shares (iv) Number of Securities Sold During Fiscal Year 1,239,543 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 1,239,543 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 1,239,543 $ 11,716,389 Redemptions See Note (2) : (1,239,543) $ (11,716,389) Note (2) : The total number of shares redeemed for the total dollar amount of redemptions for the fiscal period ended August 31, 1995 , aggregated 1,306,266 and $12,168,591 , respectively. An additional filing pursuant to Rule 24e-2 can be made to register a number of shares that will include the share redemptions not utilized under Rule 24f-2. Net Sales Pursuant to Rule 24f-2: 0 $ 0
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $0 Fidelity Union Street Trust : Spartan Maryland Municipal Income Fund By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Municipal Income Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 5,280,074 shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 19,301,475 shares (iv) Number of Securities Sold During Fiscal Year 8,465,664 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 8,465,664 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 8,465,664 $ 82,506,178 Redemptions See Note (2) : (8,465,664) $ (82,506,178) Note (2) : The total number of shares redeemed for the total dollar amount of redemptions for the fiscal period ended August 31, 1995 , aggregated 22,701,405 and $217,831,944 , respectively. An additional filing pursuant to Rule 24e-2 can be made to register a number of shares that will include the share redemptions not utilized under Rule 24f-2. Net Sales Pursuant to Rule 24f-2: 0 $ 0
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $0 Fidelity Union Street Trust : Spartan Municipal Income Fund By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Arizona Municipal Income Portfolio RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 No shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 No shares (iv) Number of Securities Sold During Fiscal Year 1,696,864 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 1,696,864 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 1,696,864 $ 17,301,630 Redemptions: (463,503) $ (4,737,604) Net Sales Pursuant to Rule 24f-2: 1,233,361 $ 12,564,026
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $4,332.42 Fidelity Union Street Trust : Spartan Arizona Municipal Income Portfolio By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Spartan Short-Intermediate Municipal Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 No shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 No shares (iv) Number of Securities Sold During Fiscal Year 36,590,978 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 36,590,978 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 36,590,978 $ 358,751,471 Redemptions See Note (2) : (36,590,978) $ (358,751,471) Note (2) : The total number of shares redeemed for the total dollar amount of redemptions for the fiscal period ended August 31, 1995 , aggregated 59,215,038 and $577,976,090 , respectively. An additional filing pursuant to Rule 24e-2 can be made to register a number of shares that will include the share redemptions not utilized under Rule 24f-2. Net Sales Pursuant to Rule 24f-2: 0 $ 0
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $0 Fidelity Union Street Trust : Spartan Short-Intermediate Municipal Fund By John H. Costello Assistant Treasurer FILE NO. 2-50318 Fidelity Union Street Trust : Fidelity Export Fund RULE 24F-2 - FILED PURSUANT TO RULE 24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940 (i) Fiscal Year for Which Notice Filed Fiscal year ended August 31, 1995 (ii) Number of Securities Which Remained Unsold at Beginning of Fiscal Year Registered Other Than Pursuant to Rule 24f-2 No shares (iii) Number of Securities Registered During Fiscal Year Other Than Pursuant to Rule 24f-2 No shares (iv) Number of Securities Sold During Fiscal Year 59,469,006 shares For information relating to the calculation of the filing fee, see Note (1) below. (v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2 59,469,006 shares
Number of Shares Aggregate Price Sales Pursuant to Rule 24f-2: 59,469,006 $ 727,157,181 Redemptions: (24,071,563) $ (293,873,568) Net Sales Pursuant to Rule 24f-2: 35,397,443 $ 433,283,613
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the manner specified in Section 6(b) of the Securities Act of 1933, amounted to: $149,408.14 Fidelity Union Street Trust : Fidelity Export Fund By John H. Costello Assistant Treasurer Fidelity Investments Fidelity Management & Research Co. 82 Devonshire Street Boston, MA 02109 617 570 7000 September 28, 1995 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, DC 20549 RE: Rule 24f-2 Notice Fidelity Union Street Trust File No. 2-50318 Gentlemen: Pursuant to Rule 24f-2(b)(1) under the Investment Company Act of 1940, enclosed herewith on behalf of the above fund is a Rule 24f-2 Notice for the fiscal year ended August 31, 1995 . In accordance with Rule 24f-2(c), the required filing fee of $156,866.54 was wired to Mellon Bank, in Pittsburgh, Pennsylvania on September 28, 1995 and October 10, 1995. . Very truly yours, Fidelity Union Street Trust By John H. Costello Assistant Treasurer Enclosures FMR Corp. 82 Devonshire Street Boston MA 02109-3614 617 563 7000 September 28, 1995 Mr. John Costello, Assistant Treasurer Fidelity Union Street Trust (the trust) Spartan Ginnie Mae Fund Spartan Maryland Municipal Income Fund Spartan Short-Intermediate Municipal Fund Spartan Municipal Income Portfolio Spartan Aggressive Municipal Fund Spartan Arizona Municipal Income Portfolio Spartan Intermediate Municipal Fund Fidelity Export Fund (the funds) 82 Devonshire Street Boston, Massachusetts 02109 Dear Mr. Costello: Fidelity Union Street Trust (the Trust) is a Massachusetts business trust initially created under the name of Fidelity Daily Income Trust under a written Declaration of Trust dated March 1, 1974 and executed and delivered in Boston, Massachusetts. A supplement to the Declaration of Trust was adopted March 6, 1975 and delivered in Boston Massachusetts. A supplement to the Declaration of Trust was adopted by the Trustees of the Trust on October 12, 1979 and filed with the Secretary of the Commonwealth of Massachusetts on December 26, 1979. A Supplement to the Declaration of Trust was adopted by the Trust's Trustees on July 17, 1980 and executed on January 20, 1981. A supplement to the Declaration of Trust was adopted by the Trust's Trustees on October 22, 1982 and filed with the City of Boston on May 11, 1983. The Declaration of Trust was amended, restated and executed on November 18, 1986 and delivered in Boston, Massachusetts on November 21, 1986. A supplement to the Declaration of Trust was executed and filed with the Secretary of the Commonwealth of Massachusetts on January 12, 1990. An additional supplement to the Declaration of Trust, changing the name of the Trust from Fidelity Daily Income Trust to Fidelity Union Street Trust was dated and filed with the Secretary of the Commonwealth of Massachusetts on April 30, 1990. The Declaration of Trust was amended, restated and executed on September 14, 1995 and will be filed with the Secretary of the Commonwealth of Massachusetts. I have conducted such legal and factual inquiry as I have deemed necessary for the purpose of rendering this opinion. Capitalized terms used herein, and not otherwise herein defined, are used as defined in the Declaration of Trust. Under Article III, Section 1, of the Declaration of Trust, the beneficial interest in the trust shall be divided into such transferable Shares of one or more separate and distinct Series as the trustees shall from time to time create and establish. The number of Shares is unlimited and each Share shall be without par value and shall be fully paid and non assessable. The trustees shall have full power and authority, in their sole discretion and without obtaining any prior authorization or vote of the Shareholders of the trust to create and establish (and to change in any manner) Shares with such preferences, voting powers, rights, and privileges as the trustees may from time to time determine, to divide or combine the Shares into a greater or lesser number, to classify or reclassify any issued Shares into one or more Series of Shares, to abolish any one or more Series of Shares, and to take such other action with respect to the Shares as the trustees may deem desirable. Under Article III, Section 4, the trustees shall accept investments in the trust from such persons and on such terms as they may from time to time authorize. Such investments may be in the form of cash or securities in which the appropriate Series is authorized to invest, valued as provided in Article X, Section 3. After the date of the initial contribution of capital, the number of Shares to represent the initial contribution may in the trustees' discretion be considered as outstanding and the amount received by the trustees on account of the contribution shall be treated as an asset of the trust. Subsequent investments in the trust shall be credited to each Shareholder's account in the form of full Shares of the trust at the Net Asset Value per Share next determined after the investment is received; provided, however, that the trustees may, in their sole discretion, (a) impose a sales charge upon investments in the trust and (b) issue fractional Shares. By a vote adopted on October 1, 1984, and amended on February 22, 1985, the Board of Trustees authorized the issue and sale, from time to time, of an unlimited number of shares of beneficial interest of the trust in accordance with the terms included in the current Registration Statement and subject to the limitations of the Declaration of Trust and any amendments thereto. I understand from you that, pursuant to Rule 24f-2 under the Investment Company Act of 1940, the trust has registered an indefinite amount of shares of beneficial interest under the Securities Act of 1933. I further understand that, pursuant to the provisions of Rule 24f-2, the trust intends to file with the Securities and Exchange Commission a Notice making definite the registration of 141,507,476 shares of the trust (the "Shares") sold in reliance upon Rule 24f-2 during the fiscal year ended August 31, 1995. I am of the opinion that all necessary trust action precedent to the issue of Shares has been duly taken, and that all the Shares were legally and validly issued, and are fully paid and non assessable, except as described in the fund's Statement of Additional Information under the heading "Shareholder and Trustee Liability." In rendering this opinion, I rely on the representation by the trust that it or its agent received consideration for the Shares in accordance with the Declaration of Trust and I express no opinion as to compliance with the Securities Act of 1933, the Investment Company Act of 1940 or applicable state "Blue Sky" or securities laws in connection with sales of the Shares. I hereby consent to the filing of this opinion with the Securities and Exchange Commission in connection with a Rule 24f-2 Notice which you are about to file under the 1940 Act with said commission. Sincerely, /s/Arthur S. Loring Arthur S. Loring Vice President-Legal -----END PRIVACY-ENHANCED MESSAGE-----