SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-83367) UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. [ ]
Fidelity California Municipal Trust
(Exact Name of Registrant as Specified in Declaration of Trust)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (617) 570-7000
Arthur S. Loring, Esq.
82 Devonshire Street
Boston, MA 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] On ( ) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[x] On (April 18, 1994) pursuant to paragraph (a) of Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file the notice required by
such Rule before April 30, 1994.
FIDELITY CALIFORNIA TAX-FREE FUNDS:
FIDELITY CALIFORNIA TAX-FREE MONEY MARKET PORTFOLIO
FIDELITY CALIFORNIA TAX-FREE INSURED PORTFOLIO
FIDLEITY CALIFORNIA TAX-FREE HIGH YIELD PORTFOLIO
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. *
c .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment Principles;
Securities and Investment Practices; Fundamental
Investment Policies and Restrictions
b .............................. Securities and Investment Practices
c .............................. Who May Want to Invest; Investment Principles;
Securities and Investment Practices
5 a .............................. Charter
b i............................. Doing Business with Fidelity; Charter
ii........................... Charter; Breakdown of Expenses
iii.......................... Expenses; Breakdown of Expenses
c .............................. FMR and its Affiliates
d .............................. Charter; Breakdown of Expenses; FMR and Its
Affiliates
e .............................. FMR and its Affiliates
f .............................. Expenses
g .............................. *
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Services; Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. How to Buy Shares; Transaction Services
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Services; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trusts
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Interest of FMR Affiliates
e ............................ Management Contracts
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Interest of FMR Affiliates
17 a ............................ Portfolio Transactions
b ............................ *
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Interest of FMR Affiliates
c ............................ *
22 ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
A Statement of Additional Information dated April 18, 1994 has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement
of Additional Information is available free upon request by calling
Fidelity at 1-800-544-8888.
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 endorsed or
guaranteed by, any bank, nor are they federally insured or otherwise
protected by the FDIC, the Federal Reserve Board, or any other agency.
Each of these funds seeks a high level of current income free from federal
income tax and California state personal income tax. The funds have
different strategies, however, and carry varying degrees of risk.
FIDELITY CALIFORNIA
TAX-FREE FUNDS
FIDELITY CALIFORNIA TAX-FREE MONEY MARKET PORTFOLIO
FIDELITY CALIFORNIA TAX-FREE INSURED PORTFOLIO
FIDELITY CALIFORNIA TAX-FREE HIGH YIELD PORTFOLIO
PROSPECTUS
APRIL 18, 1994(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
CFR-pro-494
CONTENTS
KEY FACTS THE FUNDS AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES AND PERFORMANCE 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.
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.
DIVIDENDS, CAPITAL GAINS, AND
TAXES
SHAREHOLDER AND TRANSACTION DETAILS Share price
ACCOUNT POLICIES calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
THE FUNDS IN DETAIL CHARTER How each fund is
organized.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
INVESTMENT PRINCIPLES Each
fund's overall approach to
investing.
SECURITIES AND INVESTMENT
PRACTICES
KEY FACTS
THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946 and
is now America's largest mutual fund manager. FMR Texas Inc. (FTX), a
subsidiary of FMR, chooses investments for California Tax-Free Money
Market.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
CALIFORNIA MONEY MARKET
GOAL: High current tax-free income for California residents while
maintaining a stable share price.
STRATEGY: Invests in high-quality, short-term securities whose interest is
free from federal income tax and California personal income tax.
CALIFORNIA INSURED
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in long-term securities that are covered by
insurance guaranteeing the timely payment of principal and interest, and
whose interest is free from federal income tax and California personal
income tax.
CALIFORNIA HIGH YIELD
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in long-term investment-grade securities whose
interest is free from federal income tax and California personal income
tax.
WHO MAY WANT TO INVEST
These non-diversified funds may be appropriate for investors in higher tax
brackets who seek high current income that is free from federal and
California income taxes. Each fund's level of risk, and potential reward,
depend on the quality and maturity of its investments. Lower-quality and
longer-term investments typically carry higher risk and yield potential.
Insurance, which covers the timely payment of interest and principal,
provides a high degree of credit quality. However, its cost lowers the
fund's yield. You should consider your 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, generally reflecting changes in interest rates, market
conditions, and other federal and state political and economic news. By
themselves, these funds do not constitute a balanced investment plan.
California Tax-Free Money Market is managed to keep its share price stable
at $1.00. When you sell your shares of either of the other funds, they may
be worth more or less than what you paid for them.
EXPENSES AND PERFORMANCE
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund.
Maximum sales charge on purchases and
reinvested dividends None
Deferred sales charge on redemptions None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and fund reports. A fund's expenses are factored into its share
price or dividends and are not charged directly to shareholder accounts
(see page ).
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
CALIFORNIA MONEY MARKET
Management fee ___%
12b-1 fee None
Other expenses %
TOTAL FUND OPERATING EXPENSES ___%
CALIFORNIA INSURED
Management fee (after reimbursement) ___%
12b-1 fee None
Other expenses %
TOTAL FUND OPERATING EXPENSES ___%
CALIFORNIA HIGH YIELD
Management fee ___%
12b-1 fee None
Other expenses %
TOTAL FUND OPERATING EXPENSES ___%
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses if you
close your account after the number of years indicated:
After 1 After 3 After 5 After
10
year years years years
California
Money Market
California
Insured
California
High Yield
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FMR has voluntarily agreed to temporarily limit California Tax-Free
Insured's operating expenses to __% of its average net assets. If this
agreement were not in effect, the management fee, other expenses, and total
operating expenses would be __%, __%, and __%, respectively. Expenses
eligible for reimbursement do not include interest, taxes, brokerage
commissions, or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The tables that follow have been audited by Price Waterhouse, independent
accountants. Their unqualified reports are included in the funds' Annual
Report. The funds' Annual Report is incorporated by reference into (is
legally a part of) the Statement of Additional Information.
[Financial Highlights to be filed by subsequent amendment.]
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns and yields that follow are based on historical fund results.
Each fund's fiscal year runs from March 1 through February 28. The tables
below show each fund's performance over past fiscal years compared to a
measure of inflation. The charts on page __ help you compare the yields of
these funds to those of their competitors.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Life of
Februsry 28,1994 year years fund
California
Money MarketA
California
InsuredB
California
High YieldA
Consumer Price
Index
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Life of
February 28, 1994 year years fund
California
Money MarketA
California
InsuredB
California
High YieldA
Consumer Price
Index
A From July 7, 1984
B From September 18, 1986
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)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond 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.
CALIFORNIA TAX-FREE MONEY MARKET
7-day yields
Percentage (%)
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Row: 27, Col: 1, Value: nil
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Row: 28, Col: 1, Value: nil
Row: 28, Col: 2, Value: nil
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Row: 29, Col: 2, Value: nil
Row: 30, Col: 1, Value: nil
Row: 30, Col: 2, Value: nil
Row: 31, Col: 1, Value: nil
Row: 31, Col: 2, Value: nil
Row: 32, Col: 1, Value: nil
Row: 32, Col: 2, Value: nil
California
Tax-Free
Money Market
Competitive
funds average
1992
1993
CALIFORNIA TAX-FREE INSURED
30-day yields
Percentage (%)
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Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
Row: 11, Col: 1, Value: nil
Row: 11, Col: 2, Value: nil
Row: 12, Col: 1, Value: nil
Row: 12, Col: 2, Value: nil
Row: 13, Col: 1, Value: nil
Row: 13, Col: 2, Value: nil
Row: 14, Col: 1, Value: nil
Row: 14, Col: 2, Value: nil
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Row: 25, Col: 2, Value: nil
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Row: 26, Col: 2, Value: nil
Row: 27, Col: 1, Value: nil
Row: 27, Col: 2, Value: nil
Row: 28, Col: 1, Value: nil
Row: 28, Col: 2, Value: nil
Row: 29, Col: 1, Value: nil
Row: 29, Col: 2, Value: nil
Row: 30, Col: 1, Value: nil
Row: 30, Col: 2, Value: nil
Row: 31, Col: 1, Value: nil
Row: 31, Col: 2, Value: nil
Row: 32, Col: 1, Value: nil
Row: 32, Col: 2, Value: nil
California
Tax-Free
Insured
Competitive
funds average
1992
1993
CALIFORNIA TAX-FREE HIGH YIELD
30-day yields
Percentage (%)
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Row: 10, Col: 2, Value: nil
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Row: 11, Col: 2, Value: nil
Row: 12, Col: 1, Value: nil
Row: 12, Col: 2, Value: nil
Row: 13, Col: 1, Value: nil
Row: 13, Col: 2, Value: nil
Row: 14, Col: 1, Value: nil
Row: 14, Col: 2, Value: nil
Row: 15, Col: 1, Value: nil
Row: 15, Col: 2, Value: nil
Row: 16, Col: 1, Value: nil
Row: 16, Col: 2, Value: nil
Row: 17, Col: 1, Value: nil
Row: 17, Col: 2, Value: nil
Row: 18, Col: 1, Value: nil
Row: 18, Col: 2, Value: nil
Row: 19, Col: 1, Value: nil
Row: 19, Col: 2, Value: nil
Row: 20, Col: 1, Value: nil
Row: 20, Col: 2, Value: nil
Row: 21, Col: 1, Value: nil
Row: 21, Col: 2, Value: nil
Row: 22, Col: 1, Value: nil
Row: 22, Col: 2, Value: nil
Row: 23, Col: 1, Value: nil
Row: 23, Col: 2, Value: nil
Row: 24, Col: 1, Value: nil
Row: 24, Col: 2, Value: nil
Row: 25, Col: 1, Value: nil
Row: 25, Col: 2, Value: nil
Row: 26, Col: 1, Value: nil
Row: 26, Col: 2, Value: nil
Row: 27, Col: 1, Value: nil
Row: 27, Col: 2, Value: nil
Row: 28, Col: 1, Value: nil
Row: 28, Col: 2, Value: nil
Row: 29, Col: 1, Value: nil
Row: 29, Col: 2, Value: nil
Row: 30, Col: 1, Value: nil
Row: 30, Col: 2, Value: nil
Row: 31, Col: 1, Value: nil
Row: 31, Col: 2, Value: nil
Row: 32, Col: 1, Value: nil
Row: 32, Col: 2, Value: nil
California
Tax-FreeHigh
Yield
Competitive
funds average
1992
1993
THE TOP CHART SHOWS THE 7-DAY EFFECTIVE YIELD FOR CALIFORNIA TAX-FREE
MONEY MARKET AND ITS COMPETITIVE FUNDS AVERAGE AS OF THE LAST TUESDAY
OF EACH MONTH FROM JANUARY 1992 THROUGH FEBRUARY 1994. THE BOTTOM
CHARTS SHOW THE 30-DAY ANNUALIZED NET YIELDS FOR THE CALIFORNIA TAX-FREE
INSURED AND HIGH YIELD FUNDS AND THEIR COMPETITIVE FUNDS AVERAGE AS OF
THE LAST DAY OF EACH MONTH DURING THE SAME PERIOD. YIELDS FOR
CALIFORNIATAX-FREE INSURED WOULD HAVE BEEN LOWER IF FIDELITY HAD NOT
REIMBURSED CERTAIN FUND EXPENSES.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
THE COMPETITIVE FUNDS AVERAGES for California Tax-Free Money Market are
calculated based on the IBC Donoghue's Money Fund Averages
(REGISTERED TRADEMARK)/All
Tax-Free category, which currently reflects the performance of over 335
mutual funds with similar objectives. These averages are published in the
MONEY FUND REPORT(Registered trademark) by IBC USA (Publications), Inc. The
competitive funds averages for the bond funds are published by Lipper
Analytical Services, Inc. California Tax-Free Insured and California
Tax-Free High Yield compare their performance to the Lipper California
Insured Funds category and the Lipper California Municipal Funds category,
respectively, which currently reflects the performance of over 18 and 73
mutual funds with similar objectives, respectively. All of these averages
assume reinvestment of distributions.
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.
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:
(bullet) For mutual funds, 1-800-544-8888
(bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over __ walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in a fund through a brokerage account. You can
choose California Tax-Free Money Market as your core account for your
Fidelity Ultra Service Account(Registered trademark) or FidelityPlusSM
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. California Tax-Free Money Market is managed to keep its share
price stable at $1.00. Each fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(bullet) Mail in an application with a check, or
(bullet) Open your account by exchanging from another Fidelity fund.
If you buy shares by check or Fidelity Money Line(Registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For California Tax-Free Money $5,000
TO ADD TO AN ACCOUNT $250
Through automatic investment plans $100
MINIMUM BALANCE $1,000
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (bullet) Exchange from another (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.
(bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
</TABLE>
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Mail (mail_graphic) (bullet) Complete and sign the (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.
(bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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In Person (hand_graphic) (bullet) Bring your application (bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
</TABLE>
<TABLE>
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Wire (wire_graphic) (bullet) Call 1-800-544-7777 to (bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify the complete
Bank Routing name of the fund and
#021001033, include your account
Account #00163053. number and your
Specify the complete name.
name of the fund and
include your new
account number and
your name.
</TABLE>
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<S> <C> <C>
Automatically (automatic_graphic) (bullet) Not available. (bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
TO SELL SHARES THROUGH YOUR FIDELITY ULTRA SERVICE OR FIDELITY PLUS
ACCOUNT, call 1-800-544-6262 to receive a handbook with instructions.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $1,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(bullet) You wish to redeem more than $100,000 worth of shares,
(bullet) Your account registration has changed within the last 30 days,
(bullet) The check is being mailed to a different address than the one on
your account (record address),
(bullet) The check is being made payable to someone other than the account
owner, or
(bullet) The redemption proceeds are being transferred to a Fidelity
account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(bullet) Your name,
(bullet) The fund's name,
(bullet) Your fund account number,
(bullet) The dollar amount or number of shares to be redeemed, and
(bullet) Any other applicable requirements listed in the table at right.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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Phone 1-800-544-777 (phone_graphic) All account types (bullet) Maximum check request:
$100,000.
(bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: $100,000.
(bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Trust names appear on the
account.
(bullet) The trustee must sign the
letter indicating capacity as
Business or trustee. If the trustee's name
Organization is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
(bullet) At least one person
Executor, authorized by corporate
Administrator, resolution to act on the
Conservator, account must sign the letter.
Guardian (bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(bullet) Call 1-800-544-6666 for
instructions.
Wire (wire_graphic) All account types (bullet) You must sign up for the wire
feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
</TABLE>
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Check (check_graphic) All account types (bullet) Minimum check: $500.
(bullet) All account owners must sign
a signature card to receive a
checkbook.
</TABLE>
<TABLE>
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
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:
(bullet) Confirmation statements (after every transaction, except
reinvestments, that affects your account balance or your account
registration)
(bullet) Account statements (quarterly)
(bullet) Financial reports (every six months)
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.
Note that exchanges out of a fund are limited to four per calendar year
(except for California Tax-Free Money Market), and that they may have tax
consequences for you. For complete policies and restrictions governing
exchanges, including circumstances under which a shareholder's exchange
privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up monthly or quarterly redemptions
from your account.
FIDELITY MONEY LINE(Registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly or (bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(bullet) For existing accounts, call
1-800-544-6666 for an application.
(bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
</TABLE>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Every pay (bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(bullet) Changes require a new authorization
form.
<TABLE>
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<S> <C> <C>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, (bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
</TABLE>
A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THOSE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
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 April 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 California Tax-Free Money Market):
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 California Tax-Free Money
Market.
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. California Tax-Free Money Market may invest so
that up to 20% of its income is derived from these securities. The bond
funds do not currently intend to purchase these securities. Individuals who
are subject to the tax must report this interest on their tax returns.
To the extent a fund's income dividends are derived from state tax-free
investments, they will be free from California state personal income tax.
During fiscal 1994, __% of each fund's income dividends was free from
federal income tax, and __%, __%, and __% were free from California state
personal income taxes for California Tax-Free Money Market, California
Tax-Free Insured, and California Tax-Free High Yield, respectively. __% of
California Tax-Free Money Market's income dividends was 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.
SHAREHOLDER AND ACCOUNT POLICIES
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. Note that Fidelity will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the identity of the
caller. Fidelity will request personalized security codes or other
information, and may also record calls. You should verify the accuracy of
your confirmation statements immediately after you receive them. If you do
not want the ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
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 are of
a size that 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:
(bullet) All of your purchases must be made in U.S. dollars and checks
must be drawn on U.S. banks.
(bullet) Fidelity does not accept cash.
(bullet) When making a purchase with more than one check, each check must
have a value of at least $50.
(bullet) Each fund reserves the right to limit the number of checks
processed at one time.
(bullet) If your check does not clear, your purchase will be cancelled and
you could be liable for any losses or fees a fund or its transfer agent has
incurred.
(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
Fidelity Distributors Corporation (FDC) may enter confirmed purchase orders
on behalf of customers by phone, with payment to follow no later than the
time when 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:
(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.
(bullet) Shares will earn dividends through the date of redemption;
however, shares redeemed on a Friday or prior to a holiday will continue to
earn dividends until the next business day.
(bullet) Fidelity Money Line redemptions generally will be credited to
your bank account on the second or third business day after your phone
call.
(bullet) 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.
(bullet) Redemptions may be suspended or payment dates postponed when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
(bullet) If you sell shares by writing a check and the amount of the check
is greater than the value of your account, your check will be returned to
you and you may be subject to additional charges.
IF YOUR ACCOUNT BALANCE FALLS BELOW $1,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the funds without
reimbursement from the funds. Qualified recipients are securities dealers
who have sold fund shares or others, including banks and other financial
institutions, under special arrangements in connection with FDC's sales
activities. In some instances, these incentives may be offered only to
certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(bullet) The fund you are exchanging into must be registered for sale in
your state.
(bullet) You may only exchange between accounts that are registered in the
same name, address, and taxpayer identification number.
(bullet) Before exchanging into a fund, read its prospectus.
(bullet) If you exchange into a fund with a sales charge, you pay the
percentage-point difference between that fund's sales charge and any sales
charge you have previously paid in connection with the shares you are
exchanging. For example, if you had already paid a sales charge of 2% on
your shares and you exchange them into a fund with a 3% sales charge, you
would pay an additional 1% sales charge.
(bullet) Exchanges may have tax consequences for you.
(bullet) Because excessive trading can hurt fund performance and
shareholders, California Tax-Free Insured and California Tax-Free High
Yield reserve the right to temporarily or permanently terminate the
exchange privilege of any investor who makes more than four exchanges out
of the fund per calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for purposes of the four exchange limit.
(bullet) 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.
(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 coincide 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.
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, California
Tax-Free Money Market is currently a non-diversified fund of Fidelity
California Municipal Trust II, and California Tax-Free Insured and
California Tax-Free High Yield are currently non-diversified funds of
Fidelity California Municipal Trust. Both trusts are open-end management
investment companies. Fidelity California Municipal Trust II was organized
as a Delaware business trust on June 20, 1991. Fidelity California
Municipal Trust was organized as a Massachusetts business trust on April
28, 1983. There is a remote possibility that one fund might become liable
for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. For the money market fund,
you are entitled to one vote for each share you own. For the bond funds,
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.
(bullet) Number of Fidelity mutual
funds: over ___
(bullet) Assets in Fidelity mutual
funds: over $___ billion
(bullet) Number of shareholder
accounts: over __ million
(bullet) Number of investment
analysts and portfolio
managers: over ___
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FTX has primary responsibility for providing
investment management services for California Tax-Free Money Market.
John (Jack) Haley Jr. is vice president and manager of California Tax-Free
Insured and California Tax-Free High Yield, which he has managed since 1986
and 1985, respectively. Mr. Haley also manages Advisor Limited Term
Tax-Exempt and Spartan California Municipal High Yield. He joined Fidelity
in 1981.
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 parent company of these organizations. Through ownership
of voting common stock, Edward C. Johnson 3d (President and a trustee of
the trusts), Johnson family members, and various trusts for the benefit of
the Johnson family form a controlling group with respect to FMR Corp.
United Missouri Bank, N.A., is 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.
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 California Tax-Free Money Market. Each
fund also pays OTHER EXPENSES, which are explained on page .
FMR may, from time to time, agree to reimburse the funds for management
fees and other expenses above a specified limit. FMR retains the ability to
be repaid by a fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee is
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets under management increase.
For February 1994, the group fee rate was __%. Each fund's individual fund
fee rate is .25%. However, because of a reimbursement arrangement, the
total management fee rate for fiscal 1994 was __% for California Tax-Free
Insured.
FMR HAS A SUB-ADVISORY AGREEMENT with FTX, which has primary responsibility
for providing investment management for California Tax-Free Money Market,
while FMR retains responsibility for providing other management services.
FMR pays FTX 50% of its management fee (before expense reimbursements) for
these services.
OTHER EXPENSES
While the management fee is a significant component of the funds' annual
operating costs, the funds have other expenses as well.
FSC performs many transaction and accounting functions. These services
include processing shareholder transactions, valuing each fund's
investments, and handling securities loans. In fiscal 1994, FSC received
fees equal to __%, __%, and __%, respectively, of California Tax-Free Money
Market's, California Tax-Free Insured 's, and California Tax-Free High
Yield's average net assets.
The funds also pay other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
Each fund has adopted a Distribution and Service Plan. These plans
recognize that FMR may use its resources, including management fees, to pay
expenses associated with the sale of fund shares. This may include payments
to third parties, such as banks or broker-dealers, that provide shareholder
support services or engage in the sale of the fund's shares. It is
important to note, however, that the funds do not pay FMR any separate fees
for this service.
For fiscal 1994, the portfolio turnover rates for California Tax-Free
Insured and California Tax-Free High Yield were __% and __%, respectively.
These rates vary from year to year.
INVESTMENT PRINCIPLES
CALIFORNIA TAX-FREE MONEY MARKET seeks high current income that is free
from federal income tax and California personal income tax while
maintaining a stable $1.00 share price by investing in high-quality,
short-term municipal obligations of all types. As a result, 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. FMR normally invests at least 65% of the fund's total assets
in state tax-free securities, and normally invests so that at least 80% of
the fund's income distributions are free from federal income tax.
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. 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.
CALIFORNIA TAX-FREE INSURED seeks high current income that is free from
federal income tax and California personal income tax by investing
primarily in municipal bonds that are covered by insurance guaranteeing the
timely payment of interest and principal. It is important to note, however,
that the insurance does not guarantee the market value of a security or of
the fund's shares. The insurance coverage is either obtained by the bond's
issuer or underwriter, or purchased by the fund. FMR reviews the credit of
insurance companies. The fund pays premiums for the insurance either
directly or indirectly, which increases the credit safety of the fund's
investments, but decreases its yield.
The insurance feature provides high credit quality to the fund's portfolio,
but the fund may also invest in some uninsured securities that are judged
by FMR to be of investment-grade quality. The fund normally invests in
long-term bonds, generally maintaining a dollar-weighted average maturity
of at least 20 years, although it may invest in obligations of any
maturity. FMR normally invests so that at least 80% of the fund's income
distributions are free from federal and California personal income taxes.
CALIFORNIA TAX-FREE HIGH YIELD seeks high current income that is free from
federal income tax and California personal income tax by investing
primarily in municipal securities judged by FMR to be of investment-grade
quality, although it can also invest in lower-quality securities. The fund
normally invests in long-term bonds, generally maintaining a
dollar-weighted average maturity of at least 15 years, although it may
invest in obligations of any maturity. FMR normally invests so that at
least 80% of the fund's income distributions are free from federal and
California personal income taxes.
EACH FUND'S yield and each bond fund's share price change daily based on
interest rate changes 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.
Each fund's performance is closely tied to the economic and political
conditions within the state of California, which has been in a recession
since 1990. As a result, tax revenues have decreased and the state has
accumulated a significant budget deficit despite cost cutting initiatives.
Economic conditions within the state are expected to remain stagnant
throughout 1994.
If you are subject to the federal alternative minimum tax, you should note
that each fund may invest so that up to 20% of its income is derived from
municipal securities issued to finance private activities. The interest
from these investments is a tax-preference item for purposes of the tax.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations, and the bond funds also do not expect to invest in state
taxable obligations. When FMR considers it appropriate for defensive
purposes, however, it temporarily may invest substantially in short-term
instruments, may hold a substantial amount of uninvested cash, or may
invest more than normally permitted in taxable obligations.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the funds may invest, and strategies FMR may employ in
pursuit of the funds' investment objectives. A summary of risks and
restrictions associated with these instrument types and investment
practices is included as well. Policies and limitations are considered at
the time of purchase; the sale of instruments is not required in the event
of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
funds achieve their goals. As a shareholder, you will receive financial
reports every six months detailing fund holdings and describing recent
investment activities.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities may have speculative characteristics, and
involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-quality securities and may decline significantly
in periods of general or regional economic difficulty.
The table on page 28 provides a summary of ratings assigned to debt
holdings (not including money market instruments) in California Tax-Free
High Yield's portfolio. These figures are dollar-weighted averages of
month-end portfolio holdings during fiscal 1994, and are presented as a
percentage of total investments. These percentages are historical and do
not necessarily indicate the fund's current or future debt holdings.
California Tax-Free High Yield
Fiscal 1994 Debt Holdings, by Rating MOODY'S STANDARD &
POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa % AA %
Upper-medium grade A A
Medium grade Baa % BBB %
LOWER QUALITY
Moderately speculative Ba % BB %
Speculative B % B %
Highly speculative Caa % CCC %
Poor quality Ca % CC %
Lowest quality, no interest C C
In default, in arrears -- D %
% %
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO ___%. THIS MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES.
UNRATED SECURITIES ARE NOT NECESSARILY LOWER-QUALITY SECURITIES. REFER TO
THE
FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION
OF THESE RATINGS.
RESTRICTIONS: California Tax-Free Insured does not currently intend to
invest more than 35% of its assets in uninsured securities, and does not
currently intend to invest in uninsured securities judged by FMR to be
below investment-grade quality. California Tax-Free High Yield does not
currently intend to invest more than one-third of its assets in bonds whose
quality is judged by FMR to be equivalent to those Ba or lower by Moody's
and BB or lower by S&P, and does not currently intend to invest in
bonds of equivalent quality to bonds rated lower than B. The fund does not
currently intend to invest in bonds rated below Caa by Moody's or CCC by
S&P.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities
may be issued in anticipation of future revenues, and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. A security's credit may be
enhanced by a bank, insurance company, or other financial institution. A
fund may own a municipal security directly or through a participation
interest.
STATE TAX-FREE SECURITIES include municipal obligations issued by the state
of California or its counties, municipalities, authorities, or other
subdivisions. The ability of issuers to repay their debt can be affected by
many factors that impact the economic vitality of either the state or a
region within the state.
Other state tax-free securities include general obligations of U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and
will depend on the strength of the U.S. dollar, interest rates, the price
stability of oil imports, and the continued existence of favorable tax
incentives. Recent legislation reduced these incentives, but it is
impossible to predict what impact the changes will have.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ASSET-BACKED SECURITIES may include pools of purchase contracts, financing
leases, or sales agreements entered into by municipalities. These
securities usually rely on continued payments by a municipality, and may
also be subject to prepayment risk.
VARIABLE- AND FLOATING-RATE INSTRUMENTS may have interest rates that move
in tandem with a benchmark, helping to stabilize their prices. Inverse
floaters have interest rates that move in the opposite direction from the
benchmark, making the instrument's market value more volatile.
PUT FEATURES entitle the holder to put (sell back) an instrument to the
issuer or a financial intermediary. In exchange for this benefit, a fund
may pay periodic fees or accept a lower interest rate. Demand features,
standby commitments, and tender options are types of put features.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
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.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of other securities may be subject to legal restrictions.
Difficulty in selling securities may result in a loss or may be costly to 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.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: The funds are considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, a fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any one issuer. These limitations do not apply to U.S. government
securities. A fund may invest more than 25% of its total assets in tax-free
securities that finance similar types of projects. California Tax-Free
Insured may invest more than 25% of its assets in bonds insured by the same
insurance company.
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.
CALIFORNIA TAX-FREE MONEY MARKET seeks as high a level of current income,
exempt from federal and California state personal income tax, as is
consistent with the preservation of capital. The fund will normally invest
so that at least 80% of its income distributions are free from federal
income tax.
CALIFORNIA TAX-FREE INSURED seeks as high a level of current income, exempt
from federal and California state personal income tax, available from
investing primarily in municipal securities that are covered by insurance
guaranteeing the timely payment of principal and interest. FMR will invest
the fund's assets primarily in municipal bonds that are (1) insured under
an insurance policy obtained by the issuer or underwriter; or (2) insured
under an insurance policy purchased by the fund. Insurance will cover the
timely payment of interest and principal on municipal obligations and will
be obtained from recognized insurers. The fund may invest in uninsured
municipal obligations judged to be of quality equivalent to the four
highest ratings assigned by Moody's and S&P (Baa, BBB, or better).
Under normal market conditions, such uninsured obligations may not exceed
35% of the fund's assets. The fund will normally invest so that at least
80% of its income distributions are exempt from federal and California
state personal income taxes. During periods when FMR believes that
California municipals that meet the fund's standards are not available, the
fund may temporarily invest more than 20% of its assets in obligations that
are only federally tax-exempt.
CALIFORNIA TAX-FREE HIGH YIELD seeks as high a level of current income,
exempt from federal and California state personal income tax, available
from investing primarily in municipal securities judged by FMR to be of
investment-grade quality. The fund may invest up to one-third of its
assets in lower-quality bonds, but may not purchase bonds that are judged
by FMR to be equivalent quality to those rated lower than B. The fund will
normally invest so that at least 80% of its income distributions are exempt
from federal and California state personal income taxes. During periods
when FMR believes that California municipals that meet the fund's standards
are not available, the fund may temporarily invest more than 20% of its
assets in obligations that are only federally tax-exempt.
EACH FUND may borrow only for temporary or emergency purposes, but not in
an amount exceeding 33% of its total assets.
From Filler pages
FIDELITY CALIFORNIA TAX-FREE INSURED PORTFOLIO
FIDELITY CALIFORNIA TAX-FREE HIGH YIELD PORTFOLIO
FUNDS OF FIDELITY CALIFORNIA MUNICIPAL TRUST
FIDELITY CALIFORNIA TAX-FREE MONEY MARKET PORTFOLIO
A FUND OF FIDELITY CALIFORNIA MUNICIPAL TRUST II
STATEMENT OF ADDITIONAL INFORMATION
APRIL 18 , 199 4
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated April 18 , 199 4 ). Please
retain this document for future reference. The Annual Report for the fiscal
period ended February 28, 199 4 is 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
Special Factors Affecting California 1 2
Special Factors Affecting Puerto Rico 17
Portfolio Transactions 17
Valuation of Portfolio Securities 19
Performance 19
Additional Purchase and Redemption Information 24
Distribution and Taxes 24
FMR 26
Trustees and Officers 26
Management Contracts 28
Distribution and Service Plans 30
Interest of FMR Affiliates 3 0
Description of the Trusts 32
Financial Statements 3 3
Appendix 3 3
Investment Adviser
Fidelity Management & Research Company (FMR)
Investment Sub-Adviser ( m oney market fund only)
FMR Texas Inc. (FMR Texas)
Distributor
Fidelity Distributors Corporation (FDC)
Transfer Agent
United Missouri Bank, N.A. (United Missouri) and Fidelity Service Co. (FSC)
CFR-pt b -49 4
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.
A fund's fundamental investment policies and limitations cannot be changed
without approval of a "majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940 (the 1940 Act)) of the fund.
However, with respect to the money market fund, except for the fundamental
investment limitations set forth below, the investment policies and
limitations described in this Statement of Additional Information are not
fundamental and may be changed without shareholder approval.
INVESTMENT LIMITATIONS OF FIDELITY CALIFORNIA TAX-FREE MONEY MARKET
PORTFOLIO
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities;
(2) make short sales of securities (unless it owns or by virtue of its
ownership of other securities has the right to obtain securities equivalent
in kind and amount to the securities sold);
(3) purchase any securities on margin;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not to
exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that
come to exceed 33 1/3% of the fund's total assets by reason of a decline in
net assets will be reduced within 3 business days to the extent necessary
to comply with the 33 1/3% limitation;
(5) underwrite any issue of securities, except to the extent that the
purchase of municipal bonds in accordance with the fund's investment
objective, policies, and limitations, either directly from the issuer, or
from an underwriter for an issuer, may be deemed to be underwriting;
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(7) purchase or sell real estate, but this shall not prevent the fund from
investing in municipal bonds or other obligations secured by real estate or
interests therein;
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of debt securities or to repurchase
agreements); or
(10) invest in oil, gas or other mineral exploration or development
programs.
Investment limitation (4) is construed in conformity with the 1940 Act;
and, accordingly, "3 business days" means three days, exclusive of Sundays
and holidays.
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.
(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 (4)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently 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 more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(v i ) The fund does not currently intend to purchase or sell future
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vi i ) 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 i ) 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.
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
INVESTMENT LIMITATIONS OF FIDELITY CALIFORNIA TAX-FREE INSURED PORTFOLIO
(INSURED FUND)
THE FOLLOWING ARE THE INSURED 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 more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vii) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to purchases
of debt securities.
( viii ) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b) purchase
or retain securities issued by other open-end investment companies.
Limitations (a) and (b) do not apply to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(ix) The fund does not currently intend to 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 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 i nsured fund's limitations on futures and options
transactions, see the section entitled "Limitations on Futures and Options
Transactions" beginning on page 11.
INSURANCE FEATURE. Under normal market conditions, the insured fund will
invest primarily in municipal bonds that, at the time of purchase, either
(1) are insured under fund insurance issued to the fund by an insurer or
(2) are insured under an insurance policy obtained by the issuer or
underwriter of such municipal bonds at the time of original issuance
thereof (issuer insurance). If a municipal bond is already covered by
issuer insurance when acquired by the fund, then coverage will not be
duplicated by fund insurance; if a municipal bond is not covered by issuer
insurance, it may be covered by fund insurance purchased by the fund. The
fund may also purchase municipal notes that are insured, although, in
general, municipal notes are not presently issued with issuer insurance,
and the fund does not generally expect to cover municipal notes under its
fund insurance. Accordingly, the fund does not presently expect that any
significant portion of the municipal notes it purchases will be covered by
insurance. Securities other than municipal bonds and notes purchased by the
fund will not be covered by insurance. Based upon the expected composition
of the fund, FMR estimates that the annual premiums for fund insurance will
range from .10% to .35% of the fund's average net assets. During the fiscal
year Ma rch 1, 199 3 to February 28, 199 4 ,
____ fund insurance was purchased. Although the insurance feature
reduces certain financial risks, the premiums for fund insurance, which are
paid from the fund's assets, and the restrictions on investments imposed by
fund insurance guidelines, reduce the fund's current yield.
Insurance will cover the timely payment of interest and principal on
municipal obligations and will be obtained from recognized insurers. In
order to be considered as eligible insurance by the fund, such insurance
policies must guarantee the timely payment of all principal and interest on
the municipal bonds as they become due. However, such insurance may provide
that in the event of non-payment of interest or principal when due, with
respect to an insured municipal bond, the insurer is not obligated to make
such payment until a specified time period (which may be thirty days or
more) after it has been notified by the fund that such non-payment has
occurred. For these purposes, a payment of principal is due only at final
maturity of the municipal bond and not at the time any earlier sinking fund
payment is due. The insurance does not guarantee the market value of the
municipal bonds or the value of the shares of the fund and, except as
described below and in the section entitled "Valuation of Portfolio
Securities," has no effect on the price or redemption value of fund shares.
Municipal bonds are generally eligible for insurance under fund insurance
if, at the time of purchase by the fund, they are identified separately or
by category in qualitative guidelines furnished by the fund insurer and are
in compliance with the aggregate limitations on amounts set forth in such
guidelines. Premium variations are based in part on the rating of the
municipal bond being insured at the time the fund purchases the bond. The
insurer may prospectively withdraw particular municipal bonds from the
classifications of bonds eligible for insurance or change the aggregate
amount limitation of each issue or category of eligible municipal bonds,
but must continue to insure the full amount of such bonds previously
acquired which the insurer has indicated are eligible so long as they
remain in the fund. The qualitative guidelines and aggregate amount
limitations established by the insurer from time to time will not
necessarily be the same as those the fund or FMR would use to govern
selection of municipal bonds for the fund's investments. Therefore, from
time to time such guidelines and limitations may affect investment
decisions.
Because coverage under the fund insurance terminates upon sale of a
municipal bond from the fund, the insurance does not have any effect on the
resale value of such a bond. Therefore, FMR may decide to retain any
insured municipal bonds which are in default or, in FMR's view, in
significant risk of default, and place a value on the insurance. This value
will be equal to the difference between the market value of the defaulted
municipal bond and the market value of similar municipal bonds that are not
in default. As a result, FMR may be limited in its ability to manage the
fund to the extent that it holds defaulted municipal bonds, which will
limit its ability in certain circumstances to purchase other municipal
bonds. While a defaulted municipal bond is held by the fund, the fund
continues to pay the insurance premium thereon but also collects interest
payments from the insurer and retains the right to collect the full amount
of principal from the insurer when the municipal bond comes due. The fund
expects that the market value of a defaulted municipal bond covered by
issuer insurance will generally be greater than the market value of an
otherwise comparable defaulted municipal bond covered by fund insurance.
PRINCIPAL BOND INSURERS. AMBAC Indemnity Corporation (AMBAC Indemnity) is a
Wisconsin-domiciled stock insurance corporation regulated by the Office of
the Commissioner of Insurance of the State of Wisconsin and licensed to do
business in 50 states, the District of Columbia, and the Commonwealth of
Puerto Rico, with admitted assets of approximately $ ____ billion
(unaudited) and statutory capital of approximately $ _______ million
(unaudited) as of December 31, 199 3 . Statuatory capital consists of
AMBAC Indemnity's policyholders' surplus and statutory contingency reserve.
AMBAC Indemnity is a wholly owned subsidiary of AMBAC Inc., a 100%
publicly-held company. Moody's and S&P have both assigned a triple-A
claims-paying ability rating to AMBAC Indemnity.
Capital Guaranty Insurance Company (Capital Guaranty) is a monoline
financial guaranty insurance company whose policies guaranty the timely
payment of principal and interest when due for payment (as defined in
Capital Guarantee coverage) on new issue and secondary market issue
municipal bond transactions. Capital Guaranty's claims-paying ability is
rated AAA by S&P. Therefore, if Capital Guaranty insures an issue with
a stand alone rating of less than "AAA," such issue would be "upgraded" to
AAA by virtue of Capital Guaranty's insurance. On December 31, 199 3 ,
Capital Guaranty's statutory capital (unaudited, consisting of contingency
reserve and statutory policyholders' surplus) was over $ ___ million.
As of that date, Capital Guaranty's insured principal and interest
outstanding was over $ ___ billion.
FGIC Corporation, through its wholly owned subsidiary Financial Guaranty
Insurance Company, is a leading insurer of municipal bonds, including new
issues and bonds held in unit investment trusts and mutual funds. Municipal
bonds insured by Financial Guaranty are rated Aaa/AAA/AAA by Moody's,
S&P, and Fitch, respectively. In accordance with statutory accounting
principles, Financial Guaranty's capital base as of December 31, 1992
totalled $814.6 million, comprised of capital and surplus of $621.3 million
and a contingency reserve of $193.3 million.
Municipal Bond Investors Assurance Corporation (MBIA) is the monoline
insurance company created from an unincorporated association (the Municipal
Bond Insurance Association) through which its members wrote municipal bond
insurance on a several and not joint basis through 1986. Bond Investors
Guaranty Insurance Company (BIG) issued municipal bond insurance policies
guarantying the timely payment of principal and interest on new issue,
secondary market, and unit investment trust bonds. On January 5, 1990, MBIA
acquired all of the outstanding stock of Bond Investors Group, Inc., the
parent of BIG. Through a reinsurance agreement, BIG ceded all of its net
insured risks, as well as its related unearned premium and contingency
reserves, to MBIA. Moody's rates all bond issues insured by MBIA and BIG
"Aaa" and short-term loans "MIG-1," both designated to be of the highest
quality; S&P rates all new issues insured by MBIA and BIG "AAA" Prime
Grade. As of December 31, 199 3 , MBIA (consolidated) had admitted
assets of $ ____ billion (unaudited), total liabilities of
$ ____ billion (unaudited), and total capital and surplus of
$ ____ million (unaudited) prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.
INVESTMENT LIMITATIONS OF FIDELITY CALIFORNIA TAX-FREE HIGH YIELD PORTFOLIO
(HIGH YIELD FUND)
THE FOLLOWING ARE THE HIGH YIELD 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 more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vii) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to purchases
of debt securities.
( viii ) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b) purchase
or retain securities issued by other open-end investment companies.
Limitations (a) and (b) do not apply to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(ix) The fund does not currently intend to 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 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 high yield fund's limitations on futures and options transactions,
see the section entitled "Limitations on Futures and Options Transactions"
beginning on page 11.
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, the Board of Trustees has
established and periodically reviews procedures applicable to transactions
involving affiliated financial institutions.
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. The fund must limit its investments to securities with
remaining maturities of 397 days or less and must maintain a
dollar-weighted average maturity of 90 days or less.
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 (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. The insured and high yield 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.
REFUNDING CONTRACTS. The insured and high yield funds 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 funds generally will not be obligated to pay the
full purchase price if they fail 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, each fund will place
liquid assets in a segregated custodial account equal in amount to its
obligations under refunding contracts.
INVERSE FLOATERS. The insured and high yield funds may invest in inverse
floaters, which are instruments whose interest rates bear an inverse
relationship to the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index
inversely affect the residual interest rate paid on the inverse floater,
with the result that the inverse floater's price will be considerably more
volatile than that of a fixed-rate bond. For example, a municipal issuer
may decide to issue two variable-rate instruments instead of a single
long-term, fixed-rate bond. The interest rate on one instrument reflects
short-term interest rates, while the interest rate on the other instrument
(the inverse floater) reflects the approximate rate the issuer would have
paid on a fixed-rate bond, multiplied by two, minus the interest rate paid
on the short-term instrument. Depending on market availability, the two
portions may be recombined to form a fixed-rate municipal bond. The market
for inverse floaters is relatively new.
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.
With respect to the money market fund, a demand instrument with a
conditional demand feature must have received both a short-term and a
long-term high-quality rating or, if unrated, have been determined to be of
comparable quality pursuant to procedures adopted by the Board of Trustees.
A demand instrument with an unconditional demand feature may be acquired
solely in reliance upon a short-term high-quality rating or, if unrated,
upon a finding of comparable short-term quality pursuant to procedures
adopted by the Board of Trustees.
The funds may invest in fixed-rate bonds that are subject to third
party puts and in participation interests in such bonds held in trust or
otherwise. These 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.
The money market fund may invest in variable or floating rate
instruments that ultimately mature in more than 397 days, if the fund
acquires a right to sell the instruments that meets certain requirements
set forth in Rule 2a-7. Variable rate instruments (including instruments
subject to a demand feature) that mature in 397 days or less may be deemed
to have maturities equal to the period remaining until the next
readjustment of the interest rate. Other variable rate instruments with
demand features may be deemed to have a maturity equal to the period
remaining until the next adjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A
floating rate instrument subject to a demand feature may be deemed to have
a maturity equal to the period remaining until the principal amount can be
recovered through demand.
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. Subject to applicable regulatory requirements, the money market fund
may buy tender option bonds if the agreement gives the fund the right to
tender the bond to its sponsor no less frequently than once every 397 days.
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.
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.
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, but, in the case of the money market fund, only when
the issuers of the commitments present minimal risk of default.
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. Standby commitments will
not affect the dollar-weighted average maturity of the money market fund or
the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or
other guarantees to support their ability to buy securities on demand. FMR
may rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
MUNICIPAL LEASE OBLIGATIONS. Each fund may invest a portion of its
assets in municipal leases and participation interests therein. These
obligations, which may take the form of a lease, an installment purchase,
or a conditional sale contract, are issued by state and local governments
and authorities to acquire land and a wide variety of equipment and
facilities. Generally, the 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.
FEDERALLY TAXABLE OBLIGATIONS. The funds do not intend to invest in
securities whose interest is federally taxable; however, from time to time,
each fund may invest a portion of its assets on a temporary basis in
fixed-income obligations whose interest is subject to federal income tax.
For example, each fund may invest in obligations whose interest is
federally taxable pending the investment or reinvestment in municipal
securities of proceeds from the sale of its shares or sales of portfolio
securities.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. Th ese
would include obligations issued or guaranteed by the U.S. government or
its agencies or instrumentalities; obligations of domestic banks; and
repurchase agreements. The insured and high yield funds' standards for high
quality , taxable obligations are essentially the same as those
described by Moody's Investors Service, Inc. (Moody's) in rating corporate
obligations within its two highest ratings of Prime-1 and Prime-2, and
those described by Standard & Poor's Corporation (S&P) in rating
corporate obligations within its two highest ratings of A-1 and A-2. The
money market fund will purchase taxable obligations only if they meet its
quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before the California legislature
that would affect the state tax treatment of the funds' distributions. If
such proposals were enacted, the availability of municipal obligations and
the value of the funds' holdings would be affected and the Trustees would
reevaluate the funds' investment objectives and policies.
Each fund anticipates being as fully invested as practicable in municipal
securities; however, there may be occasions when, as a result of maturities
of portfolio securities, sales of fund shares, or in order to meet
redemption requests, a fund may hold cash that is not earning income. In
addition, there may be occasions when, in order to raise cash to meet
redemptions, a fund may be required to sell securities at a loss.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed-upon price on an agreed-upon date within a number of days from
the date of purchase. The resale price reflects the purchase price plus an
agreed-upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement is a taxable
obligation which involves the obligation of the seller to pay the
agreed-upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed-upon resale price and marked to
market daily) of the underlying security. Each fund may engage in
repurchase agreements with respect to any security in which it is
authorized to invest even if, with respect to the money market fund, the
underlying security matures in more than 397 days. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the
underlying securities, as well as delays and costs to the fund in
connection with bankruptcy proceedings), it is each fund's current policy
to limit repurchase agreements to parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. 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 a fund's assets and may be
viewed as a form of leverage.
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 a fund's rights and obligations relating to the investment).
Investments currently considered by the money market fund to be illiquid
include restricted securities and municipal lease obligations determined by
FMR to be illiquid. Investments currently considered by the insured and
high yield funds to be illiquid include over-the-counter options. Also, FMR
may determine some restricted securities and municipal lease obligations to
be illiquid. However, with respect to over-the-counter options the insured
and high yield funds write, 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 valued for purposes of monitoring amortized cost valuation
(money market fund) and priced (insured and high yield funds) 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 were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, 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 the fund may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
INDEXED SECURITIES. The insured and high yield funds 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. Index 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.
LOWER-RATED MUNICIPAL SECURITIES. The high yield fund may invest a portion
of its assets in lower-rated municipal securities as described in the
Prospectus.
While the market for California municipals is considered to be
substantial, adverse publicity and changing investor perceptions may affect
the ability of outside pricing services used by the fund to value its
portfolio securities, and the fund's ability to dispose of lower-rated
bonds. The outside pricing services are monitored by FMR and reported to
the Board to to determine whether the services are furnishing prices that
accurately reflect fair value. The impact of changing investor
perceptions may be especially pronounced in markets where municipal
securities are thinly traded.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
INTERFUND BORROWING PROGRAM. Each fund has received permission from the
SEC to lend money to and borrow money from other funds advised by FMR or
its affiliates, but will participate in the interfund borrowing program
only as a borrower. Interfund loans normally will extend overnight, but can
have a maximum duration of seven days. 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 the fund may have to
borrow from a bank at a higher interest rate if an interfund loan is called
or not renewed.
ELECTRIC UTILITIES INDUSTRY. The electric utilities industry has been
experiencing, or may experience in the future, problems, including (a) the
effects of inflation upon construction and operating costs, (b) the
availability and cost of fuel, (c) the availability and cost of capital,
(d) the effects of conservation on energy demand, (e) the effects of
rapidly changing environmental, safety, and licensing requirements, and
other federal, state, and local regulations, (f) timely and sufficient rate
increases, (g) opposition to nuclear power, and (h) increased competition.
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;
medical and technological advances which dramatically alter the need for
health services or the way in which such services are delivered; and
efforts by employers, insurers, and governmental agencies to reduce the
costs of health insurance and healthcare services.
HOUSING. Housing revenue bonds are generally issued by a state, county,
city, local housing authority, or other public agency. They are secured by
the revenues derived from mortgages purchased with the proceeds from the
bond issue. It is extremely difficult to predict the supply of available
mortgages to be purchased with the proceeds of an issue or the future cash
flow from the underlying mortgages. Consequently, there are risks that
proceeds will exceed supply, resulting in early retirement of bonds, or
that the homeowner repayments will create an irregular cash flow.
Many factors may affect the financing of multi-family housing projects,
including acceptable completion of construction, proper management,
occupancy and rent levels, economic conditions, and changes to current laws
and regulations.
INVESTMENT POLICIES FOR INSURED AND HIGH YIELD FUNDS ONLY
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Section 4.5 of the
regulations under the Commodity Exchange Act, which limits the extent to
which the fund s 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, are not
fundamental policies and may be changed as regulatory agencies permit.
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.
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 generally would expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates 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.
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 fund s 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.
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 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 their needs, OTC
options generally involve greater credit risk than exchange-traded options,
which are guaranteed by the clearing organization of the exchanges where
they are traded.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The 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.
SPECIAL FACTORS AFFECTING CALIFORNIA
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives, as
discussed below, could adversely affect the market values and marketability
of, or result in default of, existing obligations, including obligations
that may be held by the funds. Obligations of the state or local
governments may also be affected by budgetary pressures affecting the State
and economic conditions in the State. Interest income to a fund could also
be adversely affected. The following highlights only some of the more
significant financial trends and problems, and is based on information
drawn from official statements and prospectuses relating to securities
offerings of the State of California, its agencies, or instrumentalities,
as available on the date of this Statement of Additional Information. FMR
has not independently verified any of the information contained in such
official statements and other publicly available documents, but is not
aware of any fact which would render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain obligations held by the funds may be
obligations of issuers that rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, XIIIA limits to 1% of full
cash value the rate of ad valorem property taxes on real property and
generally restricts the reassessment of property to 2% per year, except
upon new construction or change of ownership (subject to a number of
exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as
of March 1, 1975 if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits were filed challenging the acquisition-based
assessment system of Proposition 13, but on June 18, 1992, the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
government unit to give 2/3 approval to levy any "special tax." However,
court decisions allowed non-voter-approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval.
Significant elements of this initiative, "Proposition 62," have been
overturned in recent court cases, but efforts may continue to further
restrict the ability of local government agencies to levy or raise taxes.
APPROPRIATIONS LIMITS. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations
limit imposed. "Appropriations subject to limitation" are authorizations to
spend "proceeds of taxes," which consists of tax revenues and certain other
funds, including proceeds from regulatory licenses, user charges, or other
fees to the extent that such proceeds exceed the cost of providing the
product or service; but "proceeds of taxes" for local governments excludes
most State subventions. No limit is imposed on appropriations of funds
which are not "proceeds of taxes," such as reasonable user charges or fees
and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are: (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters; (2)
appropriations arising from certain emergencies declared by the Governor;
(3) appropriations for certain capital outlay projects; and (4)
appropriations by the State of post-1989 increases in gasoline taxes and
vehicle weight fees.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized by Proposition 111 to more closely follow
growth in the State's economy. For the 1990-91 fiscal year, each unit of
government has recalculated its appropriations limit by taking the actual
1986-87 limit and applying the Proposition 111 annual adjustments forward
to 1990-91. This was expected to raise the limit in most cases.
Under Proposition 111, "excess" revenues are measured over a two-year
cycle. With respect to local governments, excess revenues must be returned
by a revision of tax rates or fee schedules within the two subsequent
fiscal years. The appropriations limit for a local government may be
overridden by referendum under certain conditions for up to four years at a
time. With respect to the State, 50% of any excess revenues is to be
distributed to K-12 school and community college districts (collectively,
K-14 districts) and the other 50% is to be refunded to taxpayers.
In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit; in the
mid-to-late 1980's, however, many entities were at or approaching their
limit. Many local entities have successfully sought voter approval for
4-year waivers of the limit and, under Proposition 111, may elect among
different measures of population in setting the limit. During FY 1986-87,
State receipts from proceeds of taxes exceeded its appropriations limit by
$1.138 billion, which was returned to taxpayers. Since that time,
appropriations subject to limitation were under the State limit. The
1993-94 Governor's Budget proposal estimates State appropriations will be
more than $4.1 billion under the limit for FY 1992-93 and over $2.8 billion
under the limit for FY 1993-94.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of February 1, 1993, the State had approximately $17.0 billion of
general obligation bonds outstanding, and $8.6 billion remained authorized
but unissued. In addition, at June 30, 1992, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $2.9
billion. The State issued approximately $4 billion of general obligation
bonds in calendar year 1991, and $3 billion in 1992, and is expected to
decline further in 1993 and 1994. Of the State's outstanding general
obligation debt, approximately 28% is presently self-liquidating (for which
program revenues are anticipated to be sufficient to reimburse the General
Fund for debt service payments). In FY 1991-92, debt service on general
obligation bonds and lease-purchase debt was approximately 3.2% of General
Fund revenues. The State has paid the principal of and interest on its
general obligation bonds, lease-purchase debt, and short-term obligations
when due.
ECONOMY
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population grew by 27% in the 1980s and,
at over 31 million, it now represents 12.3% of the total United States
population. Total personal income in the State, at an estimated $640
billion in 1992, accounts for about 13% of all personal income in the
nation. Total employment is almost 14 million, the majority of which is in
the service, trade, and manufacturing sectors.
Reports by the State Department of Finance and the Commission on State
Finance confirm that the State's economy is suffering the worst recession
since the 1930's, with prospects for recovery slower than for the nation as
a whole. The State lost over 800,000 jobs since the start of the recession,
which are not expected to be replaced until 1996. The largest job losses
were in Southern California, led by declines in the aerospace and
construction industries. Weakness statewide occurred in manufacturing,
construction, services and trade. Unemployment was 7.5% for 1991, and 9.1%
for 1992 and is expected to remain at 9-10% in 1993. The State's economy is
only expected to slowly pull out of the recession starting in late 1993, or
1994. Delay in recovery will exacerbate shortfalls in State revenues.
RECENT STATE FINANCIAL RESULTS
The principal sources of State General Fund revenues in 1991-92 were the
California personal income tax (42% of total revenues), the sales tax
(39%), bank and corporation taxes (11%), and the gross premium tax on
insurance (3%). The State maintains a Special Fund for Economic
Uncertainties (the SFEU), derived from General Fund revenues, as a reserve
to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. Year-end balances
in the SFEU are included for financial reporting purposes in the General
Fund balance. In recent years, the State has budgeted to maintain the
Economic Uncertainties Fund at around 3% of General Fund expenditures.
Throughout the 1980s, State spending increased rapidly as the State
population and economy also grew rapidly, including many assistance
programs to local governments, which were constrained by Proposition 13 and
other laws. The largest State program is assistance to local public school
districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a 2/3 vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 37%).
Since the start of the 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for
health and welfare programs. The State is also facing a structural
imbalance in its budget with the largest programs supported by the General
Fund (education, health, welfare and corrections) growing at rates
significantly higher than the growth rates for the principal revenue
sources of the General Fund. As a result, the State entered a period of
budget imbalance, with expenditures exceeding revenues for four of the last
five completed fiscal years and another operating deficit likely in
1992-93. Revenues declined in 1990-91 over 1989-90, the first time since
the 1930s and will decline in 1992-93 compared to 1991-92. By June 30,
1992, the State's General Fund had an accumulated deficit, on a budget
basis, of approximately $2.2 billion, which may increase by June 30, 1993.
The 1991-92 Fiscal Year Budget was designed to close a "budget gap" of
$14.3 billion, in order to reconcile the excess of projected expenditures
for existing programs, at currently mandated growth rates, over expected
revenues, the need to repay the 1990-91 budget deficit, and the need to
restore a budget reserve. This budget gap was closed through a combination
of temporary and permanent changes in laws and one-time budget adjustments,
consisting of program funding reductions totalling $5.0 billion; a total of
$5.1 billion of increased State revenues; savings of $2.1 billion from
transferring certain health and welfare programs to counties to be funded
by increased sales tax and vehicle license fees to be given directly to
counties; and additional miscellaneous savings and revenue gains and one
time accounting changes totalling $2.1 billion.
The 1991-92 Budget Act was based on economic forecasts that recovery from
the recession would begin in the summer or fall of 1991, but as the
severity of the recession increased, revenues lagged significantly and
continually behind projections from the start of the fiscal year. As a
result, revenues for the 1991-92 Fiscal Year were more than $4 billion
lower than originally projected and expenditures were higher than
originally projected.
As a consequence of the large budget imbalances built up over two
consecutive years, the State used up all of its available cash resources.
In late June 1992, the State was required to issue $475 billion of
short-term revenue anticipation warrants to cover obligations coming due on
June 30 and July 1. These warrants were repaid on July 24, 1992.
At the outset of the 1992-1993 Fiscal Year, the State estimated that
approximately $7.9 billion of budget actions would be required to end the
fiscal year without a budget deficit. The difficulty of taking these
actions delayed enactment of a budget for more than two months past the
start of the 1992-93 Fiscal Year. With the failure to enact a budget by
July 1, 1992, the State had no legal authority to pay many of its vendors
until the budget was passed; nevertheless, certain obligations (such as
debt service, school apportionments, welfare payments, and employee
salaries) were payable because of continuing or special appropriations, or
court orders. However, the State Controller did not have enough cash to pay
as they came due all of these ongoing obligations, as well as valid
obligations incurred in the prior fiscal year. Starting on July 1, 1992,
the Controller was required to issue approximately $3.8 billion of
"registered warrants" in lieu of normal warrants backed by cash to pay many
State obligations (the first time this had occurred since the 1930's).
Available cash was used to pay constitutionally mandated and priority
obligations. All the registered warrants were called for redemption by
September 4, 1992 following enactment of the 1992-93 Budget Act and
issuance by the State of its normal cash flow borrowings.
The Legislature enacted the 1992-93 Budget Bill on August 29, 1992, and it
was signed by the Governor on September 2, 1992. The 1992-93 Budget Act
provided for expenditures of $57.4 billion and consisted of General Fund
expenditures of $40.8 billion and Special Fund and Bond Fund expenditures
of $16.6 billion. The Department of Finance estimated there would be a
balance in the Special Fund for Economic Uncertainties of $28 million on
June 30, 1993.
The $7.9 billion budget gap was closed through use of some increased
revenues and transfers, but primarily with expenditure cuts. The principal
reductions were in health and welfare, K-12 schools and community colleges,
state aid to local governments, higher education (partially offset by
increased student fees), and various other programs. In addition, funds
were transferred from special funds, collections of State revenues were
accelerated, and other adjustments were made.
As in the prior year, the economic and fiscal assumptions on which the
1992-93 Budget Act were based proved to be too optimistic. As the recession
in the State entered its third year, with no real upturn predicted until
1994, State revenues again lagged projections. The Governor's Budget
Proposal for 1993-94, released in January 1993, projected revenues would be
about $2.5 billion below projections for 1992-93. As a result, the Governor
predicted the General Fund would end at June 30, 1993 with a deficit of
about $2.1 billion; however, this prediction assumed that the Legislature
would take about $900 million of cost-saving actions in the current fiscal
year, which may not all occur, and would thereby increase the deficit. The
Governor's Budget also predicted that the State's cash resources would be
depleted by May, 1993, which would necessitate additional short term cash
flow borrowing.
The Governor's Budget Proposal for 1993-94 recognized that the State would
face a third consecutive year of extremely difficult budget choices.
Because several temporary revenue-raising steps taken in 1991 were
scheduled to expire on June 30, 1993, which the Governor did not propose to
extend, revenues for 1993-94 were projected to be about $1 billion lower
than revenues in 1992-93 (the second consecutive year of actual decline).
With the need to repay a projected $2.1 billion accumulated deficit, the
Governor indicated that total General Fund expenditures must be limited to
about $37.3 billion, an 8.5% reduction from the prior year. To achieve the
necessary cost reductions, the Governor proposed cuts in many programs, a
shift of about $2.5 billion of city, county, and special district property
taxes to school districts (which offsets State funding requirements to the
schools), and reliance on receipt of about $1.5 billion in aid from the
federal government to pay for costs associated with foreign immigrants to
the State. If some of the Governor's proposals and assumptions are not
achieved, he proposed even greater cuts in health, welfare and higher
educating funding. For the second year in a row, the Governor's Budget did
not propose to fund any reserve against adverse budgetary developments, and
projected an ending balance in the General Fund at June 30, 1994 of less
than $50 million.
The Commission on State Finance, reviewing the Governor's Budget, agreed
with its pessimistic economic projections, but disagreed with some of its
budgetary estimates and assumptions. Assuming that all of the Governor's
proposals and assumptions were enacted or occurred, the Commission
projected the 1993-94 budget would still be about $1 billion out of balance
because of lower revenues and higher expenditures than the Governor's
predictions. The Commission also indicated this estimate could vary by up
to $2.5-3 billion in either direction if economic conditions in the State
were significantly worse or better than the current basic projection.
The State's severe financial difficulties for the past, the current and
upcoming budget years will result in continued pressure upon almost all
local governments, especially those which depend on State aid, such as
school districts and counties. While the Governor has noted that part of
the "budget gap" was cyclical, a result of economic slowdown which has
reduced growth of revenues in the fiscal years, but a significant part is
structural, with demands for State services and caseloads in major areas of
the budget, such as corrections, welfare indigent health care, and public
schools, growing at a faster rate than the State economy and State
revenues. While recent budgets included both permanent tax increases and
actions to reduce costs of state government over the longer term, the
Governor has stated that structural imbalances still exist, and there can
be no assurance that the State will not face budget gaps in the future.
State general obligation bonds are currently rated "Aa" by Moody's, "AA" by
Fitch, and A1 by S&P. There can be no assurance that such ratings will
be maintained in the future. All three of these ratings were reduced from
"AAA" levels since late 1991.
OBLIGATIONS OF OTHER ISSUERS
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently,
the California Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies; the
reallocation of certain State revenues to local agencies; and the
assumption of certain governmental functions by the State to assist
municipal issuers to raise revenues. Total local assistance from the
State's General Fund totaled approximately $33.0 billion in FY 1991-92
(about 75% of General Fund expenditures) and has been budgeted at $31.1
billion for FY 1992-93, including the effect of implementing reductions in
certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 Budget Act caused local governments to transfer $1.3
billion of property tax revenues to school districts, representing loss of
almost half the post-Proposition 13 "bailout" aid. The Governor has
proposed in his 1993-94 Budget that local governments transfer a further
$2.5 billion of property taxes to school districts, with the possibility
that they could raise taxes at the local level to make up some of the
shortfall.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or
other considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such
reductions in State aid could compound the serious fiscal constraints
already experienced by many local governments, particularly counties. At
least one rural county (Butte) publicly announced that it might enter
bankruptcy proceedings in August 1990, although such plans were put off
after the Governor approved legislation to provide additional funds for the
county. Other counties have also indicated that their budgetary condition
is extremely grave. A school district (Richmond Unified) recently filed for
protection under bankruptcy laws, but the petition was later dismissed;
other school districts have indicated financial stress, although none has
threatened bankruptcy.
ASSESSMENT BONDS. Municipal obligations which are assessment bonds or
Mello-Roos bonds may be adversely affected by a general decline in real
estate values or a slowdown in real estate sales activity. In many cases,
such bonds are secured by land which is undeveloped at the time of issuance
but anticipated to be developed within a few years after issuance. In the
event of such reduction or slowdown, such development may not occur or may
be delayed, thereby increasing the risk of a default on the bonds. Because
the special assessments or taxes securing these bonds are not the personal
liability of the owners of the property assessed, the lien on the property
is the only security for the bonds. Moreover, in most cases the issuer of
these bonds is not required to make payments on the bonds in the event of
delinquency in the payment of assessments or taxes, except from amounts, if
any, in a reserve fund established for the bonds.
CALIFORNIA LONG-TERM LEASE OBLIGATIONS. Certain California long-term lease
obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being
leased is unavailable for beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not a default, and there may be
no remedies available to the holders of the certificates evidencing the
lease obligation in the event abatement occurs. The most common causes of
abatement are failure to complete construction of the facility before the
end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments
may be interrupted (if all available insurance proceeds and reserves are
exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District ("District") entered
into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover
operating deficits. Following a fiscal crisis in which the District's
finances were taken over by a State receiver (including a brief period
under bankruptcy court protection), the District failed to make rental
payments on this lease, resulting in a lawsuit by the Trustee for the
Certificate of Participation holders, in which the State was a named
defendant (on the grounds that it controlled the District's finances). One
of the defenses raised in answer to this lawsuit was the invalidity of the
original lease transaction. The trial court has upheld the validity of the
District's lease but an appeal has been filed by the State. Any ultimate
judgment against the Trustee may have implications for lease transactions
of a similar nature by other California entities.
OTHER CONSIDERATIONS. The repayment of Industrial Development Securities
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Health Care and Hospital Securities may be
affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program),
including risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds
are secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project decline (for example, because
of major natural disaster such as an earthquake), the tax increment revenue
may be insufficient to make principal and interest payments on these bonds.
Both Moody's and S&P suspended ratings on California tax allocation
bonds after the enactment of Articles XIIIA and XIIIB, and only resumed
such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are
the Issuers of Tax Allocation Securities) no longer receive an increase in
tax increment when taxes on property in the project area are increased to
repay voter-approved bonded indebtedness.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California Municipal Obligation in the funds
could be affected by an interruption of revenues because of damaged
facilities or, consequently, income tax deductions for casualty losses or
property tax assessment reductions. Compensatory financial assistance could
be constrained by the inability of (i) an issuer to have obtained
earthquake insurance coverage at reasonable rates; (ii) an insurer to
perform on its contracts of insurance in the event of widespread losses; or
(iii) the federal or State government to appropriate sufficient funds
within their respective budget limitations.
The October 1989 Northern California earthquake is estimated to have
resulted in a $2 billion (0.3%) reduction in personal income statewide, but
wage effects were minor and largely offset by reconstruction activity. The
federal government has committed approximately $3.5 billion to earthquake
relief, and, shortly after the event, the California Legislature enacted,
in special session, a temporary increase in the sales tax rate to finance
relief efforts. The earthquake was not expected to materially affect
California's economy.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution (described briefly above), the ambiguities and possible
inconsistencies in their terms, and the impossibility of predicting future
appropriations or changes in population and the cost of living, and the
probability of continuing legal challenges, it is not currently possible to
determine fully the impact of Article XIIIA or Article XIIIB, or the
outcome of any pending litigation with respect to those provisions on
California obligations in the funds or on the ability of the State or local
governments to pay debt service on such obligations. Legislation has been
or may be introduced (either in the Legislature or by initiative) which
would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities
of state and local governments to impose new taxes or increase existing
taxes. It is not presently possible to predict the extent to which any such
legislation will be enacted, or if enacted, how it would affect California
municipal obligations. It is also not presently possible to predict the
extent of future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay
the principal of, such California municipal obligations in light of future
fiscal circumstances.
SPECIAL FACTORS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial
trends and problems affecting the Commonwealth of Puerto Rico (the
"Commonwealth" or "Puerto Rico"), and is based on information drawn from
official statements and prospectuses relating to the securities offerings
of Puerto Rico, its agencies and instrumentalities, as available on the
date of this Statement of Additional Information. FMR has not independently
verified any of the information contained in such official statements,
prospectuses and other publicly available documents, but is not aware of
any fact which would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1992 trade with the United States accounted for
approximately 88% of Puerto Rico's exports and approximately 68% of its
imports. In this regard, in fiscal 1992 Puerto Rico experienced a
$2,940,300,000 positive adjusted merchandise trade balance. Since fiscal
1987 personal income, both aggregate and per capita, have increased
consistently each fiscal year. In fiscal 1992 aggregate personal income was
$22.7 billion and personal per capita income was $6,360. Gross domestic
product in fiscal 1989, 1990, 1991 and 1992 was $19,954,000, $21,619,000,
22,857,000, and $23,620,000 respectively. For fiscal 1993, an increase in
gross domestic product of 2.9% over fiscal 1992 is forecasted. However,
actual growth in the Puerto Rico economy will depend on several factors
including the condition of the U.S. economy, the exchange rate for the U.S.
dollar, the price stability of oil imports, and interest rates. Due to
these factors there is no assurance that the economy of Puerto Rico will
continue to grow.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the United States average. Despite long
term improvements the unemployment rate rose from 15.2% to 16.5% from
fiscal 1991 to fiscal 1992. At the end of the third quarter of fiscal 1993
the unemployment rate in Puerto Rico stood at 17.3%. There is a possibility
that the unemployment rate will continue to increase.
The economy of Puerto Rico has undergone a transformation in the later
half of this century from one centered around agriculture, to one dominated
by the manufacturing and service industries. Manufacturing is the
cornerstone of Puerto Rico's economy, accounting for $13.2 billion or 38.7%
of gross domestic product in 1992. However, manufacturing has experienced a
basic change over the years as a result of the influx of higher wage, high
technology industries such as the pharmaceutical industry, electronics,
computers, micro-processors, scientific instruments and high technology
machinery. The service sector, which includes wholesale and retail trade,
finance and real estate, ranks second in its contribution to gross domestic
product and is the sector that employs the greatest number of people. In
fiscal 1992, the service sector generated $13.0 billion in gross domestic
product or 38.3% of the total and employed over 449,000 workers providing
46% of total employment. The government sector and tourism also contribute
to the island economy each accounting for $3.7 billion and $1.5 billion in
fiscal 1992, respectively.
Much of the development of the manufacturing sector of the economy of
Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application a credit against their U.S. corporate income tax
on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico ("active income"), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
source investment income ("passive income"). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
On August 16, 1993, President Clinton signed a bill amending Section
936. Under the amendments, U.S. corporations with operations in Puerto Rico
can elect to receive a federal income tax credit equal to: 40% of the
credit currently available, phased in over a five year period, starting at
60% of the current credit, or a credit based on investment and wages. The
investment and wage credit would equal the sum of (i) 60% of qualified
compensation to employees, (ii) a specified percentage of depreciation
deductions with respect to tangible property located in Puerto Rico, and
(iii) a portion of income taxed paid to Puerto Rico, up to a 9% effective
tax rate, subject to certain requirements. It is not possible to determine
at this time whether the reductions in tax incentives for operations in
Puerto Rico will have a significant impact on the economy of Puerto Rico or
the time period in which such impact would arise.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the funds by FMR (either directly or through affiliated
sub-advisers) pursuant to authority contained in the management contracts.
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 will consider various relevant factors, including, but
not limited to, the size and type of the transaction; the nature and
character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition of the
broker-dealer firm; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any commissions.
The 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; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). FMR maintains a listing of broker-dealers who
provide such services on a regular basis. However, since 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 is generally 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 a
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, except in accordance with
regulations of the Securities and Exchange Commission. Pursuant to such
regulations, the Board of Trustees has approved a written agreement that
permits FBSI to effect portfolio transactions on national securities
exchanges and to retain compensation in connection with such transactions.
For fiscal periods March 1, 1993 to February 28, 1994 and May 1,
1992 to February 28, 1993 and the fiscal year ended April 30, 1992, the
funds paid no brokerage commissions.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of
each fund 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 each fund.
For the fiscal periods March 1, 1993 to February 28, 1994 and May 1,
1992 to February 28, 1993 , the insured and high yield funds'
turnover rates were __% and 27% (annualized) and __% and 32%
(annualized) , respectively.
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 the funds 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 are managed by
the same investment adviser, particularly when the same security is
suitable for the investment objective of more than one fund.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the funds involved to be
equitable to each fund. In some cases, this system could have a detrimental
effect on the price or value of the security as far as the funds are
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 Board of Trustees that the
desirability of retaining FMR as investment adviser to the funds outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
VALUATION OF PORTFOLIO SECURITIES
INSURED AND HIGH YIELD FUNDS. Valuations of portfolio securities furnished
by the pricing service employed by the insured and high yield 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.
MONEY MARKET FUND. The fund values its investments on the basis of
amortized cost. This technique involves valuing an instrument at its cost
as adjusted for amortization of premium or accretion of discount rather
than its value based on current market quotations or appropriate
substitutes which reflect current market conditions. The amortized cost
value of an instrument may be higher or lower than the price the money
market 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 1940 Act.
The money market fund must adhere to certain conditions under Rule 2a-7;
these conditions are summarized in the Prospectus.
The Board of Trustees of the money market fund 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 the fund's amortized cost per share
may result in material dilution or other unfair results to shareholders,
the Trustees have agreed to take such corrective action, if any, as they
deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action could
include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding
dividends; redeeming shares in kind; establishing NAV by using available
market quotations; and such other measures as the Trustees may deem
appropriate.
During periods of declining interest rates, the money market fund's yield
based on amortized cost may be higher than the yield based on market
valuations. Under these circumstances, a shareholder in the money market
fund would be able to obtain a somewhat higher yield than would result if
the money market 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. The insured and high yield funds'
share price, and all of the funds' yields and total returns fluctuate in
response to market conditions and other factors. The value of the insured
and high yield funds' 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
(exclusive of capital gains) 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.
For the INSURED AND HIGH YIELD FUND, yields used in advertising 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 the fund's
net asset value per share at the end of the period, and annualizing the
result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of the insured and high
yield 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 calculating the insured and high
yield funds' yields 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, a 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.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment after 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 the fund's yield is tax-exempt, only that
portion is adjusted in the calculation.)
The following tables show the effect of a shareholder's tax status on the
effective yield under federal and state income tax laws for 199 4 .
They show the approximate yield a taxable security must provide at various
income brackets to produce after-tax yields equivalent to those of
tax-exempt obligations yielding from 2.0% to 7.0%. Of course, no assurance
can be given that the funds will achieve any specific tax-exempt yield.
While each fund invests principally in obligations whose interest is exempt
from federal and state income tax, other income received by the funds may
be taxable. The funds do not take into account local taxes, if any, payable
on fund distributions.
1994 TAX RATES AND TAX EQUIVALENT YIELDS
Combined California
Single Return Joint Return Federal and Federal Effective
Taxable Income* Taxable Income* Tax Bracket Tax Bracket
$ 22,751 - 24,228 $ 38,001 - 48,456 28.% 32.32%
24,229 - 30,620 48,457 - 61,420 28 33.76
30,621 - 55,100 61,241 - 91,850 28 34.70
55,101 - 106,190 91,851 - 140,000 31 37.42
106,191 - 115,000 -- - -- 31 37.90
-- - -- 140,001 - 212,380 36 41.95
115,001 - 212,380 212,381 - 250,000 36 42.40
212,381 - 250,000 -- - -- 36 43.04
-- - -- 250,001 - 424,760 39.6 45.64
250,001 + 424,761 + 39.6 46.24
*Net taxable income after all exemptions, adjustments, and deductions.
These are based on rates currently applicable in 1993 and assume one
exemption for single filers and two exemptions for married couples files
jointly.
Having determined your effective tax bracket above, use the following
table to determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in 1993
is:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32.32% 33.76% 34.70% 37.42% 37.90% 41.95% 42.40% 43.04% 45.64% 46.24%
</TABLE>
Then your tax-equivalent yield is:
Tax-Free Yield
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2% 2.96% 3.02% 3.06% 3.20% 3.22% 3.45% 3.47% 3.51% 3.68% 3.72%
3% 4.43% 4.53% 4.59% 4.79% 4.83% 5.17% 5.21% 5.27% 5.52% 5.58%
4% 5.91% 6.04% 6.13% 6.39% 6.44% 6.89% 6.94% 7.02% 7.36% 7.44%
5% 7.39% 7.55% 7.66% 7.99% 8.05% 8.61% 8.68% 8.78% 9.20% 9.30%
6% 8.87% 9.06% 9.19% 9.59% 9.66% 10.34% 10.42% 10.53% 11.04% 11.16%
7% 10.34% 10.57% 10.72% 11.19% 11.27% 12.06% 12.15% 12.29% 12.88% 13.02%
8% 11.82% 12.08% 12.25% 12.78% 12.88% 13.78% 13.89% 14.04% 14.72% 14.88%
</TABLE>
The fund may invest a portion of its assets in obligations that are
subject to state or federal income taxes. When the fund invests in these
obligations, its tax-equivalent yields will be lower. In the table above,
tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
The California income tax rates are those in effect for 1992, which will be
the same in 1993 except that California law requires that the brackets be
adjusted annually for inflation using 100% of the California Consumer Price
Index through June of the tax year. As of the date of this Statement of
Additional Information, the California Franchise Tax Board had not
published the 1993 inflation adjusted tax brackets. Each fund may invest a
portion of its assets in obligations that are subject to state or federal
income taxes. When a fund invests in these obligations, its tax-equivalent
yields will be lower. In the table above, tax-equivalent yields are
calculated assuming investments are 100% federally and state tax-free.
Yield information may be useful in reviewing the funds' 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 the respective investment companies they have
chosen to consider.
Investors should recognize that in periods of declining interest rates the
fund's yields 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 yields. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's returns, including the effect of reinvesting dividends
and capital gain distributions (if any), and any change in the fund's net
asset value per share (NAV) over the 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 return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis
in ten years. While average annual 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 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. An example of this type of
illustration is given below. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using the insured or high yield funds'
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 charts show the funds' yields,
tax-equivalent yields, and total returns for periods ended February 28,
1994 :
MONEY MARKET FUND
Tax Equivalent Average Cumulative
7-day Yield 7-day Yield Annual Total Returns Total Returns
One Five Life One Five Life
Year Year s(see note) of Fund* (see note) Year Years (see
note) of Fund* (see note)
_____ % _____ % ____ %
_____ % ____ % _____ %
____ % ____ %
(see note) If FMR had not reimbursed certain fund expenses during
the periods, the funds' total returns would have been lower.
* From July 7, 1984 (commencement of operations).
INSURED FUND
Tax Equivalent Average Cumulative
30-day Yield 30-day Yield Annual Total Returns Total
Returns
One Five Life One Five Life
Year (see note) Years of Fund* (see note) Year (see
note) Years of Fund* (see note)
_____ % (see note) _____ % (see note) ____ %
___% ____ % ____ % ____ % ____ %
* From September 18, 1986 (commencement of operations).
(see note) If FMR had not reimbursed certain fund expenses during the
periods, the funds' total returns would have been lower.
HIGH YIELD FUND
Tax Equivalent Average Cumulative
30-day Yield 30-day Yield Annual Total Returns Total Returns
One Five Life One Five Life
Year Years of Fund* Year Years of Fund*
_____ % ____ % ____ % ____ % ____ %
_____ % ____ % _____ %
* From July 7, 1984 (commencement of operations).
The tax-equivalent yields are based on the highest 199 4 combined
federal and state income tax bracket of ___ %, and reflect that none
of the funds' investments on February 28, 1994 were subject to state
taxes.
During the periods quoted, interest rates and bond prices fluctuated
widely; thus the tables should not be considered representative of the
dividend income or capital gain or loss that could be realized from
investment in the funds today.
MONEY MARKET FUND. During the period from July 7, 1984 (commencement of
operations) to February 28, 1994 , a hypothetical investment of
$10,000 in the money market fund would have grown to $ _________
assuming all distributions were reinvested.
MONEY MARKET FUND INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Period Initial Reinvested Reinvested Cost
Ended $10,000 Dividend Capital Gain Total of
February 28 Investment Distributions Distributions Value S& DJIA Living**
P 500
</TABLE>
1994 $_______ $______ $__ $_______ $_______ $_____ $______
1993 $9,980 $4,638 $0 $14,618 $_______ $_____ $______
1992 $9,980 $4,293 $0 $14,273 $_______ $_____ $______
1991 $9,980 $3,775 $0 $13,755 $_______ $_____ $______
1990 $9,980 $3,113 $0 $13,093 $_______ $_____ $______
1989 $9,980 $2,403 $0 $12,383 $_______ $_____ $______
1988 $9,980 $1,814 $0 $11,794 $_______ $_____ $______
1987 $9,980 $1,336 $0 $11,316 $_______ $_____ $______
1986 $9,980 $ 904 $0 $10,884 $_______ $_____ $______
1985(see note) $9,990 $ 378 $0 $10,368 $_______ $_____ $______
(see note) From July 7, 1984 (commencement of operations).
** From month-end closest to initial investment date.
EXPLANATORY NOTES: With an initial investment of $10,000 made on July 7,
1984, 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 $ ______ . If distributions had not
been reinvested, the amount of distributions earned from the fund over time
would have been smaller, and the cash payments (dividends) for the period
would have amounted to $ ______ . The fund did not distribute any
capital gain distributions during this period and does not anticipate that
it will in the future. If FMR had not reimbursed certain fund expenses
during the periods shown, the fund's returns would have been lower.
INSURED FUND. During the period from September 18, 1986 (commencement of
operations) to February 28, 1994 , a hypothetical investment of
$10,000 in the insured fund would have grown to $ ________ assuming
all distributions were reinvested.
INSURED FUND INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Period Initial Reinvested Reinvested Cost
Ended $10,000 Dividend Capital Gain Total of
February 28 Investment Distributions Distributions Value S& DJIA Living**
P 500
</TABLE>
1994 $_______ $______ $__ $_______ $_______ $_____ $______
1993 $11,030 $5,464 $0 $16,494 $_______ $_____ $______
1992 $10,090 $4,159 $0 $14,249 $_______ $_____ $______
1991 $9,710 $3,198 $0 $12,908 $_______ $_____ $______
1990 $9,640 $2,389 $0 $12,029 $_______ $_____ $______
1989 $9,440 $1,609 $0 $11,049 $_______ $_____ $______
1988 $9,640 $ 935 $0 $10,575 $_______ $_____ $______
1987(see note) $10,320 $ 274 $0 $10,594 $_______ $_____
$______
(see note) Fr om September 18, 1986 (commencement of operations).
** From month-end closest to initial investment date.
EXPLANATORY NOTES: With an initial investment of $10,000 made on September
18, 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 for the period covered (their cash value at the time
they were reinvested), amounted to $ ______ . If distributions had not
been reinvested, the amount of distributions earned from the fund over time
would have been smaller, and the cash payments (dividends) for the period
would have come to $ _____ . There were no capital gain distributions
during this period. If FMR had not reimbursed certain fund expenses during
the periods shown above, the fund's returns would have been lower.
HIGH YIELD FUND. During the period from July 7, 1984 (commencement of
operations) to February 28, 1994 , a hypothetical investment of
$10,000 in the high yield fund would have grown to $ _________
assuming all distributions were reinvested.
HIGH YIELD FUND INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Period Initial Reinvested Reinvested Cost
Ended $10,000 Dividend Capital Gain Total of
February 28 Investment Distributions Distributions Value S& DJIA Living**
P 500
</TABLE>
1994 $_______ $______ $__ $_______ $_______ $_____ $______
1993 $12,430 $10,651 $153 $23,234 $_______ $_____ $______
1992 $11,580 $ 8,617 $142 $20,339 $_______ $_____ $______
1991 $11,280 $ 7,150 $139 $18,568 $_______ $_____ $______
1990 $11,200 $ 5,901 $138 $17,239 $_______ $_____ $______
1989 $10,910 $ 4,650 $134 $15,694 $_______ $_____ $______
1988 $11,060 $ 3,642 $136 $14,838 $_______ $_____ $______
1987 $12,080 $ 2,872 $ 64 $15,016 $_______ $_____ $______
1986 $11,540 $ 1,807 $ 0 $13,347 $_______ $_____
$______
1985(see note) $10,210 $ 636 $ 0 $10,846 $_______ $_____ $______
(see note) From July 7, 1984 (commencement of operations).
** From month-end closest to initial investment date.
EXPLANATORY NOTES: With an initial investment of $10,000 made on July 7,
1984, 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
$ ________ . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
the cash payments for the period would have come to $ ______ for
income dividends and $ _____ for capital gain distributions.
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 mutual
fund performance indices prepared by Lipper.
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.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the 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(REGISTERED TRADEMARK)
/All Tax-Free,
which is reported in the MONEY FUND REPORT(REGISTERED TRADEMARK), covers
over 335 tax-free
money market funds. The Bond Fund Report AverageS(REGISTERED TRADEMARK)
/All Tax-Free,
which is reported in the BOND FUND REPORT(REGISTERED TRADEMARK), covers
over 355 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.
The insured and high yield funds, however, invest in longer-term
instruments and their share prices change daily in response to a variety of
factors.
The insured and high yield funds may compare and contrast in advertising
the relative advantages of investing in a mutual fund versus an individual
municipal bond. Unlike tax-free mutual funds, individual municipal bonds
offer a stated rate of interest and, if held to maturity, repayment of
principal. Although some individual municipal bonds might offer a higher
return, they do not offer the reduced risk of a mutual fund that invests in
many different securities. The initial investment requirements and sales
charges of many tax-free mutual funds are lower than the purchase cost of
individual municipal bonds, which are generally issued in $5,000
denominations and are subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; charitable
giving; and the Fidelity credit card. In addition, Fidelity may quote
financial or business publications and periodicals, including model
portfolios or allocations, as they relate to fund management, investment
philosophy, and investment techniques. Fidelity may also reprint, and use
as advertising and sales literature, articles from Fidelity Focus, a
quarterly magazine provided free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(REGISTERED TRADEMARK)
number, and CUSIP
number, and discuss or quote its current portfolio manager.
Thee insured and high yield funds 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 February 28, 1994 FMR advised __ tax-free funds or
portfolios with a total value of over $ ___ billion. According to the
Investment Company Institute, over the past ten years, assets in tax-exempt
money market funds increased from $23.8 billion in 1984 to approximately
$94.8 billion at the end of 1992. The money market fund may reference the
growth and variety of money market mutual funds and the adviser's
innovation and participation in the industry.
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 1993:
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day
(observed). Although FMR expects the same holiday schedule , with the
addition of New Years Day, to be observed in the future, the NYSE may
modify its holiday schedule at any time.
FSC normally determines each fund's NAVs as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that fund 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.
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 each 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 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 by the SEC, 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 ha s notified shareholders that
it reserve s 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 derived from federally
tax-exempt interest, the daily dividends declared by each fund are also
federally tax-exempt. The funds will send each shareholder a notice in
January describing the tax status of dividends and capital gain
distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income such as social security
benefits, may be subject to federal income tax on up to one half of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
The funds purchase municipal obligations based on opinions of bond counsel
regarding the federal income tax status of the obligations. These opinions
generally will be based upon covenants by the issuers regarding continuing
compliance with federal tax requirements. If the issuer of an obligation
fails to comply with its covenants at any time, interest on the obligation
could become federally taxable retroactive to the date the obligation was
issued.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities (referred to as "qualified bonds" in the Internal
Revenue Code) is subject to the federal alternative minimum tax (AMT),
although the interest continues to be excludable from gross income for
other purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the funds' policies of investing so
that at least 80% of their income is free from federal income tax.
Interest from private activity securities is a tax preference item for
the purposes of determining whether a taxpayer is subject to the AMT and
the amount of AMT tax 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.
It is the current position of the Staff of the Securities and Exchange
Commission that a fund which uses the word "tax-free" in its name may not
derive more than 20% of its income from municipal obligations that pay
interest that is a preference item for purposes of the AMT. Under this
position, at least 80% of each fund's income distributions would have to be
exempt from the AMT as well as federal taxes.
Corporate investors should note that an adjustment 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.
The insured and high yield funds do not currently intend to purchase
private activity municipal obligations whose interest is a tax preference
item for purposes of the AMT. Nevertheless, each of these funds reserves
the right to purchase such obligations in the future, subject to notice to
shareholders, if its Board of Trustees determines that it is in the best
interest of shareholders to do so.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the insured
and high yield funds on the sale of securities and distributed to
shareholders are federally taxable as long-term capital gains, regardless
of the length of time that shareholders have held their shares. If a
shareholder receives a long-term capital gain distribution on shares of
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.
A portion of the gain on bonds purchased at a discount after April 30,
1993 and short-term capital gains distributed by the funds are federally
taxable to shareholders as dividends, not as capital gains. Distributions
from short-term capital gains do not qualify for the dividends-received
deduction. Dividend distributions resulting from a recharacterization of
gain from the sale of bonds purchased at a discount after April 30, 1993
are not considered income for purposes of the funds' policy investing so
that at least 80% of their income is free from federal income tax. The
money market fund may distribute any net realized short-term capital gains
once a year or more often as necessary to maintain its net asset value at
$1.00 a share.
TAX STATUS OF THE FUNDS. Each fund has qualified and intends to continue 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 all of its net investment
income and net realized capital gains (if any) within each calendar year as
well as on a fiscal year basis. 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 the insured and high yield funds' investments
in such instruments. Fidelity California Municipal Trust treats each of its
funds (including the insured and high yield funds) as a separate entity for
tax purposes. Fidelity California Municipal Trust II treats the money
market fund as a separate entity for tax purposes.
As of February 28, 19 94 , the funds had approximate capital loss
carryovers available to offset capital gains as follows:
AGGREGATE
CAPITAL
LOSS AMOUNT THAT EXPIRES ON FEBRUARY 28,
CARRYOVERS 1994 1996 1997 1998 2000
Money Market Fund $ _________ $________ $_______ $_________ $_______
$_______
Insured Fund $_________ $_______ $_______ $_________ $_______
$_______
High Yield Fund $_________ $________ $_______ $_________ $_______
$_______
To the extent that capital loss carryovers are used to offset any future
capital gains, it is unlikely that the gains so offset will be distributed
to shareholders, since any such distributions may be taxable to
shareholders as ordinary income.
CALIFORNIA TAX MATTERS. As long as a fund continues to qualify as a
regulated investment company under the federal Internal Revenue Code, it
will incur no California income or franchise tax liability on income and
capital gains distributed to shareholders. California personal income tax
law provides that exempt-interest dividends paid by a regulated investment
company, or series thereof, from interest on obligations which are exempt
from California personal income tax are excludable from gross income. For a
fund to qualify to pay exempt-interest dividends under California law, at
least 50 percent of the value of its assets must consist of such
obligations at the close of each quarter of its fiscal year. For purposes
of California personal income taxation, distributions to individual
shareholders derived from interest on other types of obligations and
short-term capital gains will be taxed as dividends, and long-term capital
gain distributions will be taxed as long-term capital gains. California has
an alternative minimum tax similar to the federal AMT described above.
However, the California AMT does not include interest from private activity
municipal obligations as an item of tax preference. Interest on
indebtedness incurred or continued by a shareholder in connection with the
purchase of shares of a fund will not be deductible for California personal
income tax purposes.
FUTURES AND OPTIONS TRANSACTIONS (insured and high yield funds). A special
"marked-to-market" system governs the taxation of "section 1256 contracts."
These contracts generally include options on debt securities, futures
contracts, and options on interest rate futures contracts. The insured and
high yield funds may invest in section 1256 contracts. In general, gain or
loss on section 1256 contracts will be taken into account for tax purposes
when actually realized (by a closing transaction, by exercise, by taking
delivery, or by other termination). In addition, any section 1256 contracts
held at the end of a taxable year will be treated as sold at fair market
value (marked-to-market) and the resulting gain or loss will be recognized
for tax purposes. Provided that a section 1256 contract is not part of a
"mixed" straddle which a fund elects to exclude from the "marked-to-market"
rules, both the realized and the unrealized taxable year-end gain or loss
positions (including premiums on options that expire) will be treated as
60% long-term and 40% short-term capital gain or loss, regardless of the
period of time a particular position is actually held by the fund.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the funds and their shareholders,
and no attempt has been made to discuss individual tax consequences.
Investors should consult their tax advisers to determine whether the funds
are suitable to their particular tax situations.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; Fidelity Investments Institutional Operations Company, which
performs shareholder servicing functions for certain institutional
customers; and Fidelity Investments Retail Marketing Company, which
provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services to FMR in
connection with certain funds advised by FMR. Analysts employed by FMR, FMR
U.K., and FMR Far East research and visit thousands of domestic and foreign
companies each year. FMR Texas Inc., a wholly owned subsidiary of FMR
formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the 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 California Municipal Trust prior to the money market
fund's conversion from a series of Fidelity California Municipal Trust II
served Fidelity California Municipal Trust in identical capacities. All
persons named as Trustees also serve in similar capacities for other funds
advised by FMR. Unless otherwise noted, the business address of each
Trustee and officer is 82 Devonshire Street, Boston, MA 02109, which is
also the address of FMR. Those Trustees who are "interested persons" (as
defined in the 1940 Act) by virtue of their affiliation with either trust
or with FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, 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. (1989), Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc. , and Fidelity Management & Research
(Far East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is
President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Prior to his retirement in March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Bonneville Pacific
Corporation (independent power, 1989) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, 340 E. 64th Street #22C, New York, NY, 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 serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road. Chagrin Falls , OH, Trustee
(1990). Prior to his retirement in 1984, Mr. Jones was Chairman and Chief
Executive Officer of LTV Steel Company. Prior to May 1990, he was Director
of National City Corporation (a bank holding company) and National City
Bank of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation (1988), Hyster-Yale Materials Handling, Inc. (1989), and
RPM, Inc. (manufacturer of chemical products, 1990). In addition, he serves
as a Trustee of First Union Real Estate Investments; Chairman of the Board
of Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich,
CT, Trustee, is a Professor at Columbia University Graduate School of
Business and a financial consultant. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and Valuation Research Corp. (appraisal and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of The National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association .
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR
(199 2 ). Prior to his retirement on May 31, 1990, he was a Director
of FMR (1989) 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, 1989) 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, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), and York International Corp. (air conditioning and
refrigeration, 1989) , Commercial Intertech Corp. (water treatment
equipment, 1992), and Associated Estates Realty Corporation (a real estate
investment trust, 1993) .
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company. He
is a Director of Allegheny Power Systems, Inc. (electric utility), General
Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). He is also
a Trustee of Rensselaer Polytechnic Institute and of Corporate Property
Investors and a member of the Advisory Boards of Butler Capital Corporation
Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, 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, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
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. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President and General
Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President
and Clerk of FDC.
THOMAS D. MAHER, Assistant Vice President (1990), is Assistant Vice
President of Fidelity's money market funds and Vice President of FMR Texas,
Inc. (1990).
JOHN F. HALEY Jr., is a Vice President of Fidelity Management Trust
Company, the insured and high yield funds (1990) and other funds advised by
FMR and an employee of FMR.
DEBORAH F. WATSON, is a Vice President of the money market fund (1992) and
other funds advised by FMR and an employee of FMR.
Under a retirement program that became effective on November 1, 1989,
Trustee s , upon reaching age 72, becomes eligible to participate in a
defined benefit retirement program under which they receive payments
during t h eir lifetime from the funds, based on their
basic trustee fees and length of service. Currently, Messrs. Robert L.
Johnson, William R. Spaulding, Bertram H. Witham, and David L.
Yunich participate in the program.
As of February 28, 1994 , the Trustees and officers of each fund
owned, in the aggregate, less than __ % of the outstanding shares of
each fund.
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 the fund in accordance with its investment
objective, policies, and limitations. FMR also provides the funds with all
necessary office facilities and personnel for servicing the funds'
investments, and compensates all officers of the trust, all Trustees who
are "interested persons" of the trust or of FMR, and all personnel of the
trust or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each 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 funds' records and the registration of the fund ' s
shares under federal and state law; developing management and shareholder
services for the funds; and furnishing reports, evaluations, and analyses
on a variety of subjects to the Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
United Missouri, each fund pays all of its expenses, without limitation,
that are not assumed by those parties. The fund pays for
typesetting, printing, and mailing of proxy material to shareholders, legal
expenses, and the fees of the custodian, auditor, and non-interested
Trustees. Although the fund's management contract provides that the
fund will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices and reports to existing
shareholders, United Missouri entered into a revised sub-transfer agent
agreement with FSC, pursuant to which FSC bears the cost of providing these
services to existing shareholders. Other expenses paid by each fund include
interest, taxes, brokerage commissions, the fund's proportionate
share of insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal and state securities laws. Each
fund is also liable for such nonrecurring expenses as may arise, including
costs of any litigation to which a fund may be the party, and any
obligation it may have to indemnify the trusts' officers and Trustees with
respect to litigation.
FMR is the manager of the insured and high yield funds pursuant to
management contracts dated March 1, 1994, which were approved by
shareholders on February 16, 1994 , and is the manager of the money
market fund pursuant to a management contract dated December 30, 1991. The
December 30, 1991 contract was approved by Fidelity California Municipal
Trust as sole shareholder of the money market fund on December 30, 1991,
pursuant to an Agreement and Plan of Conversion approved by public
shareholders of the money market fund on October 23, 1991. (The terms of
the money market fund's current contract with FMR duplicate those of its
previous contract, which was dated November 1, 1989.) For the services of
FMR under the contracts, each fund pays FMR a monthly management fee
composed of the sum of two elements: a group fee rate and an individual
fund fee rate.
The group fee rate is based on the monthly average net assets of all of
the registered investment companies with which FMR has management contracts
and is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown on the left of the following table. On the right, the
effective fee rate schedules show the results of cumulatively applying the
annualized rates at varying asset levels. For example, the effective annual
fee rate at $___ billion of group net assets -- their approximate level for
February 1994 -- was ._____%, which is the weighted average of the
respective fee rates for each level of group net assets up to $____
billion.
GROUP FEE RATE SCHEDULE* EFFECTIVE ANNUAL FEE RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Group
Annualized
Group Net
Effective Annual Fee
Assets Rate Assets Rate
0 - $ 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
</TABLE>
* The rates shown for average group assets in excess of $174 billion
were adopted by FMR on a voluntary basis on November 1, 1993 pending
shareholder approval of a new management contract reflecting the extended
schedule. The extended schedule provides for lower management fees as total
assets under management increase. On February 16, 1994, shareholders of the
insured and high yield funds approved a new management contract which
reflects the extended schedule. The money market fund will present a new
management contract reflecting the extended schedule to shareholders at its
next meeting.
Each fund's individual fund fee rate is .25%. Based on the average net
assets of funds advised by FMR for February 199 4 , the annual
management fee rate for each fund would be calculated as follows:
Individual Fund Management
Group Fee Rate Fee Rate Fee Rate
. _______ .25% = ______ %
One-twelfth (1/12) of this annual management fee rate is then applied to
each fund's average net assets for the current month, resulting in a dollar
amount which is the fee for that month.
The schedule shown above (minus the breakpoints added November 1, 1993)
was voluntarily adopted by FMR on January 1, 1992 until shareholders could
meet to approve the amended management contract. Prior to January 1, 1992,
each fund's group fee rate was based on a schedule with breakpoints ending
at .150% for average group assets in excess of $84 billion. FMR had
voluntarily adopted the shorter schedule on August 1, 1988.
FMR may, from time to time, voluntarily reimburse all or a portion of
the funds' operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). Effective March 10, 1993, FMR
voluntarily agreed to temporarily limit the total expenses of the insured
fund to an annual rate of .35% of the fund's average net assets.
The following table outlines expense limitations (as a percentage of a
fund's average net assets) in effect from March 10, 1993 to October 1, 1993
for the insured fund.
From To Expense Limitation
March 10, 1993 July 31, 1993 .35%
August 1, 1993 August 31, 1993 .45%
Septmeber 1, 1993 September 30, 1993 .55%
Management fees paid to FMR are indicated below for the periods
shown.
MANAGEMENT FEES
Fiscal Year Fiscal Period Fiscal Year
March 1, 1993 to May 1, 1992 to Ended
February 28, 1994 February 28, 1993 April 30, 1992
Money Market Fund $________________ $1,921,573 $2,358,914
Insured Fund $_________________* $ 748,875 $ 622,304
High Yield Fund $________________ $1,905,430 $2,270,343
* Net of reimbursement.
If FMR had not voluntarily limited the total expenses of the insured
fund, management fees paid to FMR for fiscal 1994 would have amounted to
$_________________.
To comply with the California Code of Regulations, FMR will reimburse each
fund if and to the extent that a fund's aggregate annual operating expenses
exceed specified percentages of its average net assets. The applicable
percentages for each fund are 2 1/2% of the first $30 million, 2% of the
next $70 million, and 1 1/2% of average net assets in excess of $100
million. When calculating the funds' expenses for purposes of this
regulation, a fund may exclude interest, taxes, brokerage commissions, and
extraordinary expenses, as well as a portion of its distribution plan
expenses.
SUB-ADVISER. With respect to the money market fund, FMR has entered into a
sub-advisory agreement with FMR Texas pursuant to which FMR Texas has
primary responsibility for providing portfolio investment management
services to the fund. Under the sub-advisory agreement, FMR pays FMR Texas
a fee equal to 50% of the management fee payable to FMR under its current
management contract with the fund. The fees paid to FMR Texas are not
reduced by any voluntary or mandatory expense reimbursements that may be in
effect from time to time. For the fiscal period s March 1, 1993 to
February 28, 1994 and May 1, 1992 to February 28, 1994 and the
fiscal year ended April 30, 1992, FMR paid FMR Texas total fees of
$__________, $897,622, and $1,123,880, respectively, pursuant
to the sub-advisory agreement.
DISTRIBUTION AND SERVICE PLANS
Each fund has adopted a distribution and service plan (the plan) under Rule
12b-1 of the Investment Company Act of 1940 (the Rule). The Rule provides
in substance that a mutual fund may not engage directly or indirectly in
financing any activity that is primarily intended to result in the sale of
shares of the fund except pursuant to a plan adopted by the fund under the
Rule. The Board of Trustees has adopted the plan to allow the fund and FMR
to incur certain expenses that might be considered to constitute indirect
payment by the fund of distribution expenses. Under the plans, if the
payment by the fund to FMR of management fees should be deemed to be
indirect financing by the fund of the distribution of its shares, such
payment is authorized by the plan.
The plans specifically recognize that FMR, either directly or through FDC,
may use its management fee revenues, past profits, or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the funds. In addition, the
plans provide that FMR may use its resources, including its management fee
revenues, to make payments to third parties that provide assistance in
selling the funds' shares, or to third parties, including banks, that
render shareholder support services. For fiscal 1994 payments to third
parties amounted to $__________, $_________, and $__________ for the
money market, insured, and high yield funds, respectively.
Each fund's plan has been approved by the Trustees. As required by the
Rule, the Trustees carefully considered all pertinent factors relating to
implementation of the plan prior to their approval, and have determined
that there is a reasonable likelihood that the plans will benefit the funds
and their shareholders. In particular, the Trustees noted that the plans do
not authorize payments by the funds other than those made to FMR under its
management contracts with the funds. To the extent that the plans give FMR
and FDC greater flexibility in connection with the distribution of shares
of the funds, additional sales of the funds' shares may result.
Additionally, certain shareholder support services may be provided more
effectively under the plans by local entities with whom shareholders have
other relationships. The insured and high yield funds '
plan s w ere approved by shareholders on November 18, 1987
and December 30, 1985 , respectively . The plan for the money
market fund was approved by Fidelity California Municipal Trust on December
30, 1991, as the then sole shareholder of the money market fund, pursuant
to an Agreement and Plan of Conversion approved by public shareholders of
the money market fund on October 23, 1991.
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,
and 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. The funds may execute portfolio
transactions with and purchase securities issued by depository institutions
that receive payments under the plans. No preference will be shown in the
selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may differ
from the interpretations of federal law expressed herein, and banks and
other financial institutions may be required to register as dealers
pursuant to state law.
INTEREST OF FMR AFFILIATES
United Missouri, is each fund ' s custodian and transfer agent.
United Missouri has entered into sub-contracts with FSC, an affiliate of
FMR, under the terms of which FSC performs the processing activities
associated with providing transfer agent and shareholder servicing
functions for each fund. Under the sub-contract, FSC bears the expense of
typesetting, printing, and mailing, prospectuses, statements of additional
information, and all other reports, notices, and statements to
shareholders, except proxy statements. FSC also pays all out-of-pocket
expenses associated with transfer agent services.
United Missouri pays FSC an annual fee of $13.75 (money market fund) or
$25.50 (insured and high yield funds) per regular account with a balance of
$5,000 or more, $10.00 (money market fund) and $15.00 (insured and high
yield funds) per regular account with a balance of less than $5,000, and a
supplemental activity charge of $5.61 for monetary transactions. The
account fee and monetary transaction charge for accounts set up as Core
Accounts in the Fidelity Ultra Service Account program are $12.35 and $.74,
respectively. These fees and charges are subject to annual cost escalation
based on postal rate changes and changes in wage and price levels as
measured by the National Consumer Price Index for Urban Areas. With respect
to institutional client master accounts, United Missouri pays FSC per
account fees of $95 and monetary transactions charges of $20 and $17.50,
respectively, depending on the nature of services provided.
Prior to November 15, 1991 for the money market fund and November 8, 1991
for the insured and high yield funds, Shawmut Bank N.A. (Shawmut) served as
the fund's custodian and transfer agent and also sub-contracted FSC to
perform the processing activities associated with providing transfer agent
and shareholder servicing functions for the funds. Beginning June 1, 1989,
FSC was compensated by Shawmut on the same basis as it is currently
compensated by United Missouri (although fee rates and charges were
adjusted periodically to reflect postal rate changes and changes in wage
and price levels as measured by the National Consumer Price Index for Urban
Areas).
Transfer agent fees paid to FSC for the fiscal periods shown below
are indicated in the following table.
TRANSFER AGENT FEES
Fiscal Year Fiscal Period
March 1, 1993 to May 1, 1992 to Fiscal Year Ended
February 28, 1994 February 28, 1994 April 30, 1992
Money Market Fund $_______________ $706,501 $809,728
Insured Fund $_______________ $206,003 $163,753
High Yield Fund $_______________ $448,116 $521,467
United Missouri has an additional sub-contract 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.
The annual fee rates for these pricing and bookkeeping services are based
on the fund's average net assets and are as follows:
$0-$500M Greater Than $500M Minimum Per Year Maximum Per Year
Money Market Fund .0175% .0075% $20,000 $750,000
Insured and High Yield Fund s .04 .02
45,000 750,000
Prior to November 14, 1991 for the money market fund and November 7, 1991
for the insured and high yield funds, Shawmut sub-contracted with FSC for
pricing and bookkeeping services. Beginning July 1, 1991, FSC was
compensated for these services by Shawmut on the same basis as it is
currently compensated by United Missouri. Prior to July 1, 1991, the annual
fee paid to FSC for pricing and bookkeeping services was based on two
schedules, one pertaining to a fund's average net assets, and one
pertaining to the type and number of transactions the fund made.
Pricing and bookkeeping fees, including reimbursement for out of pocket
expenses, paid to FSC for the fiscal periods shown are indicated in the
table below.
PRICING AND BOOKKEEPING FEES
Fiscal Year Fiscal Period
March 1, 1993 to May 1, 1992 to Fiscal Year Ended
February 28, 1994 February 28, 1994 April 30, 1992
Money Market Fund $____________ $ 94,157 $127,604
Insured Fund $_____________ $ 86,888 $ 83,746
High Yield Fund $_____________ $206,909 $244,179
All fee amounts shown include out-of-pocket expenses, if any. The transfer
agent fees and charges and pricing and bookkeeping fees described above are
paid to FSC by United Missouri, which is entitled to reimbursement from the
fund s for these expenses.
FSC has entered into an agreement with Fidelity Brokerage Services, Inc.
(FBSI), a subsidiary of FMR Corp., pursuant to which FBSI performs certain
recordkeeping, communication, and other services for money market fund
shareholders participating in the Fidelity Ultra Service Account program.
FBSI directly charges each Ultra Service Account an administrative fee at a
rate of $5.00 per month for these services, which is in addition to the
transfer agency fee received by FSC. Administrative fees paid to FBSI by
money market fund shareholders participating in the Fidelity Ultra Service
Account program amounted to approximately $ ___________ for fiscal
1994 .
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Fidelity California Municipal Trust (the
Massachusetts trust ) is an open-end management investment company
organized as a Massachusetts business trust on April 28, 1983. On
February 27, 1984 the trust 's name was changed from Fidelity
California Tax-Exempt Money Market Trust to Fidelity California Tax-Free
Fund and on November 1, 1989 its name was changed to Fidelity California
Municipal Trust. Currently, there are f our funds of the
Massachusetts trust : Fidelity California Tax-Free Insured Portfolio,
Fidelity California Tax-Free High Yield Portfolio, Spartan California
Intermediate Municipal Portfolio, and Spartan California Municipal High
Yield Portfolio. The Massachusetts trust 's Declaration of Trust
permits the Trustees to create additional funds.
Fidelity California Municipal Trust II (the Delaware trust ) is an
open-end management investment company organized as a Delaware Business
trust on June 20, 1991. Currently, there two funds of the
Delaware trust : Fidelity California Tax-Free Money Market Fund
and Spartan California Municipal Money Market Portfolio . Fidelity
California Tax-Free Money Market Fund and Spartan California Municipal
Money Market Portfolio entered into agreement s to acquire all of
the assets of the Fidelity California Tax-Free Money Market Portfolio
and Spartan California Municipal Money Market Portfolio , series of the
Fidelity California Municipal Trust, on December 30, 1991 and April 18,
1994, respectively . 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 liabilities of their respective trusts. Expenses with respect
to each trust 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 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 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 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 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
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
Trustee s against any liability to which t he y 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 Trustee s are not protected against any
liability to which t he y would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. As a shareholder of the Massachusetts trust, you
receive one vote for each dollar value of net asset value per share you
own. The shares have no preemptive or conversion rights; voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the respective "Shareholder and Trustee
Liability" headings above. Shareholders representing 10% or more of a trust
or one of its funds may, as set forth in the Declaration of Trust or Trust
Instrument, call meetings of the trust or fund for any purpose related to
the trust or fund, as the case may be, including, in the case of a meeting
of an entire trust, the purpose on voting on removal of one or more
Trustees.
A trust or any fund may be terminated upon the sale of its assets to (or,
in the case of the Delaware Trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations
must be approved by vote of the holders of a majority of the outstanding
shares of the trust or the fund (for the Delaware Trust), or by a 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 trust or fund (for
the Massachusetts 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.
CUSTODIAN. United Missouri Bank, N.A., 1010 Grand Avenue, Kansas City,
Missouri 64106, is custodian of the assets of the funds. The custodian is
responsible for the safekeeping of the funds' assets and the appointment of
subcustodian banks and clearing agencies. The custodian takes no part in
determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds may, however,
invest in obligations of the custodian and may purchase securities from or
sell securities to the custodian.
FMR, its officers and directors, its affiliated companies, and each
trust 's Trustees may from time to time have transactions with
various banks, including banks serving as custodian for certain of the
funds advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of FMR,
the terms and conditions of those transactions were not influenced by
existing or potential custodial or other fund relationships.
AUDITOR. Price Waterhouse, 160 Federal Street, Boston, Massachusetts serves
as each trust's independent accountant. The auditor examines financial
statements for the funds and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
The funds' Annual Report for the fiscal period ended February 28,
1994 is a separate report supplied with this Statement of Additional
Information and is 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
insured and high yield funds. The funds may, however, consider ratings for
other types of investments and the ratings assigned by other ratings
organizations when determining the eligibility of a particular
investment.
The descriptions that follow are examples of eligible ratings for the
insured and high yield funds. The funds 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, with all
security elements accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
MIG-4/VMIG-4 - This designation denotes adequate quality protection
commonly regarded as required of an investment security is present and,
although not distinctly or predominantly speculative, there is specific
risk.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS OF STATE AND
MUNICIPAL NOTES:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium grade obligations, i.e, they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds 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 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.
Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1, and B1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
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 ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
SPARTAN CALIFORNIA MUNICIPAL FUNDS:
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET PORTFOLIO
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL PORTFOLIO
SPARTAN CALIFORNIA MUNICIPAL HIGH YIELD PORTFOLIO
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. *
c .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment Principles;
Securities and Investment Practices
b .............................. Securities and Investment Practices
c .............................. Who May Want to Invest; Investment Principles;
Securities and Investment Practices
5 a .............................. Charter
b i............................. Doing Business with Fidelity; Charter
ii........................... Charter; Breakdown of Expenses
iii.......................... Expenses; Breakdown of Expenses
c, d .............................. Charter; Breakdown of Expenses; Cover Page;
FMR and Its Affiliates
e .............................. FMR and its Affiliates
f .............................. Expenses; Breakdown of Expenses
g .............................. *
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Services; Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Exchange Restrictions; Transaction Services
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. How to Buy Shares; Transaction Services
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Services; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trusts
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Interests of FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Interests of FMR Affiliates
17 a ............................ Portfolio Transactions
b ............................ *
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c ............................ *
20 ............................. Distributions and Taxes
21 a, b ............................ Interests of FMR Affiliates
c ............................ *
22 ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
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.
A Statement of Additional Information dated April 18, 1994 has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference (is legally considered a part of this prospectus). The Statement
of Additional Information is available free upon request by calling
Fidelity at 1-800-544-8888.
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 endorsed or
guaranteed by, any bank, nor are they federally insured or otherwise
protected by the FDIC, the Federal Reserve Board, or any other agency.
Each of these funds seeks a high level of current income free from federal
income tax and California state personal income tax. The funds have
different strategies, however, and carry varying degrees of risk.
FIDELITY CALIFORNIA
TAX-FREE FUNDS
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET PORTFOLIO
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL PORTFOLIO
SPARTAN CALIFORNIA MUNICIPAL HIGH YIELD PORTFOLIO
PROSPECTUS
APRIL 18, 1994(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
CFR-pro-494
CONTENTS
KEY FACTS 3 THE FUNDS AT A GLANCE
3 WHO MAY WANT TO INVEST
EXPENSES AND PERFORMANCE 4 EXPENSES The funds' yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of each fund's financial data.
PERFORMANCE How each fund has
done over time.
YOUR ACCOUNT 10 DOING BUSINESS WITH FIDELITY
10 TYPES OF ACCOUNTS Different
ways to set up your account.
11 HOW TO BUY SHARES Opening an
account and making additional
investments.
14 HOW TO SELL SHARES Taking money
out and closing your account.
16 INVESTOR SERVICES Services to
help you manage your account.
18 DIVIDENDS, CAPITAL GAINS, AND
TAXES
SHAREHOLDER AND TRANSACTION DETAILS Share price
ACCOUNT POLICIES calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
THE FUNDS IN DETAIL CHARTER How each fund is
organized.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
INVESTMENT PRINCIPLES Each
fund's overall approach to
investing.
SECURITIES AND INVESTMENT
PRACTICES
KEY FACTS
THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946 and
is now America's largest mutual fund manager. FMR Texas Inc. (FTX), a
subsidiary of FMR, chooses investments for California Tax-Free Money
Market.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
CALIFORNIA MONEY MARKET
GOAL: High current tax-free income for California residents while
maintaining a stable share price.
STRATEGY: Invests in high-quality, short-term securities whose interest is
free from federal income tax and California personal income tax.
CALIFORNIA INSURED
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in investment-grade securities whose interest is
free from federal income tax and California personal income tax, while
maintaining an average maturity of three to 10 years.
CALIFORNIA HIGH YIELD
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in long-term, investment-grade securities whose
interest is free from federal income tax and California personal income
tax.
WHO MAY WANT TO INVEST
These non-diversified funds may be appropriate for investors in higher tax
brackets who seek high current income that is free from federal and
California income taxes. Each fund's level of risk, and potential reward,
depends on the quality and maturity of its investments. Lower-quality and
longer-term investments typically carry higher risk and yield potential.
You should consider your 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, generally reflecting changes in interest rates, market
conditions, and other federal and state political and economic news. By
themselves, these funds do not constitute a balanced investment plan.
California Tax-Free Money Market is managed to keep its share price stable
at $1.00. When you sell your shares of either of the other funds, they may
be worth more or less than what you paid for them.
The Spartan family of funds is designed for cost-conscious investors
looking for higher yields through lower costs. The Spartan
Approach(Registered trademark) requires investors to make high minimum
investments and, in some cases, to pay for individual transactions.
EXPENSES AND PERFORMANCE
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund. See page for more information.
Maximum sales charge on purchases and
reinvested dividends None
Deferred sales charge on redemptions None
Redemption fee(on shares held less than 180 days)
for California Tax-Free High Yield .50%
for California Tax-Free Money Market NONE
for California Tax-Free Insured NONE
Exchange and wire transaction fees $5.00
Checkwriting fee, per check written $2.00
(available for Spartan California Municipal Money Market and Spartan
California Intermediate Municipal)
Account closeout fee $5.00
THESE FEES ARE WAIVED (except for the redemption fee) if your account
balance at the time of the transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. Expenses are factored into each fund's
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
CALIFORNIA MONEY MARKET
Management fee (after reimbursement) ___%
12b-1 fee None
Other expenses %
Total fund operating expenses ___%
CALIFORNIA INSURED
Management fee (after reimbursement) ___%
12b-1 fee None
Other expenses %
Total fund operating expenses ___%
CALIFORNIA HIGH YIELD
Management fee ___%
12b-1 fee None
Other expenses %
Total fund operating expenses ___%
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses after
the number of years indicated, first assuming that you leave your account
open, and then assuming that you close your account at the end of the
period:
CALIFORNIA MONEY MARKET
Account open Account closed
After 1 year $ $
After 3 years $ $
After 5 years $ $
After 10 years $ $
CALIFORNIA INSURED
Account open Account closed
After 1 year $ $
After 3 years $ $
After 5 years $ $
After 10 years $ $
CALIFORNIA HIGH YIELD
Account open Account closed
After 1 year $ $
After 3 years $ $
After 5 years $ $
After 10 years $ $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FMR has voluntarily agreed to temporarily limit California Tax-Free Money
Market's operating expenses to .20% of its average net assets, and Spartan
California Intermediate Municipal"s operating expenses to .00% of its
average net assets. If these agreements were not in effect, the management
fee, other expenses, and total operating expenses would be .50%, .00%, and
.50%, respectively, for Spartan California Municipal Money and .55%, .00%,
and .55%, respectively, for Spartan California Intermediate Municipal.
Expenses eligible for reimbursement do not include interest, taxes,
brokerage commissions, or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The tables that follow have been audited by Price Waterhouse, independent
accountants. Their unqualified reports are included in each fund's Annual
Report. Each fund's Annual Report is incorporated by reference into (is
legally a part of) the Statement of Additional Information.
[Financial Highlights to be filed by subsequent amendment.]
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns and yields 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 March 1 through February 28. The tables
below show each fund's performance over past fiscal years compared to a
measure of inflation. The charts on page __ help you compare the yields of
these funds to those of their competitors.
AVERAGE ANNUAL TOTAL RETURNS
fiscal periods ended Past 1 Past 5
Febrary 28, 1994 year years
Spartan CA Money Market __ __ A
Spartan CA Intermediate __B NA
Spartan CA High Yield __ __ A
Consumer Price Index __ __
CUMULATIVE TOTAL RETURNS
fiscal periods ended Past 1 Past 5
Febrary 28, 1994 year years
Spartan CA Money Market __ __ A
Spartan CA Intermediate __B NA
Spartan CA High Yield __ __ A
Consumer Price Index __ __
A FROM NOVEMBER 27, 1989
B FROM DECEMBER 29, 1993
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)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering
periods of less than one year assume that performance will remain constant
for the rest of the year.
YIELD refers to the income generated by an investment in 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 COMPETITIVE FUNDS AVERAGES for California Tax-Free Money Market are
calculated based on the IBC/Donoghue's MONEY FUND AVERAGES(REGISTERED
TRADEMARK)/All
Tax-Free category, which currently reflects the performance of over 355
mutual funds with similar objectives. These averages are published in the
MONEY FUND REPORT(Registered trademark) by IBC USA (Publications), Inc. The
competitive funds averages for the bond funds are published by Lipper
Analytical Services, Inc. Spartan California Intermediate Municipal and
Spartan California Municipal High Yield compares their performance to the
IBC Donoghue's Bond Fund Report, which currently reflects the performance
of over 335 mutual funds with similar objectives. Both of these averages
assume reinvestment of distributions.
CALIFORNIA TAX-FREE MONEY MARKET
7-day yields
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
Row: 11, Col: 1, Value: nil
Row: 11, Col: 2, Value: nil
Row: 12, Col: 1, Value: nil
Row: 12, Col: 2, Value: nil
Row: 13, Col: 1, Value: nil
Row: 13, Col: 2, Value: nil
Row: 14, Col: 1, Value: nil
Row: 14, Col: 2, Value: nil
Row: 15, Col: 1, Value: nil
Row: 15, Col: 2, Value: nil
Row: 16, Col: 1, Value: nil
Row: 16, Col: 2, Value: nil
Row: 17, Col: 1, Value: nil
Row: 17, Col: 2, Value: nil
Row: 18, Col: 1, Value: nil
Row: 18, Col: 2, Value: nil
Row: 19, Col: 1, Value: nil
Row: 19, Col: 2, Value: nil
Row: 20, Col: 1, Value: nil
Row: 20, Col: 2, Value: nil
Row: 21, Col: 1, Value: nil
Row: 21, Col: 2, Value: nil
Row: 22, Col: 1, Value: nil
Row: 22, Col: 2, Value: nil
Row: 23, Col: 1, Value: nil
Row: 23, Col: 2, Value: nil
Row: 24, Col: 1, Value: nil
Row: 24, Col: 2, Value: nil
Row: 25, Col: 1, Value: nil
Row: 25, Col: 2, Value: nil
Row: 26, Col: 1, Value: nil
Row: 26, Col: 2, Value: nil
Row: 27, Col: 1, Value: nil
Row: 27, Col: 2, Value: nil
Row: 28, Col: 1, Value: nil
Row: 28, Col: 2, Value: nil
Row: 29, Col: 1, Value: nil
Row: 29, Col: 2, Value: nil
Row: 30, Col: 1, Value: nil
Row: 30, Col: 2, Value: nil
Row: 31, Col: 1, Value: nil
Row: 31, Col: 2, Value: nil
Row: 32, Col: 1, Value: nil
Row: 32, Col: 2, Value: nil
California
Money Market
Competitive
funds average
1992
1993
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.
SPARTAN CALIFORNIA MUNICIPAL HIGH YIELD
30-day yields
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
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Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
Row: 11, Col: 1, Value: nil
Row: 11, Col: 2, Value: nil
Row: 12, Col: 1, Value: nil
Row: 12, Col: 2, Value: nil
Row: 13, Col: 1, Value: nil
Row: 13, Col: 2, Value: nil
Row: 14, Col: 1, Value: nil
Row: 14, Col: 2, Value: nil
Row: 15, Col: 1, Value: nil
Row: 15, Col: 2, Value: nil
Row: 16, Col: 1, Value: nil
Row: 16, Col: 2, Value: nil
Row: 17, Col: 1, Value: nil
Row: 17, Col: 2, Value: nil
Row: 18, Col: 1, Value: nil
Row: 18, Col: 2, Value: nil
Row: 19, Col: 1, Value: nil
Row: 19, Col: 2, Value: nil
Row: 20, Col: 1, Value: nil
Row: 20, Col: 2, Value: nil
Row: 21, Col: 1, Value: nil
Row: 21, Col: 2, Value: nil
Row: 22, Col: 1, Value: nil
Row: 22, Col: 2, Value: nil
Row: 23, Col: 1, Value: nil
Row: 23, Col: 2, Value: nil
Row: 24, Col: 1, Value: nil
Row: 24, Col: 2, Value: nil
Row: 25, Col: 1, Value: nil
Row: 25, Col: 2, Value: nil
Row: 26, Col: 1, Value: nil
Row: 26, Col: 2, Value: nil
Row: 27, Col: 1, Value: nil
Row: 27, Col: 2, Value: nil
Row: 28, Col: 1, Value: nil
Row: 28, Col: 2, Value: nil
Row: 29, Col: 1, Value: nil
Row: 29, Col: 2, Value: nil
Row: 30, Col: 1, Value: nil
Row: 30, Col: 2, Value: nil
Row: 31, Col: 1, Value: nil
Row: 31, Col: 2, Value: nil
Row: 32, Col: 1, Value: nil
Row: 32, Col: 2, Value: nil
California
High Yield
Competitive
funds average
1992
1993
THE TOP CHART SHOWS THE 7-DAY EFFECTIVE YIELD FOR THE MONEY MARKET FUND
AND ITS COMPETITIVE FUNDS AVERAGE AS OF THE LAST TUESDAY OF EACH MONTH
FROM JANUARY 1992 THROUGH FEBRUARY 1994 . THE BOTTOM CHART SHOWS
THE 30-DAY ANNUALIZED NET YIELDS FOR SPARTAN CALIFORNIA MUNICIPAL HIGH
YIELD AND ITS COMPETITIVE FUNDS AVERAGE AS OF THE LAST DAY OF EACH MONTH
DURING THE SAME PERIOD. YIELDS FOR SPARTAN CALIFORNIA MUNICIPAL MONEY
MARKET WOULD HAVE BEEN LOWER IF FIDELITY HAD NOT REIMBURSED CERTAIN
FUND EXPENSES.
CALIFORNIA TAX-FREE INSURED
30-day yields
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
Row: 11, Col: 1, Value: nil
Row: 11, Col: 2, Value: nil
Row: 12, Col: 1, Value: nil
Row: 12, Col: 2, Value: nil
Row: 13, Col: 1, Value: nil
Row: 13, Col: 2, Value: nil
Row: 14, Col: 1, Value: nil
Row: 14, Col: 2, Value: nil
Row: 15, Col: 1, Value: nil
Row: 15, Col: 2, Value: nil
Row: 16, Col: 1, Value: nil
Row: 16, Col: 2, Value: nil
Row: 17, Col: 1, Value: nil
Row: 17, Col: 2, Value: nil
Row: 18, Col: 1, Value: nil
Row: 18, Col: 2, Value: nil
Row: 19, Col: 1, Value: nil
Row: 19, Col: 2, Value: nil
Row: 20, Col: 1, Value: nil
Row: 20, Col: 2, Value: nil
Row: 21, Col: 1, Value: nil
Row: 21, Col: 2, Value: nil
Row: 22, Col: 1, Value: nil
Row: 22, Col: 2, Value: nil
Row: 23, Col: 1, Value: nil
Row: 23, Col: 2, Value: nil
Row: 24, Col: 1, Value: nil
Row: 24, Col: 2, Value: nil
Row: 25, Col: 1, Value: nil
Row: 25, Col: 2, Value: nil
Row: 26, Col: 1, Value: nil
Row: 26, Col: 2, Value: nil
Row: 27, Col: 1, Value: nil
Row: 27, Col: 2, Value: nil
Row: 28, Col: 1, Value: nil
Row: 28, Col: 2, Value: nil
Row: 29, Col: 1, Value: nil
Row: 29, Col: 2, Value: nil
Row: 30, Col: 1, Value: nil
Row: 30, Col: 2, Value: nil
Row: 31, Col: 1, Value: nil
Row: 31, Col: 2, Value: nil
Row: 32, Col: 1, Value: nil
Row: 32, Col: 2, Value: nil
California
Insured
Competitive
funds average
1992
1993
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:
(bullet) For mutual funds, 1-800-544-8888
(bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over __ 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. California Tax-Free Money Market is managed to keep its share
price stable at $1.00. Each fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(bullet) Mail in an application with a check, or
(bullet) Open your account by exchanging from another Fidelity fund.
If you buy shares by check or Fidelity Money Line(Registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For Spartan CA Money Market $25,000
TO ADD TO AN ACCOUNT $1,000
Through automatic investment plans $500
MINIMUM BALANCE $5,000
For Spartan CA Money Market $10,000
UNDERSTANDING THE
SPARTAN
APPROACH(Registered trademark)
Fidelity's Spartan Approach is
based on the principle that
lower fund expenses can
increase returns. The Spartan
funds keep expenses low in
two ways. First, higher
investment minimums reduce
the effect of a fund's fixed
costs, many of which are paid
on a per-account basis.
Second, unlike most mutual
funds that include transaction
costs as part of overall fund
expenses, Spartan
shareholders pay directly for
the transactions they make.
(checkmark)
<TABLE>
<CAPTION>
<S> <C> <C>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (bullet) Exchange from another (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.
(bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Mail (mail_graphic) (bullet) Complete and sign the (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.
(bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
In Person (hand_graphic) (bullet) Bring your application (bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wire (wire_graphic) (bullet) There may be a $5.00 (bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(bullet) Call 1-800-544-7777 to (bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify the complete
Bank Routing name of the fund and
#021001033, include your account
Account #00163053. number and your
Specify the complete name.
name of the fund and
include your new
account number and
your name.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Automatically (automatic_graphic) (bullet) Not available. (bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account ($10,000 for California Tax-Free Money
Market) to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(bullet) You wish to redeem more than $100,000 worth of shares,
(bullet) Your account registration has changed within the last 30 days,
(bullet) The check is being mailed to a different address than the one on
your account (record address),
(bullet) The check is being made payable to someone other than the account
owner, or
(bullet) The redemption proceeds are being transferred to a Fidelity
account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(bullet) Your name,
(bullet) The fund's name,
(bullet) Your fund account number,
(bullet) The dollar amount or number of shares to be redeemed, and
(bullet) Any other applicable requirements listed in the table at right.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account in California Tax-Free Money
Market or Spartan California 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
<TABLE>
<CAPTION>
<S> <C> <C>
IF YOU SELL SHARES OF SPARTAN CALIFORNIA MUNICIPAL HIGH YIELD AFTER HOLDING THEM LESS
THAN 180 DAYS, THE FUND WILL DEDUCT A REDEMPTION FEE EQUAL TO .50% OF THE VALUE OF
THOSE SHARES. IF YOUR ACCOUNT BALANCE IS LESS THAN $50,000, THERE ARE FEES FOR
INDIVIDUAL REDEMPTION TRANSACTIONS: $2.00 FOR EACH CHECK YOU WRITE AND $5.00 FOR
EACH EXCHANGE, BANK WIRE, AND ACCOUNT CLOSEOUT.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Phone 1-800-544-777 (phone_graphic) All account types (bullet) Maximum check request:
$100,000.
(bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: $100,000.
(bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Trust names appear on the
account.
(bullet) The trustee must sign the
letter indicating capacity as
Business or trustee. If the trustee's name
Organization is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
(bullet) At least one person
Executor, authorized by corporate
Administrator, resolution to act on the
Conservator, account must sign the letter.
Guardian (bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(bullet) Call 1-800-544-6666 for
instructions.
Wire (wire_graphic) All account types (bullet) You must sign up for the wire
feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Check (check_graphic) All account types (bullet) Minimum check: $1,000.
(bullet) All account owners must sign
a signature card to receive a
checkbook.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT 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:
(bullet) Confirmation statements (after every transaction, except
reinvestments, that affects your account balance or your account
registration)
(bullet) Account statements (quarterly)
(bullet) Financial reports (every six months)
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.
Note that exchanges out of a fund are limited to four per calendar year,
and that they may have tax consequences for you. For complete policies and
restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up monthly or quarterly redemptions
from your account.
FIDELITY MONEY LINE(Registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(bullet) For existing accounts, call
1-800-544-6666 for an application.
(bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
<TABLE>
<CAPTION>
<S> <C> <C>
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
</TABLE>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(bullet) Changes require a new authorization
form.
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
</TABLE>
A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THOSE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
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 April 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 California Tax-Free Money Market):
5. REINVESTMENT OPTION. Your dividend and capital gain distributions, if
any, will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned this
option.
6. INCOME-EARNED OPTION. Your capital gain distributions, if any, will be
automatically reinvested, but you will be sent a check for each dividend
distribution. This option is not available for California Tax-Free Money
Market.
7. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
8. DIRECTED DIVIDENDS(Registered trademark) OPTION. Your dividend and
capital gain distributions, if any, will be automatically invested in
another identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions, if any, will be reinvested at the NAV as
of the date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the funds' tax implications.
TAXES ON DISTRIBUTIONS. Interest income that a fund earns is distributed to
shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
To the extent a fund's income dividends are derived from state tax-free
investments, they will be free from California state personal income tax.
During fiscal 1994, __% of each fund's income dividends were free from
federal income tax, and __%, __%, and __% were free from California state
personal income taxes for California Tax-Free Money Market, California
Tax-Free Insured , and California Tax-Free High Yield , respectively. __%
of California Tax-Free Money Market's, __% of California Tax-Free Insured
's, and __% of California Tax-Free High Yield 's income dividends were
subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to
other Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a fund deducts a capital
gain distribution from its NAV, you will pay the full price for the shares
and then receive a portion of the price back in the form of a taxable
distribution.
SHAREHOLDER AND ACCOUNT POLICIES
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 and offering price 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.
THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to
sell one share) is the fund's 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. Note that Fidelity will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the identity of the
caller. Fidelity will request personalized security codes or other
information, and may also record calls. You should verify the accuracy of
your confirmation statements immediately after you receive them. If you do
not want the ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
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 are of
a size that 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:
(bullet) All of your purchases must be made in U.S. dollars and checks
must be drawn on U.S. banks.
(bullet) Fidelity does not accept cash.
(bullet) When making a purchase with more than one check, each check must
have a value of at least $50.
(bullet) Each fund reserves the right to limit the number of checks
processed at one time.
(bullet) If your check does not clear, your purchase will be cancelled and
you could be liable for any losses or fees a fund or its transfer agent has
incurred.
(bullet) California Tax-Free Money Market and Spartan California
Intermediate Municipal reserve the right to limit all accounts maintained
or controlled by any one person to a maximum total balance of $2 million.
(bullet) You begin to earn dividends as of the first business day
following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY SHARES OF THE FUNDS (AT THE OFFERING PRICE) OR SELL THEM
THROUGH A BROKER, who may charge you a fee for this service. If you invest
through a broker or other institution, read its program materials for any
additional service features or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
Fidelity Distributors Corporation (FDC) may enter confirmed purchase orders
on behalf of customers by phone, with payment to follow no later than the
time when 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:
(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.
(bullet) Shares will earn dividends through the date of redemption;
however, shares redeemed on a Friday or prior to a holiday will continue to
earn dividends until the next business day.
(bullet) Fidelity Money Line redemptions generally will be credited to
your bank account on the second or third business day after your phone
call.
(bullet) 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.
(bullet) Redemptions may be suspended or payment dates postponed when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
(bullet) If you sell shares by writing a check and the amount of the check
is greater than the value of your account, your check will be returned to
you and you may be subject to additional charges.
THE REDEMPTION FEE for California Tax-Free High Yield , 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:
(bullet) The $2.00 checkwriting charge will be deducted from your account.
(bullet) The $5.00 exchange fee will be deducted from the amount of your
exchange.
(bullet) The $5.00 wire fee will be deducted from the amount of your wire.
(bullet) The $5.00 account closeout fee does not apply to exchanges or
wires, but it will apply to checkwriting.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($10,000 for California Tax-Free
Money Market), you will be given 30 days' notice to reestablish the minimum
balance. If you do not increase your balance, Fidelity reserves the right
to close your account and send the proceeds to you. Your shares will be
redeemed at the NAV on the day your account is closed and the $5.00 account
closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(bullet) The fund you are exchanging into must be registered for sale in
your state.
(bullet) You may only exchange between accounts that are registered in the
same name, address, and taxpayer identification number.
(bullet) Before exchanging into a fund, read its prospectus.
(bullet) If you exchange into a fund with a sales charge, you pay the
percentage-point difference between that fund's sales charge and any sales
charge you have previously paid in connection with the shares you are
exchanging. For example, if you had already paid a sales charge of 2% on
your shares and you exchange them into a fund with a 3% sales charge, you
would pay an additional 1% sales charge.
(bullet) Exchanges may have tax consequences for you.
(bullet) Because excessive trading can hurt fund performance and
shareholders, 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.
(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.
(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 coincide 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.
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, California
Tax-Free Money Market is currently a non-diversified fund of Fidelity
California Municipal Trust II, and California Tax-Free Insured and Spartan
California Municipal High Yield are currently non-diversified funds of
Fidelity California Municipal Trust. Both trusts are open-end management
investment companies. Fidelity California Municipal Trust II was organized
as a Delaware business trust on June 20, 1991. Fidelity California
Municipal Trust was organized as a Massachusetts business trust on April
28, 1983. There is a remote possibility that one fund might become liable
for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. For the money market fund,
you are entitled to one vote for each share you own. For the bond funds,
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.
(bullet) Number of Fidelity mutual
funds: over ___
(bullet) Assets in Fidelity mutual
funds: over $___ billion
(bullet) Number of shareholder
accounts: over __ million
(bullet) Number of investment
analysts and portfolio
managers: over ___
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FTX has primary responsibility for providing
investment management services for California Tax-Free Money Market.
John (Jack) Haley, Jr. is manager of Spartan California Municipal High
Yield, which he has managed since December 1989. Mr. Haley is also manager
of California Tax-Free Insured, California Tax-Free High Yield, and Advisor
Limited Term Tax-Exempt. He joined Fidelity in 1981.
David Murphy is manager of Spartan California Intermediate Municipal, which
he has managed since December 1993. Mr. Murphy also manages LImited Term
Municipals, New York Tax-Free Insured, Spartan Intermediate Municipal,
Spartan New Jersey Municipal HIgh Yield, Spartan New York Intermediate
Municipal, and Spartan Short-Intermediate Municipal. Before joining
Fidelity in 1989, he managed municipal bond funds at Scudder, Stevens &
Clark.
FDC distributes and markets Fidelity's funds and services. Fidelity Service
Co. (FSC) performs transfer agent servicing functions for the funds.
FMR Corp. is the parent company of these organizations. Through ownership
of voting common stock, Edward C. Johnson 3d (President and a trustee of
the trusts), Johnson family members, and various trusts for the benefit of
the Johnson family form a controlling group with respect to FMR Corp.
United Missouri Bank, N.A., is 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.
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 California Municipal Money
Market.
FMR may, from time to time, agree to reimburse the funds for management
fees above a specified limit. FMR retains the ability to be repaid by a
fund if expenses fall below the specified limit prior to the end of the
fiscal year. Reimbursement arrangements, which may be terminated at any
time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. Each fund
pays a management fee at a fixed annual rate of its average net assets:
.25% for California Tax-Free Money Market and .55% for California Tax-Free
Insured and California Tax-Free High Yield . The total management fee for
Spartan California Municipal Money Market and Spartan California
Intermediate Municipal for fiscal 1994, after reimbursement, was .__% and
.__%, respectively.
FMR HAS A SUB-ADVISORY AGREEMENT with FTX, which has primary responsibility
for providing investment management for California Tax-Free Money Market,
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 California Municipal Money
Market and Spartan California Intermediate Municipal, the $2.00
checkwriting charge. For fiscal 1994, these fees amounted to $__, $__,
$__, and $__, respectively for Spartan California Money Market; $__, $__,
$__, and $__, respectively for Spartan California Intermediate Municipal;
and, $__, $__, and $__, respectively for Spartan California High Yield.
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 funds' shares. It is
important to note, however, that the funds do not pay FMR any separate fees
for this service.
For fiscal 1994, the portfolio turnover rates for California Tax-Free
Insured and California Tax-Free High Yield were __% (annualized) and __%,
respectively. These rates vary from year to year. High turnover rates
increase transaction costs and may increase taxable capital gains. FMR
considers these effects when evaluating the anticipated benefits of
short-term investing.
INVESTMENT PRINCIPLES
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET seeks high current income that is
free from federal income tax and California personal income tax while
maintaining a stable $1.00 share price by investing in high-quality,
short-term municipal securities of all types. As a result, 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. FMR normally invests at least 65% of the fund's total assets
in state tax-free securities, and normally invests so that at least 80% of
the fund's income distributions are free from federal income tax.
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. 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 CALIFORNIA INTERMEDIATE MUNICIPAL seeks high current income that is
free from federal income tax and California personal income tax by
investing mainly in high-quality and upper-medium-grade-quality municipal
bonds, although it can also invest in some lower-quality securities. The
fund normally maintains a dollar-weighted average maturity of three to 10
years. FMR normally invests at least 65% of the fund's total assets in
state tax-free securities, and normally invests at least 80% of the fund's
assets in municipal securities whose interest is free from federal income
tax.
CALIFORNIA TAX-FREE HIGH YIELD seeks high current income that is free from
federal income tax and California personal income tax by investing
primarily in municipal securities judged by FMR to be of investment-grade
quality, although it can also invest in some lower-quality securities. The
fund normally invests in long-term bonds, generally maintaining a
dollar-weighted average maturity of at least 15 years, although it may
invest in obligations of any maturity. FMR normally invests so that at
least 80% of the fund's income distributions are free from federal and
California personal income tax.
EACH FUND'S yield and each bond fund's share price change daily based on
interest rate changes 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.
Each fund's performance is closely tied to the economic and political
conditions within the state of California, which has been in a recession
since 1990. As a result, tax revenues have decreased and the state has
accumulated a significant budget deficit despite cost cutting initiatives.
Economic conditions within the state are expected to remain stagnant
throughout 1994.
If you are subject to the federal alternative minimum tax, you should note
that each fund may invest all of its assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations, and the bond funds also do not expect to invest in state
taxable obligations. When FMR considers it appropriate for defensive
purposes, however, it temporarily may invest substantially in short-term
instruments, may hold a substantial amount of uninvested cash, or may
invest more than normally permitted in taxable obligations.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the funds may invest, and strategies FMR may employ in
pursuit of the funds' investment objectives. A summary of risks and
restrictions associated with these instrument types and investment
practices is included as well. Policies and limitations are considered at
the time of purchase; the sale of instruments is not required in the event
of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
funds achieve their goals. As a shareholder, you will receive financial
reports every six months detailing fund holdings and describing recent
investment activities.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities may have speculative characteristics, and
involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-quality securities and may decline significantly
in periods of general or regional economic difficulty.
The table on the following page provides a summary of ratings assigned to
debt holdings (not including money market instruments) in Spartan
California Municipal High Yield's portfolio. These figures are
dollar-weighted averages of month-end portfolio holdings during fiscal
1994, and are presented as a percentage of total investments. These
percentages are historical and do not necessarily indicate the fund's
current or future debt holdings.
SPARTAN CA HIGH YIELD
FISCAL 1994 DEBT HOLDINGS, BY RATING
MOODY'S STANDARD &
POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa % AA %
Upper-medium grade A A
Medium grade Baa % BBB %
LOWER QUALITY
Moderately speculative Ba % BB %
Speculative B % B %
Highly speculative Caa % CCC %
Poor quality Ca % CC %
Lowest quality, no interest C C
In default, in arrears -- D %
% %
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO ___%. THIS MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES.
UNRATED SECURITIES ARE NOT NECESSARILY LOWER-QUALITY SECURITIES. REFER TO
THE
FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION
OF THESE RATINGS.
RESTRICTIONS: California Tax-Free Insured does not currently intend to
invest more than 40% of its total assets in securities rated below A by
Moody's or S&P, and unrated securities judged by FMR to be of
equivalent quality. The fund does not currently intend to invest more than
5% of its assets in securities rated Ba/BB or lower, and unrated securities
of equivalent quality. California Tax-Free High Yield does not currently
intend to invest more than one-third of its assets in bonds judged by FMR
to be of equivalent quality to those rated Ba or lower by Moody's and BB or
lower by S&P, and does not currently intend to invest in bonds of
equivalent quality to bonds rated lower than B. The fund does not
currently intend to invest in bonds rated below Caa by Moody's or CCC by
S&P.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities
may be issued in anticipation of future revenues, and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. A security's credit may be
enhanced by a bank, insurance company, or other financial institution. A
fund may own a municipal security directly or through a participation
interest.
STATE TAX-FREE SECURITIES include municipal obligations issued by the state
of California or its counties, municipalities, authorities, or other
subdivisions. The ability of issuers to repay their debt can be affected by
many factors that impact the economic vitality of either the state or a
region within the state.
Other state tax-free securities include general obligations of U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will depend on
the strength of the U.S. dollar, interest rates, the price stability of oil
imports, and the continued existence of favorable tax incentives. Recent
legislation reduced these incentives, but it is impossible to predict what
impact the changes will have.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ASSET-BACKED SECURITIES may include pools of purchase contracts, financing
leases, or sales agreements entered into by municipalities. These
securities usually rely on continued payments by a municipality, and may
also be subject to prepayment risk.
VARIABLE- AND FLOATING-RATE INSTRUMENTS may have interest rates that move
in tandem with a benchmark, helping to stabilize their prices. Inverse
floaters have interest rates that move in the opposite direction from the
benchmark, making the instrument's market value more volatile.
PUT FEATURES entitle the holder to put (sell back) an instrument to the
issuer or a financial intermediary. In exchange for this benefit, a fund
may pay periodic fees or accept a lower interest rate. Demand features,
standby commitments, and tender options are types of put features.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
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.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of other securities may be subject to legal restrictions.
Difficulty in selling securities may result in a loss or may be costly to 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.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: The funds are considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, a fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any one issuer. These limitations do not apply to U.S. government
securities. A fund may invest more than 25% of its total assets in tax-free
securities that finance similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a bond fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: A fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET seeks as high a level of current
income, exempt from federal income tax and California state personal income
tax, as is consistent with preservation of capital by investing in
high-quality, short-term California municipal obligations. The fund will
normally invest so that at least 80% of its income distributions are exempt
from federal income tax.
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL seeks a high level of current
income, exempt from federal income tax and California state personal income
tax. The fund will normally invest at least 80% of its assets in municipal
securities whose interest is free from federal income tax.
SPARTAN CALIFORNIA MUNICIPAL HIGH YIELD seeks the highest level of current
income, exempt from federal income tax and California state personal income
tax, available from California municipal bonds. The fund will normally
invest so that at least 80% of its income distributions are exempt from
federal and California state personal income taxes.
EACH FUND may borrow only for temporary or emergency purposes, but not in
an amount exceeding 33% of its total assets.
From Filler pages
SPARTAN(REGISTERED TRADEMARK) CALIFORNIA MUNICIPAL MONEY MARKET PORTFOLIO
A FUND OF FIDELITY CALIFORNIA MUNICIPAL TRUST II
SPARTAN(REGISTERED TRADEMARK) CALIFORNIA MUNICIPAL HIGH YIELD PORTFOLIO
SPARTAN(REGISTERED TRADEMARK) CALIFORNIA INTERMEDIATE MUNICIPAL PORTFOLIO
FUNDS OF FIDELITY CALIFORNIA MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1 8 , 199 4
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated April 1 8 , 199 4 ). Please
retain this document for future reference. The Annual Report for the fiscal
period ended February 28, 199 4 is 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
Special Factors Affecting California 11
Special Factors Affecting Puerto Rico 15
Portfolio Transactions 16
Valuation of Portfolio Securities 17
Performance 17
Additional Purchase and Redemption Information 22
Distributions and Taxes 22
FMR 23
Trustees and Officers 24
Management Contracts 25
Distribution and Service Plans 27
Interest of FMR Affiliates 28
Description of the Trus ts 28
Financial Statements 30
Appendix 30
Investment Adviser
Fidelity Management & Research Company (FMR)
Investment Sub-Adviser (money market fund only)
FMR Texas Inc. (FMR Texas)
Distributor
Fidelity Distributors Corporation (FDC)
Transfer Agent
United Missouri Bank, N.A. (United Missouri) and Fidelity Service Co. (FSC)
SCR-pt b -49 4
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.
A fund's fundamental investment policies and limitations cannot be changed
without approval of a "majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940 (the 1940 Act)) of the fund.
However, except for the fundamental investment limitations set forth below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET
PORTFOLIO
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that
Fidelity California Municipal Trust may issue additional series of shares
in accordance with its Declaration of Trust;
(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 the value 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 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
(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.
(i v ) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an affiliate
serves as investment adviser or (b) by engaging in reverse repurchase
agreements with any party (reverse repurchase agreements are treated as
borrowings for purposes of fundamental investment limitation (2)). The fund
will not purchase any security while borrowings representing more than 5%
of its total assets are outstanding. The fund will not borrow from other
funds advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vi i ) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, acquired or traded together with, their underlying securities,
and does not apply to securities that incorporate features similar to
options or futures contracts.
(vii i ) 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 (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 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.
INVESTMENT LIMITATIONS OF SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL
PORTFOLIO
(INTERMEDIATE FUND)
THE FOLLOWING ARE THE INTERMEDIATE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3%
limitation;
(3) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund, may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies, and limitations as the
fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "government securities" as defined for federal tax
purposes.
(ii) The fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vii) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to purchases
of debt securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies, and
limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For the intermediate fund's limitations on futures and options
transactions, see the section entitled "Limitations on Futures and Options
Transactions" beginning on page 9.
INVESTMENT LIMITATIONS OF SPARTAN CALIFORNIA MUNICIPAL HIGH YIELD PORTFOLIO
(HIGH YIELD FUND)
THE FOLLOWING ARE THE HIGH YIELD FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that
Fidelity California Municipal Trust may issue additional series of shares
in accordance with its Declaration of Trust;
(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 the value 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 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 (but this shall not prevent the fund from
purchasing and selling futures contracts); 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.
(i v ) The fund may borrow money only (a) from a bank or from a
registered investment company or fund for which FMR or an affiliate serves
as investment adviser or (b) by engaging in reverse repurchase agreements
with any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation ( 2 )). The fund will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vi i ) 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.
(vi ii ) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except ordinary broker's commission is paid, or (b) purchase or
retain securities issued by other open-end investment companies.
Limitations (a) and (b) do not apply to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(ix) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment 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 high yield fund's limitations on futures and options transactions,
see the section entitled "Limitations on Futures and Options Transactions"
beginning on page 9.
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, the Board of Trustees has
established and periodically reviews procedures applicable to transactions
involving affiliated financial institutions.
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. The fund must limit its investments to securities with
remaining maturities of 397 days or less and must maintain a
dollar-weighted average maturity of 90 days or less.
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 (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. The insured and high yield 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.
REFUNDING CONTRACTS. The insured and high yield funds 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 funds generally will not be obligated to pay the
full purchase price if they fail 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, each fund will place
liquid assets in a segregated custodial account equal in amount to its
obligations under refunding contracts.
INVERSE FLOATERS. The insured and high yield funds may invest in inverse
floaters, which are instruments whose interest rates bear an inverse
relationship to the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index
inversely affect the residual interest rate paid on the inverse floater,
with the result that the inverse floater's price will be considerably more
volatile than that of a fixed-rate bond. For example, a municipal issuer
may decide to issue two variable-rate instruments instead of a single
long-term, fixed-rate bond. The interest rate on one instrument reflects
short-term interest rates, while the interest rate on the other instrument
(the inverse floater) reflects the approximate rate the issuer would have
paid on a fixed-rate bond, multiplied by two, minus the interest rate paid
on the short-term instrument. Depending on market availability, the two
portions may be recombined to form a fixed-rate municipal bond. The market
for inverse floaters is relatively new.
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.
With respect to the money market fund, a demand instrument with a
conditional demand feature must have received both a short-term and a
long-term high-quality rating or, if unrated, have been determined to be of
comparable quality pursuant to procedures adopted by the Board of Trustees.
A demand instrument with an unconditional demand feature may be acquired
solely in reliance upon a short-term high-quality rating or, if unrated,
upon a finding of comparable short-term quality pursuant to procedures
adopted by the Board of Trustees.
The funds may invest in fixed-rate bonds that are subject to third
party puts and in participation interests in such bonds held in trust or
otherwise. These 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.
The money market fund may invest in variable or floating rate
instruments that ultimately mature in more than 397 days, if the fund
acquires a right to sell the instruments that meets certain requirements
set forth in Rule 2a-7. Variable rate instruments (including instruments
subject to a demand feature) that mature in 397 days or less may be deemed
to have maturities equal to the period remaining until the next
readjustment of the interest rate. Other variable rate instruments with
demand features may be deemed to have a maturity equal to the period
remaining until the next adjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A
floating rate instrument subject to a demand feature may be deemed to have
a maturity equal to the period remaining until the principal amount can be
recovered through demand.
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. Subject to applicable regulatory requirements, the money market fund
may buy tender option bonds if the agreement gives the fund the right to
tender the bond to its sponsor no less frequently than once every 397 days.
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.
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.
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, but, in the case of the money market fund, only when
the issuers of the commitments present minimal risk of default.
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. Standby commitments will
not affect the dollar-weighted average maturity of the money market fund or
the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or
other guarantees to support their ability to buy securities on demand. FMR
may rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
MUNICIPAL LEASE OBLIGATIONS. Each fund may invest a portion of its
assets in municipal leases and participation interests therein. These
obligations, which may take the form of a lease, an installment purchase,
or a conditional sale contract, are issued by state and local governments
and authorities to acquire land and a wide variety of equipment and
facilities. Generally, the 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.
FEDERALLY TAXABLE OBLIGATIONS. The funds do not intend to invest in
securities whose interest is federally taxable; however, from time to time,
each fund may invest a portion of its assets on a temporary basis in
fixed-income obligations whose interest is subject to federal income tax.
For example, each fund may invest in obligations whose interest is
federally taxable pending the investment or reinvestment in municipal
securities of proceeds from the sale of its shares or sales of portfolio
securities.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. Th ese
would include obligations issued or guaranteed by the U.S. government or
its agencies or instrumentalities; obligations of domestic banks; and
repurchase agreements. The insured and high yield funds' standards for high
quality , taxable obligations are essentially the same as those
described by Moody's Investors Service, Inc. (Moody's) in rating corporate
obligations within its two highest ratings of Prime-1 and Prime-2, and
those described by Standard & Poor's Corporation (S&P) in rating
corporate obligations within its two highest ratings of A-1 and A-2. The
money market fund will purchase taxable obligations only if they meet its
quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before the California legislature
that would affect the state tax treatment of the funds' distributions. If
such proposals were enacted, the availability of municipal obligations and
the value of the funds' holdings would be affected and the Trustees would
reevaluate the funds' investment objectives and policies.
Each fund anticipates being as fully invested as practicable in municipal
securities; however, there may be occasions when, as a result of maturities
of portfolio securities, sales of fund shares, or in order to meet
redemption requests, a fund may hold cash that is not earning income. In
addition, there may be occasions when, in order to raise cash to meet
redemptions, a fund may be required to sell securities at a loss.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed-upon price on an agreed-upon date within a number of days from
the date of purchase. The resale price reflects the purchase price plus an
agreed-upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement is a taxable
obligation which involves the obligation of the seller to pay the
agreed-upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed-upon resale price and marked to
market daily) of the underlying security. Each fund may engage in
repurchase agreements with respect to any security in which it is
authorized to invest even if, with respect to the money market fund, the
underlying security matures in more than 397 days. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the
underlying securities, as well as delays and costs to the fund in
connection with bankruptcy proceedings), it is each fund's current policy
to limit repurchase agreements to parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. 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 a fund's assets and may be
viewed as a form of leverage.
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 a fund's rights and obligations relating to the investment).
Investments currently considered by the money market fund to be illiquid
include restricted securities and municipal lease obligations determined by
FMR to be illiquid. Investments currently considered by the insured and
high yield funds to be illiquid include over-the-counter options. Also, FMR
may determine some restricted securities and municipal lease obligations to
be illiquid. However, with respect to over-the-counter options the insured
and high yield funds write, 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 valued for purposes of monitoring amortized cost valuation
(money market fund) and priced (insured and high yield funds) 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 were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, 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 the fund may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
INDEXED SECURITIES. The intermediate and high yield funds 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. Index securities have principal payments as well as coupon
payments that depend on the performance of one or more interest rates.
Their coup[on 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.
LOWER-RATED MUNICIPAL SECURITIES. The intermediate and high yield
fund s may invest a portion of their assets in lower-rated
municipal securities as described in the Prospectus.
While the market for California municipals is considered to be
substantial, adverse publicity and changing investor perceptions may affect
the ability of outside pricing services used by the fund to value its
portfolio securities, and the fund's ability to dispose of lower-rated
bonds. The outside pricing services are monitored by FMR and reported to
the Board to to determine whether the services are furnishing prices that
accurately reflect fair value. The impact of changing investor
perceptions may be especially pronounced in markets where municipal
securities are thinly traded.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
INTERFUND BORROWING PROGRAM. Each fund has received permission from the
SEC to lend money to and borrow money from other funds advised by FMR or
its affiliates, but will participate in the interfund borrowing program
only as a borrower. Interfund loans normally will extend overnight, but can
have a maximum duration of seven days. 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 the fund may have to
borrow from a bank at a higher interest rate if an interfund loan is called
or not renewed.
ELECTRIC UTILITIES INDUSTRY. The electric utilities industry has been
experiencing, or may experience in the future, problems, including (a) the
effects of inflation upon construction and operating costs, (b) the
availability and cost of fuel, (c) the availability and cost of capital,
(d) the effects of conservation on energy demand, (e) the effects of
rapidly changing environmental, safety, and licensing requirements, and
other federal, state, and local regulations, (f) timely and sufficient rate
increases, (g) opposition to nuclear power, and (h) increased competition.
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;
medical and technological advances which dramatically alter the need for
health services or the way in which such services are delivered; and
efforts by employers, insurers, and governmental agencies to reduce the
costs of health insurance and healthcare services.
HOUSING. Housing revenue bonds are generally issued by a state, county,
city, local housing authority, or other public agency. They are secured by
the revenues derived from mortgages purchased with the proceeds from the
bond issue. It is extremely difficult to predict the supply of available
mortgages to be purchased with the proceeds of an issue or the future cash
flow from the underlying mortgages. Consequently, there are risks that
proceeds will exceed supply, resulting in early retirement of bonds, or
that the homeowner repayments will create an irregular cash flow.
Many factors may affect the financing of multi-family housing projects,
including acceptable completion of construction, proper management,
occupancy and rent levels, economic conditions, and changes to current laws
and regulations.
INVESTMENT POLICIES FOR INTERMEDIATE AND HIGH YIELD FUNDS ONLY
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Section 4.5 of the
regulations under the Commodity Exchange Act, which limits the extent to
which the fund s 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, are not
fundamental policies and may be changed as regulatory agencies permit.
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.
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 generally would expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates 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.
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 fund s 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.
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 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 their needs, OTC
options generally involve greater credit risk than exchange-traded options,
which are guaranteed by the clearing organization of the exchanges where
they are traded.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The 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.
SPECIAL FACTORS AFFECTING CALIFORNIA
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives, as
discussed below, could adversely affect the market values and marketability
of, or result in default of, existing obligations, including obligations
that may be held by the funds. Obligations of the state or local
governments may also be affected by budgetary pressures affecting the State
and economic conditions in the State. Interest income to a fund could also
be adversely affected. The following highlights only some of the more
significant financial trends and problems, and is based on information
drawn from official statements and prospectuses relating to securities
offerings of the State of California, its agencies, or instrumentalities,
as available on the date of this Statement of Additional Information. FMR
has not independently verified any of the information contained in such
official statements and other publicly available documents, but is not
aware of any fact which would render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain obligations held by the funds may be
obligations of issuers that rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, XIIIA limits to 1% of full
cash value the rate of ad valorem property taxes on real property and
generally restricts the reassessment of property to 2% per year, except
upon new construction or change of ownership (subject to a number of
exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as
of March 1, 1975 if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits were filed challenging the acquisition-based
assessment system of Proposition 13, but on June 18, 1992, the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
government unit to give 2/3 approval to levy any "special tax." However,
court decisions allowed non-voter-approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval.
Significant elements of this initiative, "Proposition 62," have been
overturned in recent court cases, but efforts may continue to further
restrict the ability of local government agencies to levy or raise taxes.
APPROPRIATIONS LIMITS. The State and its local governments are subject to
an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations
limit imposed. "Appropriations subject to limitation" are authorizations to
spend "proceeds of taxes," which consists of tax revenues and certain other
funds, including proceeds from regulatory licenses, user charges, or other
fees to the extent that such proceeds exceed the cost of providing the
product or service; but "proceeds of taxes" for local governments excludes
most State subventions. No limit is imposed on appropriations of funds
which are not "proceeds of taxes," such as reasonable user charges or fees
and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are: (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters; (2)
appropriations arising from certain emergencies declared by the Governor;
(3) appropriations for certain capital outlay projects; and (4)
appropriations by the State of post-1989 increases in gasoline taxes and
vehicle weight fees.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized by Proposition 111 to more closely follow
growth in the State's economy. For the 1990-91 fiscal year, each unit of
government has recalculated its appropriations limit by taking the actual
1986-87 limit and applying the Proposition 111 annual adjustments forward
to 1990-91. This was expected to raise the limit in most cases.
Under Proposition 111, "excess" revenues are measured over a two-year
cycle. With respect to local governments, excess revenues must be returned
by a revision of tax rates or fee schedules within the two subsequent
fiscal years. The appropriations limit for a local government may be
overridden by referendum under certain conditions for up to four years at a
time. With respect to the State, 50% of any excess revenues is to be
distributed to K-12 school and community college districts (collectively,
K-14 districts) and the other 50% is to be refunded to taxpayers.
In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit; in the
mid-to-late 1980's, however, many entities were at or approaching their
limit. Many local entities have successfully sought voter approval for
4-year waivers of the limit and, under Proposition 111, may elect among
different measures of population in setting the limit. During FY 1986-87,
State receipts from proceeds of taxes exceeded its appropriations limit by
$1.138 billion, which was returned to taxpayers. Since that time,
appropriations subject to limitation were under the State limit. The
1993-94 Governor's Budget proposal estimates State appropriations will be
more than $4.1 billion under the limit for FY 1992-93 and over $2.8 billion
under the limit for FY 1993-94.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of February 1, 1993, the State had approximately $17.0 billion of
general obligation bonds outstanding, and $8.6 billion remained authorized
but unissued. In addition, at June 30, 1992, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $2.9
billion. The State issued approximately $4 billion of general obligation
bonds in calendar year 1991, and $3 billion in 1992, and is expected to
decline further in 1993 and 1994. Of the State's outstanding general
obligation debt, approximately 28% is presently self-liquidating (for which
program revenues are anticipated to be sufficient to reimburse the General
Fund for debt service payments). In FY 1991-92, debt service on general
obligation bonds and lease-purchase debt was approximately 3.2% of General
Fund revenues. The State has paid the principal of and interest on its
general obligation bonds, lease-purchase debt, and short-term obligations
when due.
ECONOMY
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population grew by 27% in the 1980s and,
at over 31 million, it now represents 12.3% of the total United States
population. Total personal income in the State, at an estimated $640
billion in 1992, accounts for about 13% of all personal income in the
nation. Total employment is almost 14 million, the majority of which is in
the service, trade, and manufacturing sectors.
Reports by the State Department of Finance and the Commission on State
Finance confirm that the State's economy is suffering the worst recession
since the 1930's, with prospects for recovery slower than for the nation as
a whole. The State lost over 800,000 jobs since the start of the recession,
which are not expected to be replaced until 1996. The largest job losses
were in Southern California, led by declines in the aerospace and
construction industries. Weakness statewide occurred in manufacturing,
construction, services and trade. Unemployment was 7.5% for 1991, and 9.1%
for 1992 and is expected to remain at 9-10% in 1993. The State's economy is
only expected to slowly pull out of the recession starting in late 1993, or
1994. Delay in recovery will exacerbate shortfalls in State revenues.
RECENT STATE FINANCIAL RESULTS
The principal sources of State General Fund revenues in 1991-92 were the
California personal income tax (42% of total revenues), the sales tax
(39%), bank and corporation taxes (11%), and the gross premium tax on
insurance (3%). The State maintains a Special Fund for Economic
Uncertainties (the SFEU), derived from General Fund revenues, as a reserve
to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. Year-end balances
in the SFEU are included for financial reporting purposes in the General
Fund balance. In recent years, the State has budgeted to maintain the
Economic Uncertainties Fund at around 3% of General Fund expenditures.
Throughout the 1980s, State spending increased rapidly as the State
population and economy also grew rapidly, including many assistance
programs to local governments, which were constrained by Proposition 13 and
other laws. The largest State program is assistance to local public school
districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a 2/3 vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 37%).
Since the start of the 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for
health and welfare programs. The State is also facing a structural
imbalance in its budget with the largest programs supported by the General
Fund (education, health, welfare and corrections) growing at rates
significantly higher than the growth rates for the principal revenue
sources of the General Fund. As a result, the State entered a period of
budget imbalance, with expenditures exceeding revenues for four of the last
five completed fiscal years and another operating deficit likely in
1992-93. Revenues declined in 1990-91 over 1989-90, the first time since
the 1930s and will decline in 1992-93 compared to 1991-92. By June 30,
1992, the State's General Fund had an accumulated deficit, on a budget
basis, of approximately $2.2 billion, which may increase by June 30, 1993.
The 1991-92 Fiscal Year Budget was designed to close a "budget gap" of
$14.3 billion, in order to reconcile the excess of projected expenditures
for existing programs, at currently mandated growth rates, over expected
revenues, the need to repay the 1990-91 budget deficit, and the need to
restore a budget reserve. This budget gap was closed through a combination
of temporary and permanent changes in laws and one-time budget adjustments,
consisting of program funding reductions totalling $5.0 billion; a total of
$5.1 billion of increased State revenues; savings of $2.1 billion from
transferring certain health and welfare programs to counties to be funded
by increased sales tax and vehicle license fees to be given directly to
counties; and additional miscellaneous savings and revenue gains and one
time accounting changes totalling $2.1 billion.
The 1991-92 Budget Act was based on economic forecasts that recovery from
the recession would begin in the summer or fall of 1991, but as the
severity of the recession increased, revenues lagged significantly and
continually behind projections from the start of the fiscal year. As a
result, revenues for the 1991-92 Fiscal Year were more than $4 billion
lower than originally projected and expenditures were higher than
originally projected.
As a consequence of the large budget imbalances built up over two
consecutive years, the State used up all of its available cash resources.
In late June 1992, the State was required to issue $475 billion of
short-term revenue anticipation warrants to cover obligations coming due on
June 30 and July 1. These warrants were repaid on July 24, 1992.
At the outset of the 1992-1993 Fiscal Year, the State estimated that
approximately $7.9 billion of budget actions would be required to end the
fiscal year without a budget deficit. The difficulty of taking these
actions delayed enactment of a budget for more than two months past the
start of the 1992-93 Fiscal Year. With the failure to enact a budget by
July 1, 1992, the State had no legal authority to pay many of its vendors
until the budget was passed; nevertheless, certain obligations (such as
debt service, school apportionments, welfare payments, and employee
salaries) were payable because of continuing or special appropriations, or
court orders. However, the State Controller did not have enough cash to pay
as they came due all of these ongoing obligations, as well as valid
obligations incurred in the prior fiscal year. Starting on July 1, 1992,
the Controller was required to issue approximately $3.8 billion of
"registered warrants" in lieu of normal warrants backed by cash to pay many
State obligations (the first time this had occurred since the 1930's).
Available cash was used to pay constitutionally mandated and priority
obligations. All the registered warrants were called for redemption by
September 4, 1992, following enactment of the 1992-93 Budget Act and
issuance by the State of its normal cash flow borrowings.
The Legislature enacted the 1992-93 Budget Bill on August 29, 1992, and it
was signed by the Governor on September 2, 1992. The 1992-93 Budget Act
provided for expenditures of $57.4 billion and consisted of General Fund
expenditures of $40.8 billion and Special Fund and Bond Fund expenditures
of $16.6 billion. The Department of Finance estimated there would be a
balance in the Special Fund for Economic Uncertainties of $28 million on
June 30, 1993.
The $7.9 billion budget gap was closed through use of some increased
revenues and transfers, but primarily with expenditure cuts. The principal
reductions were in health and welfare, K-12 schools and community colleges,
state aid to local governments, higher education (partially offset by
increased student fees), and various other programs. In addition, funds
were transferred from special funds, collections of State revenues were
accelerated, and other adjustments were made.
As in the prior year, the economic and fiscal assumptions on which the
1992-93 Budget Act were based proved to be too optimistic. As the recession
in the State entered its third year, with no real upturn predicted until
1994, State revenues again lagged projections. The Governor's Budget
Proposal for 1993-94, released in January 1993, projected revenues would be
about $2.5 billion below projections for 1992-93. As a result, the Governor
predicted the General Fund would end at June 30, 1993 with a deficit of
about $2.1 billion; however, this prediction assumed that the Legislature
would take about $900 million of cost-saving actions in the current fiscal
year, which may not all occur, and would thereby increase the deficit. The
Governor's Budget also predicted that the State's cash resources would be
depleted by May 1993, which would necessitate additional short term cash
flow borrowing.
The Governor's Budget Proposal for 1993-94 recognized that the State would
face a third consecutive year of extremely difficult budget choices.
Because several temporary revenue-raising steps taken in 1991 were
scheduled to expire on June 30, 1993, which the Governor did not propose to
extend, revenues for 1993-94 were projected to be about $1 billion lower
than revenues in 1992-93 (the second consecutive year of actual decline).
With the need to repay a projected $2.1 billion accumulated deficit, the
Governor indicated that total General Fund expenditures must be limited to
about $37.3 billion, an 8.5% reduction from the prior year. To achieve the
necessary cost reductions, the Governor proposed cuts in many programs, a
shift of about $2.5 billion of city, county, and special district property
taxes to school districts (which offsets State funding requirements to the
schools), and reliance on receipt of about $1.5 billion in aid from the
federal government to pay for costs associated with foreign immigrants to
the State. If some of the Governor's proposals and assumptions are not
achieved, he proposed even greater cuts in health, welfare and higher
educating funding. For the second year in a row, the Governor's Budget did
not propose to fund any reserve against adverse budgetary developments, and
projected an ending balance in the General Fund at June 30, 1994 of less
than $50 million.
The Commission on State Finance, reviewing the Governor's Budget, agreed
with its pessimistic economic projections, but disagreed with some of its
budgetary estimates and assumptions. Assuming that all of the Governor's
proposals and assumptions were enacted or occurred, the Commission
projected the 1993-94 budget would still be about $1 billion out of balance
because of lower revenues and higher expenditures than the Governor's
predictions. The Commission also indicated this estimate could vary by up
to $2.5-3 billion in either direction if economic conditions in the State
were significantly worse or better than the current basic projection.
The State's severe financial difficulties for the past, the current and
upcoming budget years will result in continued pressure upon almost all
local governments, especially those which depend on State aid, such as
school districts and counties. While the Governor has noted that part of
the "budget gap" was cyclical, a result of economic slowdown which has
reduced growth of revenues in the fiscal years, but a significant part is
structural, with demands for State services and caseloads in major areas of
the budget, such as corrections, welfare indigent health care, and public
schools, growing at a faster rate than the State economy and State
revenues. While recent budgets included both permanent tax increases and
actions to reduce costs of state government over the longer term, the
Governor has stated that structural imbalances still exist, and there can
be no assurance that the State will not face budget gaps in the future.
State general obligation bonds are currently rated "Aa" by Moody's, "AA" by
Fitch, and A1 by S&P. There can be no assurance that such ratings will
be maintained in the future. All three of these ratings were reduced from
"AAA" levels since late 1991.
OBLIGATIONS OF OTHER ISSUERS
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently,
the California Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies; the
reallocation of certain State revenues to local agencies; and the
assumption of certain governmental functions by the State to assist
municipal issuers to raise revenues. Total local assistance from the
State's General Fund totaled approximately $33.0 billion in FY 1991-92
(about 75% of General Fund expenditures) and has been budgeted at $31.1
billion for FY 1992-93, including the effect of implementing reductions in
certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 Budget Act caused local governments to transfer $1.3
billion of property tax revenues to school districts, representing loss of
almost half the post-Proposition 13 "bailout" aid. The Governor has
proposed in his 1993-94 Budget that local governments transfer a further
$2.5 billion of property taxes to school districts, with the possibility
that they could raise taxes at the local level to make up some of the
shortfall.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or
other considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such
reductions in State aid could compound the serious fiscal constraints
already experienced by many local governments, particularly counties. At
least one rural county (Butte) publicly announced that it might enter
bankruptcy proceedings in August 1990, although such plans were put off
after the Governor approved legislation to provide additional funds for the
county. Other counties have also indicated that their budgetary condition
is extremely grave. A school district (Richmond Unified) recently filed for
protection under bankruptcy laws, but the petition was later dismissed;
other school districts have indicated financial stress, although none has
threatened bankruptcy.
ASSESSMENT BONDS. Municipal obligations which are assessment bonds or
Mello-Roos bonds may be adversely affected by a general decline in real
estate values or a slowdown in real estate sales activity. In many cases,
such bonds are secured by land which is undeveloped at the time of issuance
but anticipated to be developed within a few years after issuance. In the
event of such reduction or slowdown, such development may not occur or may
be delayed, thereby increasing the risk of a default on the bonds. Because
the special assessments or taxes securing these bonds are not the personal
liability of the owners of the property assessed, the lien on the property
is the only security for the bonds. Moreover, in most cases the issuer of
these bonds is not required to make payments on the bonds in the event of
delinquency in the payment of assessments or taxes, except from amounts, if
any, in a reserve fund established for the bonds.
CALIFORNIA LONG-TERM LEASE OBLIGATIONS. Certain California long-term lease
obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being
leased is unavailable for beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not a default, and there may be
no remedies available to the holders of the certificates evidencing the
lease obligation in the event abatement occurs. The most common causes of
abatement are failure to complete construction of the facility before the
end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments
may be interrupted (if all available insurance proceeds and reserves are
exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District ("District") entered
into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover
operating deficits. Following a fiscal crisis in which the District's
finances were taken over by a State receiver (including a brief period
under bankruptcy court protection), the District failed to make rental
payments on this lease, resulting in a lawsuit by the Trustee for the
Certificate of Participation holders, in which the State was a named
defendant (on the grounds that it controlled the District's finances). One
of the defenses raised in answer to this lawsuit was the invalidity of the
original lease transaction. The trial court has upheld the validity of the
District's lease but an appeal has been filed by the State. Any ultimate
judgment against the Trustee may have implications for lease transactions
of a similar nature by other California entities.
OTHER CONSIDERATIONS. The repayment of Industrial Development Securities
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Health Care and Hospital Securities may be
affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program),
including risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds
are secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project decline (for example, because
of major natural disaster such as an earthquake), the tax increment revenue
may be insufficient to make principal and interest payments on these bonds.
Both Moody's and S&P suspended ratings on California tax allocation
bonds after the enactment of Articles XIIIA and XIIIB, and only resumed
such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are
the Issuers of Tax Allocation Securities) no longer receive an increase in
tax increment when taxes on property in the project area are increased to
repay voter-approved bonded indebtedness.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California Municipal Obligation in the funds
could be affected by an interruption of revenues because of damaged
facilities or, consequently, income tax deductions for casualty losses or
property tax assessment reductions. Compensatory financial assistance could
be constrained by the inability of (i) an issuer to have obtained
earthquake insurance coverage at reasonable rates; (ii) an insurer to
perform on its contracts of insurance in the event of widespread losses; or
(iii) the federal or State government to appropriate sufficient funds
within their respective budget limitations.
The October 1989 Northern California earthquake is estimated to have
resulted in a $2 billion (0.3%) reduction in personal income statewide, but
wage effects were minor and largely offset by reconstruction activity. The
federal government has committed approximately $3.5 billion to earthquake
relief, and, shortly after the event, the California Legislature enacted,
in special session, a temporary increase in the sales tax rate to finance
relief efforts. The earthquake was not expected to materially affect
California's economy.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution (described briefly above), the ambiguities and possible
inconsistencies in their terms, and the impossibility of predicting future
appropriations or changes in population and the cost of living, and the
probability of continuing legal challenges, it is not currently possible to
determine fully the impact of Article XIIIA or Article XIIIB, or the
outcome of any pending litigation with respect to those provisions on
California obligations in the funds or on the ability of the State or local
governments to pay debt service on such obligations. Legislation has been
or may be introduced (either in the Legislature or by initiative) which
would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities
of state and local governments to impose new taxes or increase existing
taxes. It is not presently possible to predict the extent to which any such
legislation will be enacted, or if enacted, how it would affect California
municipal obligations. It is also not presently possible to predict the
extent of future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay
the principal of, such California municipal obligations in light of future
fiscal circumstances.
SPECIAL FACTORS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial
trends and problems affecting the Commonwealth of Puerto Rico (the
"Commonwealth" or "Puerto Rico"), and is based on information drawn from
official statements and prospectuses relating to the securities offerings
of Puerto Rico, its agencies and instrumentalities, as available on the
date of this Statement of Additional Information. FMR has not independently
verified any of the information contained in such official statements,
prospectuses and other publicly available documents, but is not aware of
any fact which would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1992 trade with the United States accounted for
approximately 88% of Puerto Rico's exports and approximately 68% of its
imports. In this regard, in fiscal 1992 Puerto Rico experienced a
$2,940,300,000 positive adjusted merchandise trade balance. Since fiscal
1987 personal income, both aggregate and per capita, have increased
consistently each fiscal year. In fiscal 1992 aggregate personal income was
$22.7 billion and personal per capita income was $6,360. Gross domestic
product in fiscal 1989, 1990, 1991 and 1992 was $19,954,000, $21,619,000,
22,857,000, and $23,620,000 respectively. For fiscal 1993, an increase in
gross domestic product of 2.9% over fiscal 1992 is forecasted. However,
actual growth in the Puerto Rico economy will depend on several factors
including the condition of the U.S. economy, the exchange rate for the U.S.
dollar, the price stability of oil imports, and interest rates. Due to
these factors there is no assurance that the economy of Puerto Rico will
continue to grow.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the United States average. Despite long
term improvements the unemployment rate rose from 15.2% to 16.5% from
fiscal 1991 to fiscal 1992. At the end of the third quarter of fiscal 1993
the unemployment rate in Puerto Rico stood at 17.3%. There is a possibility
that the unemployment rate will continue to increase.
The economy of Puerto Rico has undergone a transformation in the later
half of this century from one centered around agriculture, to one dominated
by the manufacturing and service industries. Manufacturing is the
cornerstone of Puerto Rico's economy, accounting for $13.2 billion or 38.7%
of gross domestic product in 1992. However, manufacturing has experienced a
basic change over the years as a result of the influx of higher wage, high
technology industries such as the pharmaceutical industry, electronics,
computers, micro-processors, scientific instruments and high technology
machinery. The service sector, which includes wholesale and retail trade,
finance and real estate, ranks second in its contribution to gross domestic
product and is the sector that employs the greatest number of people. In
fiscal 1992, the service sector generated $13.0 billion in gross domestic
product or 38.3% of the total and employed over 449,000 workers providing
46% of total employment. The government sector and tourism also contribute
to the island economy each accounting for $3.7 billion and $1.5 billion in
fiscal 1992, respectively.
Much of the development of the manufacturing sector of the economy of
Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application a credit against their U.S. corporate income tax
on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico ("active income"), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
source investment income ("passive income"). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
On August 16, 1993, President Clinton signed a bill amending Section
936. Under the amendments, U.S. corporations with operations in Puerto Rico
can elect to receive a federal income tax credit equal to: 40% of the
credit currently available, phased in over a five year period, starting at
60% of the current credit, or a credit based on investment and wages. The
investment and wage credit would equal the sum of (i) 60% of qualified
compensation to employees, (ii) a specified percentage of depreciation
deductions with respect to tangible property located in Puerto Rico, and
(iii) a portion of income taxed paid to Puerto Rico, up to a 9% effective
tax rate, subject to certain requirements. It is not possible to determine
at this time whether the reductions in tax incentives for operations in
Puerto Rico will have a significant impact on the economy of Puerto Rico or
the time period in which such impact would arise.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the funds by FMR (either directly or through affiliated
sub-advisers) pursuant to authority contained in the management contracts.
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 will consider various relevant factors, including, but
not limited to, the size and type of the transaction; the nature and
character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition of the
broker-dealer firm; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any commissions.
The 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; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). 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 is generally 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 a
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, except in accordance with
regulations of the Securities and Exchange Commission. Pursuant to such
regulations, the Board of Trustees has approved a written agreement that
permits FBSI to effect portfolio transactions on national securities
exchanges and to retain compensation in connection with such transactions.
For fiscal periods March 1, 1993 to February 28, 1994 and May 1, 1992 to
February 28, 1993 and the fiscal year ended April 30, 1992, the money
market and high yield funds paid no brokerage commissions. For fiscal
period December 30, 1993 (commencement of operations) to February 28, 1994,
the intermediate fund paid no brokerage commissions.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of
each fund 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 each fund.
For the fiscal periods March 1, 1993 to February 28, 1994 and May 1,
1992 to February 28, 1993, the high yield fund's turnover rates were __%
and 26% (annualized), respectively. For fiscal period December
30 , 1993 (commencement of operations) to February 28, 1994, the
intermediate fund's turnover rate w as ___ % (annualized).
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 the funds 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 are managed by
the same investment adviser, particularly when the same security is
suitable for the investment objective of more than one fund.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the funds involved to be
equitable to each fund. In some cases, this system could have a detrimental
effect on the price or value of the security as far as the funds are
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 Board of Trustees that the
desirability of retaining FMR as investment adviser to the funds outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
VALUATION OF PORTFOLIO SECURITIES
INTERMEDIATE AND HIGH YIELD FUND S . Valuations of portfolio
securities furnished by the pricing service employed by the fund s
are based upon a computerized matrix system or appraisals by the pricing
service, in each case in reliance upon information concerning market
transactions and quotations from recognized municipal securities dealers.
The methods used by the pricing service and the quality of valuations so
established are reviewed by officers of the fund and FSC under the general
supervision of the Board of Trustees. There are a number of pricing
services available, and the Trustees, or officers acting on behalf of the
Trustees, on the basis of on-going evaluation of these services, may use
other pricing services or discontinue the use of any pricing service in
whole or in part.
MONEY MARKET FUND. The money market fund values its investments on the
basis of amortized cost. This technique involves valuing an instrument at
its cost as adjusted for amortization of premium or accretion of discount
rather than its value based on current market quotations or appropriate
substitutes which reflect current market conditions. The amortized cost
value of an instrument may be higher or lower than the price the fund would
receive if it sold the instrument.
Valuing the money market 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 1940 Act. The fund must adhere to certain conditions under Rule 2a-7;
these conditions are summarized in the Prospectus.
The Board of Trustees 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 the fund's amortized cost per share may result in material
dilution or other unfair results to shareholders, the Trustees have agreed
to take such corrective action, if any, as they deem appropriate to
eliminate or reduce, to the extent reasonably practicable, the dilution or
unfair results. Such corrective action could include selling portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming shares
in kind; establishing NAV by using available market quotations; and such
other measures as the Trustees may deem appropriate.
During periods of declining interest rates, the money market fund's yield
based on amortized cost may be higher than the yield based on market
valuations. Under these circumstances, a shareholder in the fund would be
able to obtain a somewhat higher yield than would result if the fund
utilized market valuations to determine its NAV. The converse would apply
in a period of rising interest rates.
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. The intermediate and high yield
funds' share price, and all of the funds' yields and total returns
fluctuate in response to market conditions and other factors. The value of
the intermediate and high yield funds' 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
(exclusive of capital gains) 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.
For the INTERMEDIATE AND HIGH YIELD FUND, yields used in advertising
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 the fund's
net asset value per share 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 high yield fund's .50%
redemption fee, which applies to shares held less than 180 days. Income
is calculated for purposes of the intermediate and high yield 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 calculating the intermediate and
high yield funds' yields 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, a
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.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment after 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 the fund's yield is tax-exempt, only that
portion is adjusted in the calculation.)
The following tables sh ow the effect of a shareholder's tax
status on the effective yield under federal and state income tax laws for
199 4 . They show the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent
to those of tax-exempt obligations yielding from 2.0% to 7.0%. Of course,
no assurance can be given that the funds will achieve any specific
tax-exempt yield. While each fund invests principally in obligations whose
interest is exempt from federal and state income tax, other income received
by the funds may be taxable. The funds do not take into account local
taxes, if any, payable on fund distributions.
1994 TAX RATES AND TAX EQUIVALENT YIELDS
Combined California
Single Return Joint Return Federal and Federal Effective
Taxable Income* Taxable Income* Tax Bracket Tax Bracket
$ 22,751 - 24,228 $ 38,001 - 48,456 28.% 32.32%
24,229 - 30,620 48,457 - 61,420 28 33.76
30,621 - 55,100 61,241 - 91,850 28 34.70
55,101 - 106,190 91,851 - 140,000 31 37.42
106,191 - 115,000 -- - -- 31 37.90
-- - -- 140,001 - 212,380 36 41.95
115,001 - 212,380 212,381 - 250,000 36 42.40
212,381 - 250,000 -- - -- 36 43.04
-- - -- 250,001 - 424,760 39.6 45.64
250,001 + 424,761 + 39.6 46.24
*Net taxable income after all exemptions, adjustments, and deductions.
These are based on rates currently applicable in 1993 and assume one
exemption for single filers and two exemptions for married couples files
jointly.
Having determined your effective tax bracket above, use the following
table to determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in 1993
is:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32.32% 33.76% 34.70% 37.42% 37.90% 41.95% 42.40% 43.04% 45.64% 46.24%
</TABLE>
Then your tax-equivalent yield is:
Tax-Free Yield
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2% 2.96% 3.02% 3.06% 3.20% 3.22% 3.45% 3.47% 3.51% 3.68% 3.72%
3% 4.43% 4.53% 4.59% 4.79% 4.83% 5.17% 5.21% 5.27% 5.52% 5.58%
4% 5.91% 6.04% 6.13% 6.39% 6.44% 6.89% 6.94% 7.02% 7.36% 7.44%
5% 7.39% 7.55% 7.66% 7.99% 8.05% 8.61% 8.68% 8.78% 9.20% 9.30%
6% 8.87% 9.06% 9.19% 9.59% 9.66% 10.34% 10.42% 10.53% 11.04% 11.16%
7% 10.34% 10.57% 10.72% 11.19% 11.27% 12.06% 12.15% 12.29% 12.88% 13.02%
8% 11.82% 12.08% 12.25% 12.78% 12.88% 13.78% 13.89% 14.04% 14.72% 14.88%
</TABLE>
The fund may invest a portion of its assets in obligations that are
subject to state or federal income taxes. When the fund invests in these
obligations, its tax-equivalent yields will be lower. In the table above,
tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
The California income tax rates are those in effect for 1992, which will be
the same in 1993 except that California law requires that the brackets be
adjusted annually for inflation using 100% of the California Consumer Price
Index through June of the tax year. As of the date of this Statement of
Additional Information, the California Franchise Tax Board had not
published the 1993 inflation adjusted tax brackets. Each fund may invest a
portion of its assets in obligations that are subject to state or federal
income taxes. When a fund invests in these obligations, its tax-equivalent
yields will be lower. In the table above, tax-equivalent yields are
calculated assuming investments are 100% federally and state tax-free.
Yield information may be useful in reviewing the funds' 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 the respective investment companies they have
chosen to consider.
Investors should recognize that in periods of declining interest rates the
fund's yields 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 yields. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's returns, including the effect of reinvesting dividends
and capital gain distributions (if any), and any change in the fund's net
asset value per share (NAV) over the 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 return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis
in ten years. While average annual 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 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. An example of this type of
illustration is given below. 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 effects of each fund's
$5.00 account closeout fee and, with respect to the high yield fund, the
.50% redemption fee, or other charges for special transactions or services.
Omitting fees and charges will cause the funds' total return figures to be
higher.
NET ASSET VALUE. Charts and graphs using the intermediate or high yield
funds' 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 charts show the funds' yields,
tax-equivalent yields, and total returns for periods ended February 28,
1994 :
MONEY MARKET FUND
Tax Equivalent Average Cumulative
7-day Yield 7-day Yield Annual Total Returns Total Returns
One Life One Life
Year (see note) of Fund (see note) * Year (see note)
of Fund (see note) *
_____ % _____ % ____ %
____ % _____ % ____ %
(see note) If FMR had not reimbursed certain fund expenses during the
period, total returns would have been lower.
* From November 27, 1989 (commencement of operations).
INTERMEDIATE FUND
Tax Equivalent Average Cumulative
30-day Yield 30-day Yield Annual Total Returns Total
Returns
One Life One Life
Year (see note)* of Fund (see note)*
Year (see note)* of Fund (see note) *
_____ % (see note) _____ % (see note)
____ % ____ % ____ % ____ %
(see note) If FMR had not reimbursed certain fund expenses during the
period, the yields and tax-equivalent yields would have been __% and __%,
respectively, and total returns would have been lower.
* From December 30, 1993 (commencement of operations).
HIGH YIELD FUND
Tax Equivalent Average Cumulative
30-day Yield 30-day Yield Annual Total Returns Total Returns
One Life One Life
Year (see note) of Fund(see note)*
Year (see note) of Fund (see note) *
_____ % ____ % ____ % ____ %
_____ % _____ %
(see note) The high yield fund's total returns do not include the effect of
the fund's .50% redemption fee applicable to shares held less than 180
days. If FMR had not reimbursed certain fund expenses during the period,
total returns would have been lower .
* From November 27, 1989 (commencement of operations).
The tax-equivalent yields are based on the highest 199 4 combined
federal and state income tax bracket of ___ %, and reflect that none
of the funds' investments on February 28, 1994 were subject to state
taxes.
MONEY MARKET FUND. During the period from November 27, 1989
(commencement of operations) to February 28, 1994, a hypothetical $10,000
investment in the money market fund would have grown to $_______, assuming
all distributions were reinvested. This was a period of widely fluctuating
interest rates and 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 CALIFORNIA MUNICIPAL MONEY MARKET PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Period Initial Reinvested Reinvested Cost
Ended $10,000 Dividend Capital Gain Total of
February 28, Investment Distributions Distributions Value S& DJIA Living**
P 500
1994 $________ $________ $________ $________ $_______ $_____ $_______
1993 $10,000 1,522 0 11,522 14,334 14,065 11,366
1992 $10,000 1,206 0 11,206 12,952 13,234 11,009
1991 $10,000 738 0 10,738 11,164 11,306 10,707
1990* $10,000 154 0 10,154 9,738 9,919 10,167
</TABLE>
* From November 27, 1989 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on
November 27, 1989, the net amount invested in fund shares was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested dividends for the period covered (their cash value at the
time they were reinvested), amounted to $______. If the 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 $______. The fund did not distribute any capital
gains during the period. If FMR had not reimbursed certain fund expenses,
the fund's total returns would have been lower. The figures in the table do
not include the effect of the fund's $5.00 account closeout fee.
INTERMEDIATE FUND. During the period from December 30, 1993
(commencement of operations) to February 28, 1994 , a hypothetical
investment of $10,000 in the intermediate fund would have grown to
$ ________ assuming all distributions were reinvested.
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL PORTFOLIO
INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Period Initial Reinvested Reinvested Cost
Ended $10,000 Dividend Capital Gain Total of
February 28 Investment Distributions Distributions Value S& DJIA Living**
P 500
1994 $_______ $_______ $______ $______ $____ $___ $____
</TABLE>
(see note) Fr om December 30, 1993 (commencement of
operations).
** From month-end closest to initial investment date.
EXPLANATORY NOTES: With an initial investment of $10,000 made on
December 30, 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 for the period covered (their cash
value at the time they were reinvested), amounted to $ ______ . If
distributions had not been reinvested, the amount of distributions earned
from the fund over time would have been smaller, and the cash payments
(dividends) for the period would have come to $ _____ . There were no
capital gain distributions during this period. If FMR had not reimbursed
certain fund expenses during the periods shown above, the fund's returns
would have been lower. The figures in the table do not include the
effect of the fund's $5 account closeout fee.
HIGH YIELD FUND. During the period from November 27, 1989 (commencement
of operations) to February 28, 1994, a hypothetical $10,000 investment in
the high yield fund would have grown to $_______, assuming all
distributions were reinvested. This was a period of widely fluctuating
interest rates and bond prices and 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 CALIFORNIA MUNICIPAL HIGH YIELD PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Period Initial Reinvested Reinvested Cost
Ended $10,000 Dividend Capital Gain Total of
February 28 Investment Distributions Distributions Value S& DJIA Living**
P 500
1994 $_______ $_______ $______ $______ $____ $___ $____
1993 11,330 2,699 90 14,120 14,334 14,065 11,366
1992 10,530 1,742 0 12,272 12,952 13,234 11,009
1991 10,180 949 0 11,129 11,164 11,306 10,707
1990* 9, 990 182 0 10,172 9,738 9,919 10,167
</TABLE>
* From November 27, 1989 (commencement of operations).
** From month-end closest to initial investment date.
EXPLANATORY NOTES: With an initial investment of $10,000 made on
November 27, 1989, the net amount invested in fund shares was $10,000. The
cost of the initial investment ($10,000), together with the aggregate cost
of reinvested distributions for the period covered (their cash value at the
time they were reinvested), amounted to $______. If the 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 $______ for dividends and $___ for capital gains. If FMR had
not reimbursed certain fund expenses, the fund's total returns would have
been lower. The figures in the table do not include the effect of the
fund's $5 account closeout fee or the .50% redemption fee applicable to
shares held less than 180 days.
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.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the 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(REGISTERED TRADEMARK)
/All Tax-Free,
which is reported in the MONEY FUND REPORT(REGISTERED TRADEMARK), covers
over 335 tax-free
money market funds. The Bond Fund Report AverageS(REGISTERED TRADEMARK)
/All Tax-Free,
which is reported in the BOND FUND REPORT(REGISTERED TRADEMARK), covers
over 355 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.
The intermediate and high yield funds, however, invest in longer-term
instruments and their share prices change daily in response to a variety of
factors.
The intermediate and high yield funds may compare and contrast in
advertising the relative advantages of investing in a mutual fund versus an
individual municipal bond. Unlike tax-free mutual funds, individual
municipal bonds offer a stated rate of interest and, if held to maturity,
repayment of principal. Although some individual municipal bonds might
offer a higher return, they do not offer the reduced risk of a mutual fund
that invests in many different securities. The initial investment
requirements and sales charges of many tax-free mutual funds are lower than
the purchase cost of individual municipal bonds, which are generally issued
in $5,000 denominations and are subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; charitable
giving; and the Fidelity credit card. In addition, Fidelity may quote
financial or business publications and periodicals, including model
portfolios or allocations, as they relate to fund management, investment
philosophy, and investment techniques. Fidelity may also reprint, and use
as advertising and sales literature, articles from Fidelity Focus, a
quarterly magazine provided free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(REGISTERED TRADEMARK)
number, and CUSIP
number, and discuss or quote its current portfolio manager.
The intermediate and high yield funds 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 February 28, 1994 FMR advised __ tax-free funds or
portfolios with a total value of over $ ___ billion. According to the
Investment Company Institute, over the past ten years, assets in tax-exempt
money market funds increased from $23.8 billion in 1984 to approximately
$94.8 billion at the end of 1992. The money market fund may reference the
growth and variety of money market mutual funds and the adviser's
innovation and participation in the industry.
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 199 4 :
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day
(observed). Although FMR expects the same holiday schedule , with the
addition of New Years Day, to be observed in the future, the NYSE may
modify its holiday schedule at any time.
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 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.
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 each 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 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 by the SEC, 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
reserve s 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 derived from federally
tax-exempt interest, the daily dividends declared by each fund are also
federally tax-exempt. The funds will send each shareholder a notice in
January describing the tax status of dividends and capital gain
distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as social security
benefits, may be subject to federal income tax on up to one half of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
The funds purchase municipal obligations based on opinions of bond counsel
regarding the federal income tax status of the obligations. These opinions
generally will be based upon covenants by the issuers regarding continuing
compliance with federal tax requirements. If the issuer of an obligation
fails to comply with its covenants at any time, interest on the obligation
could become federally taxable retroactive to the date the obligation was
issued.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities (referred to as "qualified bonds" in the Internal
Revenue Code) is subject to the federal alternative minimum tax (AMT),
although the interest continues to be excludable from gross income for
other purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the money market and high yield
funds' policies of investing so that at least 80% of their income
distributions are free from federal income tax. Interest from private
activity securities will be considered tax-exempt for purposes of the
intermediate fund's policies of investing so that at least 80% of its
assets are 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 tax 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.
Corporate investors should note that an adjustment for purposes of the
corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds 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
intermediate and high yield fund s on the sale of securities
and distributed to shareholders are federally taxable as long-term capital
gains, regardless of the length of time that shareholders have held their
shares. If a shareholder receives a long-term capital gain distribution on
shares of the fund and such shares are held six months or less and are sold
at a loss, the portion of the loss equal to the amount of the long-term
capital gain distribution will be considered a long-term loss for tax
purposes.
A portion of the gain on bonds purchased at a discount after April 30,
1993 and short-term capital gains distributed by the funds are federally
taxable to shareholders as dividends, not as capital gains. Distributions
from short-term capital gains do not qualify for the dividends-received
deduction. Dividend distributions resulting from a recharacterization of
gain from the sale of bonds purchased at a discount after April 30, 1993
are not considered income for purposes of the money market and high yield
funds' policies of investing so that at least 80% of their income
distributions are free from federal income tax or the intermediate fund's
policies of investing so that at least 80% of its assets are in municipal
securities whose interest is free from federal income taxfunds' policy
investing so that at least 80% of their income is free from federal income
tax. The money market fund may distribute any net realized short-term
capital gains once a year or more often as necessary to maintain its net
asset value at $1.00 a share.
TAX STATUS OF THE FUNDS. Each fund has qualified and intends to continue 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 all of its net investment
income and net realized capital gains (if any) within each calendar year as
well as on a fiscal year basis. 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 the intermediate and high yield
funds ' investments in such instruments. Each fund is treated as a
separate entity from the other funds of Fidelity California Municipal Trust
and Fidelity California Municipal Trust II for tax purposes.
As of February 28, 1994, the money market fund had approximate capital loss
carryover available to offset future capital gains as follows:
Aggregate
Capital Loss Amount that expires on February 28,
Carryover 1999 2000 2001
Money Market Fund $________ $________ $______ $______
To the extent that capital loss carryovers are used to offset any future
capital gains, it is unlikely that the gains so offset will be distributed
to shareholders, since any such distributions may be taxable to
shareholders as ordinary income.
CALIFORNIA TAX MATTERS. As long as a fund continues to qualify as a
regulated investment company under the federal Internal Revenue Code, it
will not incur California income or franchise tax liability on income and
capital gains distributed to shareholders. California personal income tax
law provides that exempt-interest dividends paid by a regulated investment
company, or series thereof, from interest on obligations which are exempt
from California personal income tax are excludable from gross income. For a
fund to qualify to pay exempt-interest dividends under California law, at
least 50 percent of the value of its assets must consist of such
obligations at the close of each quarter of its fiscal year. For purposes
of California personal income taxation, distributions to individual
shareholders derived from interest on other types of obligations and
short-term capital gains will be taxed as dividends, and long-term capital
gain distributions will be taxed as long-term capital gains. California has
an alternative minimum tax similar to the federal AMT described above.
However, the California AMT does not include interest from private activity
municipal obligations as an item of tax preference. Interest on
indebtedness incurred or continued by a shareholder in connection with the
purchase of shares of a fund will not be deductible for California personal
income tax purposes.
FUTURES AND OPTIONS TRANSACTIONS ( intermediate and high yield
fund s ). A special "marked-to-market" system governs the taxation of
"section 1256 contracts." These contracts generally include options on debt
securities, futures contracts, and options on interest rate futures
contracts. The intermediate and high yield fund s may invest
in section 1256 contracts. In general, gain or loss on section 1256
contracts will be taken into account for tax purposes when actually
realized (by a closing transaction, by exercise, by taking delivery, or by
other termination). In addition, any section 1256 contracts held at the end
of a taxable year will be treated as sold at fair market value
(marked-to-market) and the resulting gain or loss will be recognized for
tax purposes. Provided that a section 1256 contract is not part of a
"mixed" straddle which the fund elects to exclude from the
"marked-to-market" rules, both the realized and the unrealized taxable
year-end gain or loss positions (including premiums on options that expire)
will be treated as 60% long-term and 40% short-term capital gain or loss,
regardless of the period of time a particular position is actually held by
the fund.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the funds and their shareholders,
and no attempt has been made to discuss individual tax consequences.
Investors should consult their tax advisers to determine whether the funds
are suitable to their particular tax situations.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; Fidelity Investments Institutional Operations Company, which
performs shareholder servicing functions for certain institutional
customers; and Fidelity Investments Retail Marketing Company, which
provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services, to FMR
in connection with certain funds advised by FMR. Analysts employed by FMR,
FMR U.K., and FMR Far East research and visit thousands of domestic and
foreign companies each year. FMR Texas, a wholly owned subsidiary of FMR
formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. Unless
otherwise noted, the business address of each Trustee and officer is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the address
of FMR. Those Trustees who are "interested persons" (as defined in the 1940
Act) by virtue of their affiliation with either Trust or FMR, are indicated
by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; Chairman of the Board and of the
Executive Committee of FMR; a Director of FMR, Chairman and a Director of
FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc. and Fidelity Management & Research (Far
East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is
President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Prior to his retirement in March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Bonneville Pacific
Corporation (independent power, 1989) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, 340 E. 64th Street #22C, New York, NY, 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 serves as a Director
of the New York City Chapter of the National Multiple Sclerosis Society,
and is a member of the Advisory Council of the International Executive
Service Corps. and the President's Advisory Council of The University of
Vermont School of Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road. Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation (1988), Hyster-Yale Materials Handling, Inc. (1989), and
RPM, Inc. (manufacturer of chemical products, 1990). In addition, he serves
as a Trustee of First Union Real Estate Investments; Chairman of the Board
of Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the Financial
Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and Valuation Research Corp. (appraisal and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of The National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) 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, 1989) 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, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989),
is Chairman of G.M. Management Group (strategic advisory services). Prior
to his retirement in July 1988, he was Chairman and Chief Executive Officer
of Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), and York International Corp. (air conditioning and
refrigeration, 1989), Commercial Intertech Corp. (water treatment
equipment, 1992), and Associated Estates Realty Corporation (a real estate
investment trust, 1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company. He
is a Director of Allegheny Power Systems, Inc. (electric utility), General
Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). He is also
a Trustee of Rensselaer Polytechnic Institute and of Corporate Property
Investors and a member of the Advisory Boards of Butler Capital Corporation
Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, 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, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
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, 1987), National Life Insurance
Company of Vermont, American Software, Inc. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President and General
Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President and
Clerk of FDC.
THOMAS D. MAHER, Assistant Vice President (1990), is Assistant Vice
President of Fidelity's money market funds and Vice President of FMR Texas,
Inc. (1990).
JOHN F. HALEY, JR., is a Vice President of Fidelity Management Trust
Company (1988), the high yield fund (1993) and other funds advised by FMR
and an employee of FMR.
DEBORAH F. WATSON, is a Vice President of the money market fund (1992) and
other funds advised by FMR and an employee of FMR.
Under a retirement program that became effective on November 1, 1989,
Trustees , upon reaching age 72, become eligible to participate in a
defined benefit retirement program under which they receive payments during
their lifetime from the funds, based on their basic trustee fees and length
of service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of February 28, 1994 , the Trustees and officers owned in the
aggregate, less than __ % of the outstanding shares of each fund.
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 the fund in accordance with its investment
objective, policies, and limitations. FMR also provides the funds with all
necessary office facilities and personnel for servicing the funds'
investments, and compensates all officers of the trust, all Trustees who
are "interested persons" of the trust or of FMR, and all personnel of the
trust or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing
facilities for maintaining the fund's organization; supervising relations
with custodians, transfer and pricing agents, accountants, underwriters,
and other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the
fund ' s records and the registration of the fund ' s shares
under federal and state law; developing management and shareholder services
for the fund; and furnishing reports, evaluations, and analyses on a
variety of subjects to the Board of Trustees.
FMR is responsible for the payment of all expenses of the funds with
certain exceptions. Specific expenses payable by FMR include, without
limitation, the fees and expenses of registering and qualifying the funds
and their shares for distribution under federal and state securities laws;
expenses of typesetting for printing the Prospectus and Statement of
Additional Information; custodian charges; audit and legal expenses;
insurance expense; association membership dues; and the expenses of mailing
reports to shareholders, shareholder meetings, and proxy solicitations. FMR
also provides for transfer agent and dividend disbursing services and
portfolio and general accounting record maintenance through FSC.
FMR pays all other expenses of each fund with the following
exceptions: fees and expenses of all Trustees who are not "interested
persons" of the trust or FMR (the non-interested Trustees); interest on
borrowings; taxes; brokerage commissions (if any); and such nonrecurring
expenses as may arise, including costs of any litigation to which the funds
may be a party, and any obligation they may have to indemnify the officers
and Trustees with respect to litigation.
FMR is the high yield fund ' s manager pursuant to a
management contract dated October 19, 1989, which w as approved
by shareholders on October 3, 1990 , and is the manager of the money
market fund pursuant to a management contract dated April 18, 1994. The
April 18, 1994 contract was approved by Fidelity California Municipal Trust
as sole shareholder of the money market fund on April 18, 1994, pursuant to
an Agreement and Plan of Conversion approved by public shareholders of the
money market fund on February 16, 1994. (The terms of the money market
fund's current contract with FMR duplicate those of its previous contract,
which was dated October 19, 1989.) FMR is the intermediate fund's manager
pursuant to a management contract dated December 17, 1993, which was
approved by FMR as sole shareholder of the fund on December 20, 1993.
For the services of FMR under the contracts, the money market fund , the
intermediate fund, and the high yield fund pay FMR a monthly management
fee at the annual rate of .50% , .55%, and .55%, respectively, of
average net assets throughout the month. FMR reduces its fee by an amount
equal to the fees and expenses of the non-interested Trustees.
FMR may, from time to time, voluntarily reimburse all or a portion of a
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses).
The following tables outline expense limitations (as a percentage of
the funds' average net assets) in effect from the money market and high
yield funds' commencement of operations (November 27, 1989) and the
intermediate fund's commencement of operations (December 30, 1993) to
the date of this Statement of Additional Information. The tables also show
the amount of management fees incurred under each contract and the amounts
reimbursed by FMR for each fiscal period from commencement of operations to
the date of this Statement of Additional Information.
MONEY MARKET FUND:
From To Expense Limitation
November 27, 1989 August 31, 1990 0%
September 1, 1990 October 31, 1990 .05%
November 1, 1990 November 30, 1990 .10%
December 1, 1991 April 30, 1992 .15%
May 1, 1992 May 31, 1992 .20%
June 1, 1992 July 31, 1992 .25%
August 1, 1992 August 31, 1992 .30%
September 1, 1992 October 31, 1992 .33%
November 1, 1992 April 30, 1993 .35%
May 1, 1993 August 31, 1993 .15%
September 1, 1993 -- .20%
Management Fees Amount of
Period* Before Reimbursement Reimbursements
1994 $__________ $_________
1993 $3,699,983 $1,439,000
1992 $4,201,297 $3,370,581
* 1992 figures are for the fiscal year ended April 30. The 1993 fiscal
period was from May 1, 1992 to February 28, 1993 . The 1994
figures are for March 1, 1993 to February 28, 1994.
INTERMEDIATE FUND:
From To Expense Limitation
December 30, 1993 -- 0%
Management Fees Amount of
Period* Before Reimbursement Reimbursements
1994 $__________ $_________
* 1994 figures are from December 30, 1993 (commencement of
operations).
HIGH YIELD FUND:
From To Expense Limitation
November 27, 1989 July 31, 1990 0%
August 1, 1990 September 30, 1990 .10%
October 1, 1990 January 31, 1991 .20%
February 1, 1991 February 28, 1991 .30%
March 1, 1991 March 31, 1992 .35%
April 1, 1992 March 10, 1993 .40%
March 1 1 , 1993 May 31, 1993 .45%
June 1, 1993 July 31, 1993 .50%
Management Fees Amount of
Period* Before Reimbursement Reimbursements
1994 $__________ $_________
1993 $2,353,081 $642,664
1992 $2,175,298 $772,525
* 1992 figures are for the fiscal year ended April 30. The 1993 fiscal
period was from May 1, 1992 to February 28, 1993 . The 1994
figures are for March 1, 1993 to February 28, 1994.
If FMR were not temporarily reimbursing these expenses, the money market
and intermediate funds' yields would be lower and their total
operating expenses would be .50% and .55%, respectively, of each fund's
average net assets.
To defray shareholder service costs, FMR or its affiliates also collect the
funds' $5.00 exchange fees, $5.00 account closeout fees, $5.00 fees for
wire purchases and redemptions, and the money market and intermediate
funds ' $2.00 checkwriting charge. Shareholder transaction fees
and charges collected for the fiscal periods ended February 28, 1994
and 1993 and fiscal 1992 are indicated in the tables below.
MONEY MARKET FUND:
Exchange Fees Account Closeout Fees Wire Fees Checkwriting Charge
1994 $_______ $______ $_____ $_______
1993 $27,185 $2,589 $5,400 $26,557
1992 $33,135 $2,415 $7,650 $35,468
INTERMEDIATE FUND:
Exchange Fees Account Closeout Fees Wire Fees Checkwriting Charge
1994* $_______ $______ $_____ $_______
* From December 30, 1993 (commencement of operations).
HIGH YIELD FUND:
Exchange Fees Account Closeout Fees Wire Fees
1994 $_______ $______ $_____
1993 $10,705 $1,280 $1,670
1992 $11,965 $1,194 $1,900
SUB-ADVISER. With respect to the money market fund, FMR has entered into a
sub-advisory agreement with FMR Texas pursuant to which FMR Texas has
primary responsibility for providing portfolio investment management
services to the fund. Under the sub-advisory agreement, FMR pays FMR Texas
a fee equal to 50% of the management fee payable to FMR under its current
management contract with the fund. The fees paid to FMR Texas are not
reduced by any voluntary or mandatory expense reimbursements that may be in
effect from time to time. For the fiscal periods March 1, 1993 to
February 28, 1994 and May 1, 1992 to February 28, 1993 and the
fiscal year May 1, 1991 to April 30, 1992 , FMR paid FMR Texas
fees of $__________, $1,849,992, and $2,100,648,
respectively, under the sub-advisory agreement.
DISTRIBUTION AND SERVICE PLANS
Each fund has adopted a distribution and service plan (the plan) under Rule
12b-1 of the Investment Company Act of 1940 (the Rule). The Rule provides
in substance that a mutual fund may not engage directly or indirectly in
financing any activity that is primarily intended to result in the sale of
shares of the fund except pursuant to a plan adopted by the fund under the
Rule. The Board of Trustees has adopted the plan to allow the fund and FMR
to incur certain expenses that might be considered to constitute indirect
payment by the fund of distribution expenses. Under the plans, if the
payment by the fund to FMR of management fees should be deemed to be
indirect financing by the fund of the distribution of its shares, such
payment is authorized by the plan.
The plans specifically recognize that FMR, either directly or through FDC,
may use its management fee revenues, past profits, or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the funds. In addition, the
plans provide that FMR may use its resources, including its management fee
revenues, to make payments to third parties that provide assistance in
selling the funds' shares, or to third parties, including banks, that
render shareholder support services. The Trustees have not authorized third
party payments to date.
Each fund's plan has been approved by the Trustees. As required by the
Rule, the Trustees carefully considered all pertinent factors relating to
implementation of the plan prior to their approval, and have determined
that there is a reasonable likelihood that the plans will benefit the funds
and their shareholders. In particular, the Trustees noted that the plans do
not authorize payments by the funds other than those made to FMR under its
management contracts with the funds. To the extent that the plans give FMR
and FDC greater flexibility in connection with the distribution of shares
of the funds, additional sales of the funds' shares may result.
Additionally, certain shareholder support services may be provided more
effectively under the plans by local entities with whom shareholders have
other relationships. . The plan for the money market fund was
approved by Fidelity California Municipal Trust on April 18, 1994, as the
then sole shareholder of the money market fund, pursuant to an Agreement
and Plan of Conversion approved by public shareholders of the money market
fund on February 16, 1993. The high yield fund's p lan was approved
by shareholders on October 3, 1990. The intermediate fund's plan was
approved by FMR as the sole shareholder of the fund on December 20,
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,
and 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. The funds may execute portfolio
transactions with and purchase securities issued by depository institutions
that receive payments under the Plans. No preference will be shown in the
selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may differ
from the interpretations of federal law expressed herein, and banks and
other financial institutions may be required to register as dealers
pursuant to state law.
INTEREST OF FMR AFFILIATES
United Missouri is each fund's custodian and transfer agent. United
Missouri 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. United Missouri 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 the funds' accounting
records. United Missouri is entitled to reimbursement for fees paid to FSC
from FMR, who must bear these costs pursuant to its management contract
with each fund.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Fidelity California Municipal Trust (the
Massachusetts trust ) is an open-end management investment company
organized as a Massachusetts business trust on April 28, 1983. On
February 27, 1984 the trust 's name was changed from Fidelity
California Tax-Exempt Money Market Trust to Fidelity California Tax-Free
Fund and on November 1, 1989 its name was changed to Fidelity California
Municipal Trust. Currently, there are f our funds of the
Massachusetts trust : Fidelity California Tax-Free Insured Portfolio,
Fidelity California Tax-Free High Yield Portfolio, Spartan California
Intermediate Municipal Portfolio, and Spartan California Municipal High
Yield Portfolio. The Massachusetts trust 's Declaration of Trust
permits the Trustees to create additional funds.
Fidelity California Municipal Trust II (the Delaware trust ) is an
open-end management investment company organized as a Delaware Business
trust on June 20, 1991. Currently, there two funds of the
Delaware trust : Fidelity California Tax-Free Money Market Fund
and Spartan California Municipal Money Market Portfolio . Fidelity
California Tax-Free Money Market Fund and Spartan California Municipal
Money Market Portfolio entered into agreement s to acquire all of
the assets of the Fidelity California Tax-Free Money Market Portfolio
and Spartan California Municipal Money Market Portfolio , series of the
Fidelity California Municipal Trust, on December 30, 1991 and April 18,
1994, respectively . 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 liabilities of their respective trusts. Expenses with respect
to each trust 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 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 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 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 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
trust or its Trustees shall include a provision limiting the obligations
created thereby to the Massachusetts Trust and its assets. The Declaration
of Trust provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware Trust
is a business trust organized under Delaware law. Delaware law provides
that shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
courts of some states, however, may decline to apply Delaware law on this
point. The Trust Instrument contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
Delaware Trust and requires that a disclaimer be given in each contract
entered into or executed by the Delaware Trust or its Trustees. The Trust
Instrument provides for indemnification out of each fund's property of any
shareholder or former shareholder held personally liable for the
obligations of the fund. The Trust Instrument also provides that each fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the fund is unable to meet its obligations. FMR believes that,
in view of the above, the risk of personal liability to shareholders is
extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware Trust or its
shareholders; moreover, the Trustees shall not be liable for any conduct
whatsoever, provided that Trustees are not protected against any liability
to which they would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. As a shareholder of the Massachusetts trust, you
receive one vote for each dollar value of net asset value per share you
own. The shares have no preemptive or conversion rights; voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the respective "Shareholder and Trustee
Liability" headings above. Shareholders representing 10% or more of a trust
or one of its funds may, as set forth in the Declaration of Trust or Trust
Instrument, call meetings of the trust or fund for any purpose related to
the trust or fund, as the case may be, including, in the case of a meeting
of an entire trust, the purpose on voting on removal of one or more
Trustees.
A trust or any fund may be terminated upon the sale of its assets to
(or, in the case of the Delaware Trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations
must be approved by vote of the holders of a majority of the outstanding
shares of the trust or the fund (for the Delaware Trust), or by a 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 trust or fund (for
the Massachusetts 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.
CUSTODIAN. United Missouri Bank, N.A., 1010 Grand Avenue, Kansas City,
Missouri 64106, is custodian of the assets of the funds. The custodian is
responsible for the safekeeping of the funds' assets and the appointment of
subcustodian banks and clearing agencies. The custodian takes no part in
determining the investment policies of the funds or in deciding which
securities are purchased or sold by the funds. The funds may, however,
invest in obligations of the custodian and may purchase securities from or
sell securities to the custodian.
FMR, its officers and directors, its affiliated companies, and the
trusts' Trustees may from time to time have transactions with various
banks, including banks serving as custodian for certain of the funds
advised by FMR. Transactions that have occurred to date include mortgages
and personal and general business loans. In the judgment of FMR, the terms
and conditions of those transactions were not influenced by existing or
potential custodial or other fund relationships.
AUDITOR. Price Waterhouse, 160 Federal Street, Boston, Massachusetts
serves as each trust's independent accountant. The auditor examines
financial statements for the funds and provides other audit, tax, and
related services.
FINANCIAL STATEMENTS
The funds' Annual Report for the fiscal period ended February 28, 1994
is a separate report supplied with this Statement of Additional Information
and is 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
intermediate and high yield funds. The funds may, however, consider ratings
for other types of investments and the ratings assigned by other ratings
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, with all
security elements accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
MIG-4/VMIG-4 - This designation denotes adequate quality protection
commonly regarded as required of an investment security is present and,
although not distinctly or predominantly speculative, there is specific
risk.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS OF STATE AND
MUNICIPAL NOTES:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium grade obligations, i.e, they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds 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 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.
Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1, and B1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB or BB- rating.
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 ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
PART C. OTHER INFORMATION
Item 24. Financial Statement and Exhibits
(a) Not applicable
(b) Exhibits:
(1)(a) Amended and Restated Declaration of Trust, dated June 20, 1984, is
incorporated herein by reference to Exhibit 1(a) to Post-Effective
Amendment No. 1.
(b) Supplement to the Declaration of Trust, dated April 9, 1985, is
incorporated herein by reference to Exhibit 1(b)to Post-Effective Amendment
No. 2.
(c) Supplement to the Declaration of Trust, dated November 30, 1987, is
incorporated herein by reference to Exhibit 1(c) to Post-Effective
Amendment No. 13.
(d) Supplement to the Declaration of Trust, dated October 13, 1989,
is incorporated herein by reference to Exhibit 1(d) to Post-Effective
Amendment No. 13.
(2) By-Laws of the Trust are incorporated herein by reference to Exhibit 2
to the initial Registration Statement.
(a) Supplement to the Bylaws of the Registrant are incorporated herein
by reference to Exhibit 2(a) to Post Effective Amendment No. 14.
(3) Not applicable.
(4) Not applicable.
(5)(a) Management Contract, dated November 1, 1989, between the Fidelity
California Tax-Free Insured Portfolio and Fidelity Management &
Research Co. is incorporated herein by reference to Exhibit 5(a) to
Post-Effective Amendment No. 13.
(b) Management Contract, dated November 1, 1989, between Fidelity
California Tax-Free High Yield Portfolio and Fidelity Management &
Research Company is incorporated herein by reference to Exhibit 5(c) to
Post-Effective Amendment No. 13.
(c) Management Contract, dated October 19, 1989, between Spartan
California Municipal Money Market Portfolio and Fidelity Management &
Research Company is incorporated herein by reference to Exhibit 5(e) to
Post-Effective Amendment No. 13.
(d) Management Contract, dated October 19, 1989, between Spartan
California High Municipal High Yield Portfolio and Fidelity Management
& Research Company is incorporated herein by reference to Exhibit 5(f)
to Post-Effective Amendment No. 13.
(e) Management Contract between Spartan California Intermediate
Municipal Portfolio and Fidelity Management & Research Company is filed
herein as Exhibit 5(e).
(f) Sub-Advisory Agreement, dated October 19, 1989, between Fidelity
Management & Research Company and FMR Texas Inc. on behalf of Spartan
California Municipal Money Market Portfolio is incorporated herein by
reference to Exhibit 5(g) to Post-Effective Amendment No. 13.
6 (a) General Distribution Agreement, dated August 31, 1986 and amended as
of April 1, 1987 between Fidelity California Tax-Free Insured Portfolio and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(b) to Post-Effective Amendment No. 8.
(b) General Distribution Agreement, dated June 1, 1986 and amended as of
April 1, 1987 between Fidelity California Tax-Free High Yield Portfolio and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(c) to Post-Effective Amendment No. 8.
(c) Amendment to General Distribution Agreement, dated January 1, 1988,
between Fidelity California Tax-Free Insured Portfolio and Fidelity
Distributors Corporation is incorporated herein by reference to Exhibit
6(b) to Post-Effective Amendment No. 9.
(d) Amendment to General Distribution Agreement, dated January 1, 1988,
between Fidelity California Tax-Free High Yield Portfolio and Fidelity
Distributors Corporation is incorporated herein by reference to Exhibit
6(c) to Post-Effective Amendment No. 9.
(e) General Distribution Agreement, dated October 19, 1989, between
Spartan California Municipal Money Market Portfolio and Fidelity
Distributors Corporation is incorporated herein by reference to Exhibit
6(d) to Post-Effective Amendment No. 13.
(f) General Distribution Agreement, dated October 19, 1989, between
Spartan California Municipal High Yield Portfolio and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(e) to
Post-Effective Amendment No. 13.
(g) General Distribution Agreement between Spartan California
Intermediate Municipal Portfolio and Fidelity Distributors Corporation is
filed herein as Exhibit 6(g).
(7) Not applicable.
(8)(a) Custodian Agreement between Registrant and United Missouri Bank,
N.A., dated July 18, 1991, is incorporated herein by reference to Exhibit 8
to Post-Effective Amendment No. 20.
(b) Form of Appendix A to the Custodian Agreement between Fidelity
California Municipal Trust and United Missouri Bank, N.A., on behalf of
Spartan California Intermediate Municipal Portfolio is filed herein as
Exhibit 8(b).
(9)(a) Forms of Transfer Agent and Service Agreement and Appendix A between
Fidelity California Municipal Trust and United Missouri Bank, N.A. are
filed herein as Exhibt 9(a).
(b) Forms of Appointment of Sub-Transfer and Sub-Service Agent and
Appendix A between Fidelity Service Company and Unitied Missouri Bank, N.A.
are filed herein as Exhibit 9(b).
(c) Forms of Schedule A (transfer agent, Dividend and Distribution
Disbursing Agent, and Shareholder Servicing Agent), Schedule B (pricing and
bookkeeping), and Schedule C (securities lending) relating to Spartan
California Intermediate Municipal Portfolio are filed herein as Exhibit 9
(c).
(d) Forms of Schedule A (transfer agent, Dividend and Distribution
Disbursing Agent, and Shareholder Servicing Agent), Schedule B (pricing and
bookkeeping), and Schedule C (securities lending) relating to Fidelity
California Tax-Free High Yield Portfolio are filed herein as Exhibit 9 (d).
(e) Forms of Schedule A (transfer agent, Dividend and Distribution
Disbursing Agent, and Shareholder Servicing Agent), Schedule B (pricing and
bookkeeping), and Schedule C (securities lending) relating to Fidelity
California Tax-Free Insured Portfolio are filed herein as Exhibit 9 (e).
(f) Forms of Schedule A (transfer agent, Dividend and Distribution
Disbursing Agent, and Shareholder Servicing Agent), Schedule B (pricing and
bookkeeping), and Schedule C (securities lending) relating to Spartan
California Municipal High Yield Portfolio are filed herein as Exhibit 9
(f).
(g) Forms of Schedule A (transfer agent, Dividend and Distribution
Disbursing Agent, and Shareholder Servicing Agent), Schedule B (pricing and
bookkeeping), and Schedule C (securities lending) relating to Spartan
California Municipal Money Market Portfolio are filed herein as Exhibit 9
(g).
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15)(a) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
California Tax-Free High Yield Portfolio is incorporated herein by
reference to Exhibit 15(b) to Post-Effective Amendment No. 5.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
California Tax-Free Insured Portfolio is incorporated herein by reference
to Exhibit 15(c) to Post-Effective Amendment No. 5.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
California Municipal Money Market Portfolio is incorporated herein by
reference to Exhibit 15(d) to Post-Effective Amendment No. 13.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
California Municipal High Yield Portfolio is incorporated herein by
reference to Exhibit 15(e) to Post-Effective Amendment No. 13.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
California Intermediate Municipal Portfolio is filed herein as Exhibit
15(e).
(16)(a) A revised schedule for computation of performance quotations for
Fidelity Tax-Free Insured Portfolio and Fidelity Tax-Free High Yield
Portfolio is incorporated herein by reference to Exhibit 16(a) to
Post-Effective Amendment No. 16.
(b) A revised schedule for computation of performance quotations for
Spartan California Municipal Money Market Portfolio and Spartan California
Municipal High Yield Portfolio is incorporated herein by reference to
Exhibit 16(b) to Post-Effective Amendment No. 16.
(c) A schedule for computation of performance calculations is
incorporated herein by reference to Exhibit 16(c) to Post-Effective
Amendment No. 22.
Item 25. Persons Controlled by or under Common Control with Registrant
The Board of Trustees of the Registrant is the same as the Boards of other
funds advised by FMR, each of which has Fidelity Management & Research
Company as its investment adviser. In addition, the officers of these funds
are substantially identical. Nonetheless, the Registrant takes the
position that it is not under common control with these other funds since
the power residing in the respective boards and officers arises as the
result of an official position with the respective funds.
Item 26. Number of Holders of Securities
December 31, 1993
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity California Tax-Free
High Yield Portfolio 18,430
Fidelity California Tax-Free
Insured Portfolio 10,589
Spartan California Municipal
Money Market Portfolio 11,918
Spartan California Municipal
High Yield Portfolio 11,713
Spartan California Intermediate
Municipal Portfolio 2
Item 27. 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.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman of
the Board and a Director of FMR, FMR Corp., FMR Texas
Inc., Fidelity Management & Research (U.K.) Inc. and
Fidelity Management & Research (Far East) Inc.;
President and Trustee of funds advised by FMR;
J. Gary Burkhead President of FMR; Managing Director of FMR Corp.;
President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc. and Fidelity
Management & Research (Far East) Inc.; Senior Vice
President and Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman of FMR (1992).
David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.
Stephan Campbell Vice President of FMR (1993).
Rufus C. Cushman, Jr. Vice President of FMR and of funds advised by FMR;
Corporate Preferred Group Leader.
Will Danof Vice President of FMR (1993) and of a fund advised by
FMR.
Scott DeSano Vice President of FMR (1993).
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Larry Domash Vice President of FMR (1993).
George Domolky Vice President of FMR (1993) and of a fund advised by
FMR.
Charles F. Dornbush Senior Vice President of FMR; Chief Financial Officer of
the Fidelity funds; Treasurer of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
Robert K. Duby Vice President of FMR.
Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.
Kathryn L. Eklund Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Daniel R. Frank Vice President of FMR and of funds advised by FMR.
Gary L. French Vice President of FMR and Treasurer of the funds advised
by FMR. Prior to assuming the position as Treasurer he
was Senior Vice President, Fund Accounting - Fidelity
Accounting & Custody Services Co.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Income/Growth Group
Leader and International Group Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; and Director of Technical
Research.
Stephan Jonas Vice President of FMR (1993).
David B. Jones Vice President of FMR (1993).
Steven Kaye Vice President of FMR (1993) and of a fund advised by
FMR.
Frank Knox Vice President of FMR (1993).
Robert A. Lawrence Senior Vice President of FMR (1993); and High Income
Group Leader.
Alan Leifer Vice President of FMR and of a fund advised by FMR.
Harris Leviton Vice President of FMR (1993) and of a fund advised by
FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Robert H. Morrison Vice President of FMR and Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Jacques Perold Vice President of FMR.
Brian Posner Vice President of FMR (1993) and of a fund advised by
FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Richard A. Spillane Vice President of FMR and of funds advised by FMR; and
Director of Equity Research.
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised
by FMR.
Thomas Steffanci Senior Vice President of FMR (1993); and Fixed-Income
Division Head.
Gary L. Swayze Vice President of FMR and of funds advised by FMR; and
Tax-Free Fixed-Income Group Leader.
Donald Taylor Vice President of FMR (1993) and of funds advised by
FMR.
Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised
by FMR.
Joel Tillinghast Vice President of FMR (1993) and of a fund advised by
FMR.
Robert Tucket Vice President of FMR (1993).
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR; and Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Guy E. Wickwire Vice President of FMR and of a fund advised by FMR.
Arthur S. Loring Senior Vice President (1993), Clerk and General Counsel of
FMR; Vice President, Legal of FMR Corp.; and Secretary
of funds advised by FMR.
</TABLE>
(2) FMR TEXAS INC. (FMR Texas)
FMR Texas provides investment advisory services to Fidelity Management
& Research Company. The directors and officers of the Sub-Adviser have
held the following positions of a substantial nature during the past two
fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Texas; Chairman of the
Executive Committee of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of the Board
and a Director of FMR, FMR Corp., Fidelity
Management & Research (Far East) Inc. and
Fidelity Management & Research (U.K.) Inc.;
President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Texas; President of FMR;
Managing Director of FMR Corp.; President and a
Director of Fidelity Management & Research (Far
East) Inc. and Fidelity Management & Research
(U.K.) Inc.; Senior Vice President and Trustee of funds
advised by FMR.
Frederic L. Henning Jr. Senior Vice President of FMR Texas; Money Market
Group Leader.
Leland Baron Vice President of FMR Texas and of funds advised by
FMR.
Thomas D. Maher Vice President of FMR Texas.
Burnell Stehman Vice President of FMR Texas and of funds advised by
FMR.
John Todd Vice President of FMR Texas and of funds advised by
FMR.
Sarah H. Zenoble Vice President of FMR Texas and of funds advised by
FMR.
Charles F. Dornbush Treasurer of FMR Texas; Treasurer of Fidelity
Management & Research (U.K.) Inc.; Treasurer of
Fidelity Management & Research (Far East) Inc.;
Senior Vice President and Chief Financial Officer of the
Fidelity funds.
David C. Weinstein Secretary of FMR Texas; Clerk of Fidelity Management
& Research (U.K.) Inc.; Clerk of Fidelity
Management & Research (Far East) Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR and the following other funds:
CrestFunds, Inc.
The Victory Funds
ARK Funds
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Nita B. Kincaid Director None
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer None
William L. Adair Senior Vice President None
Thomas W. Littauer Senior Vice President None
Arthur S. Loring Vice President and Clerk Secretary
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Co., 82 Devonshire Street, Boston, MA 02109, or the funds'custodian
United Missouri Bank, N.A., 1010 Grand Avenue, Kansas City, MO.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant on behalf of Fidelity California Tax-Free High Yield
Portfolio, Fidelity
California Tax-Free Insured Portfolio, Spartan California Intermediate
Municipal Portfolio, and Spartan California Municipal High Yield Portfolio
undertakes, provided the information required by Item 5A is contained in
the annual report, to furnish each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the
Registrant's latest annual report to shareholders.
(b) The Registrant undertakes to file a Post-Effective Amendment, using
financial statements for Spartan California Intermediate Municipal
Portfolio, which need not be certified, within six months of the fund's
effectiveness. The Registrant undertakes for the fund: (1) to call a
meeting of shareholders for the purpose of voting upon the question of
removal of a trustee or trustees, when requested to do so by recordholders
of not less than 10% of its outstanding shares; and (2) to assist in
communications with other shareholders pursuant to Section 16(c)(1) and
(2), whenever shareholders meeting the qualifications set forth in Section
16(c) seek the opportunity to communicate with other shareholders with a
view toward requesting a meeting.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 25 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, and Commonwealth of Massachusetts, on the 31st day of January 1994.
FIDELITY CALIFORNIA MUNICIPAL 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)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d(dagger) President and Trustee January 31, 1994
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Gary L. French Treasurer January 31, 1994
Gary L. French
/s/J. Gary Burkhead Trustee January 31, 1994
J. Gary Burkhead
/s/Ralph F. Cox * Trustee January 31, 1994
Ralph F. Cox
/s/Richard J. Flynn * Trustee January 31, 1994
Richard J. Flynn
/s/E. Bradley Jones * Trustee January 31, 1994
E. Bradley Jones
/s/Donald J. Kirk * Trustee January 31, 1994
Donald J. Kirk
/s/Peter S. Lynch * Trustee January 31, 1994
Peter S. Lynch
/s/Edward H. Malone * Trustee January 31, 1994
Edward H. Malone
/s/Gerald C. McDonough* Trustee January 31, 1994
Gerald C. McDonough
/s/Thomas R. Williams * Trustee January 31, 1994
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated October 20, 1993 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated October 20, 1993 and filed herewith.
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity 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 Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VII Fidelity Municipal Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Securities Fund
Fidelity Commonwealth Trust Fidelity Select Portfolios
Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P.
Fidelity Contrafund Fidelity Summer Street Trust
Fidelity Corporate Trust Fidelity Trend Fund
Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity 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
Fidelity Income Fund
</TABLE>
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.
Xupolos, 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 twentieth day of October, 1993.
/s/Edward C. Johnson 3d /s/Peter S. Lynch
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead /s/Edward H. Malone
J. Gary Burkhead 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
/s/Donald J. Kirk
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity 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 Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VII Fidelity Municipal Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Securities Fund
Fidelity Commonwealth Trust Fidelity Select Portfolios
Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P.
Fidelity Contrafund Fidelity Summer Street Trust
Fidelity Corporate Trust Fidelity Trend Fund
Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity 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
Fidelity Income Fund
</TABLE>
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 October 20, 1993
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment cmpanies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
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 Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Devonshire Trust Fidelity U.S. Investments-Government Securities
Fidelity Financial Trust Fund, L.P.
Fidelity Fixed-Income Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Government Securities Fund Spartan U.S. Treasury Money Market
Fidelity Hastings Street Trust Fund
Fidelity Income Fund Variable Insurance Products Fund
Fidelity Institutional Trust Variable Insurance Products Fund II
Fidelity Investment Trust
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as a Board Member (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.
Xupolos, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for me and in my name in the appropriate capacity, all 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 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 my hand on the date set forth below.
/s/Ralph F. Cox October 20, 1993
Ralph F. Cox
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series IV Fidelity School Street Trust
Fidelity Advisor Series VI Fidelity Select Portfolios
Fidelity Advisor Series VIII Fidelity Sterling Performance Portfolio, L.P.
Fidelity Beacon Street Trust Fidelity Trend Fund
Fidelity Capital Trust Fidelity Union Street Trust
Fidelity Commonwealth Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Contrafund Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust 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
Fidelity Institutional Trust
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company acts as investment adviser and for which the undersigned
individual serves as a Board Member (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.
Xupolos, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for me and in my name in the appropriate capacity, all 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 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 my hand on the date set forth below.
/s/Phyllis Burke Davis October 20, 1993
Phyllis Burke Davis
Exhibit 5 (e)
MANAGEMENT CONTRACT
between
FIDELITY CALIFORNIA MUNICIPAL TRUST:
Spartan California Intermediate Municipal Portfolio
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this 17th day of December 1993, by and between Fidelity
California Municipal Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter called the
"Fund"), on behalf of Spartan California Intermediate Municipal Portfolio
(hereinafter called the "Portfolio"), and Fidelity Management &
Research Company, a Massachusetts corporation (hereinafter called the
"Adviser").
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Portfolio in
accordance with the investment objective, policies and limitations as
provided in the Portfolio's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and rules
thereunder, as amended from time to time (the "1940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser. The Adviser shall also furnish for the use of the Portfolio
office space and all necessary office facilities, equipment and personnel
for servicing the investments of the Portfolio; and shall pay the salaries
and fees of all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all personnel of
the Fund or the Adviser performing services relating to research,
statistical and investment activities. The Adviser is authorized, in its
discretion and without prior consultation with the Portfolio, to buy, sell,
lend and otherwise trade in any stocks, bonds and other securities and
investment instruments on behalf of the Portfolio. The investment policies
and all other actions of the Portfolio are and shall at all times be
subject to the control and direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for the
performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund. The Adviser shall,
subject to the supervision of the Board of Trustees, perform various
services for the Portfolio, including but not limited to: (i) providing the
Portfolio with office space, equipment and facilities (which may be its
own) for maintaining its organization; (ii) on behalf of the Portfolio,
supervising relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable; (iii) preparing all general
shareholder communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered, maintaining
the registration and qualification of the Portfolio's shares under federal
and state law; and (vii) investigating the development of and developing
and implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Portfolio as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, information or
analyses to the Fund as the Fund's Board of Trustees may request from time
to time or as the Adviser may deem to be desirable. The Adviser shall make
recommendations to the Fund's Board of Trustees with respect to Fund
policies, and shall carry out such policies as are adopted by the Trustees.
The Adviser shall, subject to review by the Board of Trustees, furnish such
other services as the Adviser shall from time to time determine to be
necessary or useful to perform its obligations under this Contract.
(c) The Adviser undertakes to pay all expenses involved in the operation
of the Portfolio, except the following, which shall be paid by the
Portfolio: (i) taxes; (ii) the fees and expenses of all Trustees of the
Fund who are not "interested persons" of the Fund or of the Adviser; (iii)
brokerage fees and commissions; (iv) interest expenses with respect to
borrowings by the Portfolio; and (v) such non-recurring and extraordinary
expenses as may arise, including actions, suits or proceedings to which the
Portfolio is or is threatened to be a party and the legal obligation that
the Portfolio may have to indemnify the Fund's Trustees and officers with
respect thereto. It is understood that service charges billed directly to
shareholders of the Portfolio, including charges for exchanges,
redemptions, or other services, shall not be payable by the Adviser, but
may be received and retained by the Adviser or its affiliates.
(d) The Adviser, at its own expense, shall place all orders for the
purchase and sale of portfolio securities for the Portfolio's account with
brokers or dealers selected by the Adviser, which may include brokers or
dealers affiliated with the Adviser. The Adviser shall use its best
efforts to seek to execute portfolio transactions at prices which are
advantageous to the Portfolio and at commission rates which are reasonable
in relation to the benefits received. In selecting brokers or dealers
qualified to execute a particular transaction, brokers or dealers may be
selected who also provide brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) to the
Portfolio and/or the other accounts over which the Adviser or its
affiliates exercise investment discretion. The Adviser is authorized to
pay a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines in good
faith that such amount of commission is reasonable in relation to the value
of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular
transaction or the overall responsibilities which the Adviser and its
affiliates have with respect to accounts over which they exercise
investment discretion. The Trustees of the Fund shall periodically review
the commissions paid by the Portfolio to determine if the commissions paid
over representative periods of time were reasonable in relation to the
benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor. The
Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of the
Fund are or may be or become interested in the Adviser as directors,
officers or otherwise and that directors, officers and stockholders of the
Adviser are or may be or become similarly interested in the Fund, and that
the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
3. For the services and facilities to be furnished hereunder, the Adviser
shall receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month, at the annual rate of .55% of
the average daily net assets of the Portfolio (computed in the manner set
forth in the Declaration of Trust) determined as of the close of business
on each day throughout the month; provided that the fee, so computed, shall
be reduced by the compensation, including reimbursement of expenses, paid
by the Portfolio to those Trustees who are not "interested persons" of the
Fund or the Adviser.
In the case of initiation or termination of this Contract during any
month, the fee shall be reduced proportionately based on the number of
business days during which it is in effect and the fee computed upon the
average net assets for the business days it is so in effect for that month.
4. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage
in other activities, provided, however, that such other services and
activities do not, during the term of this Contract, interfere, in a
material manner, with the Adviser's ability to meet all of its obligations
with respect to rendering services to the Portfolio hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser,
the Adviser shall not be subject to liability to the Portfolio or to any
shareholder of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
5. (a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 5, this Contract shall continue in force until May 31, 1994
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually by vote of the
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio.
(b) This Contract may be modified by mutual consent, such consent on the
part of the Fund to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of this
paragraph 5, the terms of any continuance or modification of this Contract
must have been approved by the vote of a majority of those Trustees of the
Fund who are not parties to the Contract or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
(d) Either party hereto may, at any time on sixty (60) days' prior written
notice to the other, terminate this Contract, without payment of any
penalty, by action of its Trustees or Board of Directors, as the case may
be, or with respect to the Portfolio by vote of a majority of the
outstanding voting securities of the Portfolio. This Contract shall
terminate automatically in the event of its assignment.
6. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust and
agrees that the obligations assumed by the Fund pursuant to this Contract
shall be limited in all cases to the Portfolio and its assets, and the
Adviser shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Portfolio or any other Portfolios of
the Fund. In addition, the Adviser shall not seek satisfaction of any such
obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Portfolio under the
Declaration of Trust are separate and distinct from those of any and all
other Portfolios.
7. This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without giving effect to the
choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, as now in effect or as
hereafter amended, and subject to such orders as may be granted by the
Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be signed in
their behalf by their respective officers thereunto duly authorized, all as
of the date written above.
FIDELITY CALIFORNIA MUNICIPAL TRUST
on behalf of Spartan California Intermediate Municipal Portfolio
By /s/J. Gary Burkhead
J. Gary Burkhead
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By /s/J. Gary Burkhead
J. Gary Burkhead
President
Exhibit 6 (g)
GENERAL DISTRIBUTION AGREEMENT
between
FIDELITY CALIFORNIA MUNICIPAL TRUST
and
FIDELITY DISTRIBUTORS CORPORATION
Agreement made this 17th day of December 1993, between Fidelity California
Municipal Trust, a Massachusetts business trust having its principal place
of business in Boston, Massachusetts and which may issue one or more series
of beneficial interest ("Issuer"), with respect to shares of Spartan
California Intermediate Municipal Portfolio, a series of the Issuer, and
Fidelity Distributors Corporation, a Massachusetts corporation having its
principal place of business in Boston, Massachusetts ("Distributors").
In consideration of the mutual promises and undertakings herein contained,
the parties agree as follows:
1. Sale of Shares - The Issuer grants to the Distributor the right to sell
shares on behalf of the Issuer during the term of this Agreement and
subject to the registration requirements of the Securities Act of 1933, as
amended ("1933 Act"), and of the laws governing the sale of securities in
the various states ("Blue Sky Laws") under the following terms and
conditions: the Distributor (i) shall have the right to sell, as agent on
behalf of the Issuer, shares authorized for issue and registered under the
1933 Act, and (ii) may sell shares under offers of exchange, if available,
between and among the funds advised by Fidelity Management & Research
Company ("FMR").
2. Sale of Shares by the Issuer - The rights granted to the Distributor
shall be nonexclusive in that the Issuer reserves the right to sell its
shares to investors on applications received and accepted by the Issuer.
Further, the Issuer reserves the right to issue shares in connection with
the merger or consolidation, or acquisition by the Issuer through purchase
or otherwise, with any other investment company, trust, or personal holding
company.
3. Shares Covered by this Agreement - This Agreement shall apply to
unissued shares of the Issuer, shares of the Issuer held in its treasury in
the event that in the discretion of the Issuer treasury shares shall be
sold, and shares of the Issuer repurchased for resale.
4. Public Offering Price - Except as otherwise noted in the Issuer's
current Prospectus and/or Statement of Additional Information, all shares
sold to investors by the Distributor or the Issuer will be sold at the
public offering price. The public offering price for all accepted
subscriptions will be the net asset value per share, as determined in the
manner described in the Issuer's current Prospectus and/or Statement of
Additional Information, plus a sales charge (if any) described in the
Issuer's current Prospectus and/or Statement of Additional Information.
The Issuer shall in all cases receive the net asset value per share on all
sales. If a sales charge is in effect, the Distributor shall have the
right subject to such rules or regulations of the Securities and Exchange
Commission as may then be in effect pursuant to Section 22 of the
Investment Company Act of 1940 to pay a portion of the sales charge to
dealers who have sold shares of the Issuer. If a fee in connection with
shareholder redemptions is in effect, the Issuer shall collect the fee on
behalf of Distributors and, unless otherwise agreed upon by the Issuer and
Distributors, Distributors shall be entitled to receive all of such fees.
5. Suspension of Sales - If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further
orders for shares shall be processed by the Distributor except such
unconditional orders as may have been placed with the Distributor before it
had knowledge of the suspension. In addition, the Issuer reserves the
right to suspend sales and the Distributor's authority to process orders
for shares on behalf of the Issuer if, in the judgment of the Issuer, it is
in the best interests of the Issuer to do so. Suspension will continue for
such period as may be determined by the Issuer.
6. Solicitation of Sales - In consideration of these rights granted to the
Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of the
Issuer. This shall not prevent the Distributor from entering into like
arrangements (including arrangements involving the payment of underwriting
commissions) with other issuers. This does not obligate the Distributor to
register as a broker or dealer under the Blue Sky Laws of any jurisdiction
in which it is not now registered or to maintain its registration in any
jurisdiction in which it is now registered. If a sales charge is in
effect, the Distributor shall have the right to enter into sales agreements
with dealers of its choice for the sale of shares of the Issuer to the
public at the public offering price only and fix in such agreements the
portion of the sales charge which may be retained by dealers, provided that
the Issuer shall approve the form of the dealer agreement and the dealer
discounts set forth therein and shall evidence such approval by filing said
form of dealer agreement and amendments thereto as an exhibit to its
currently effective Registration Statement under the 1933 Act.
7. Authorized Representations - The Distributor is not authorized by the
Issuer to give any information or to make any representations other than
those contained in the appropriate registration statements or Prospectuses
and Statements of Additional Information filed with the Securities and
Exchange Commission under the 1933 Act (as these registration statements,
Prospectuses and Statements of Additional Information may be amended from
time to time), or contained in shareholder reports or other material that
may be prepared by or on behalf of the Issuer for the Distributor's use.
This shall not be construed to prevent the Distributor from preparing and
distributing sales literature or other material as it may deem appropriate.
8. Portfolio Securities - Portfolio securities of the Issuer may be bought
or sold by or through the Distributor, and the Distributor may participate
directly or indirectly in brokerage commissions or "spreads" for
transactions in portfolio securities of the Issuer. However, all sums of
money received by the Distributor as a result of such purchases and sales
or as a result of such participation must, after reimbursement of actual
expenses of the Distributor in connection with such activity, be paid over
by the Distributor for the benefit of the Issuer.
9. Registration of Shares - The Issuer agrees that it will take all action
necessary to register shares under the 1933 Act (subject to the necessary
approval of its shareholders) so that there will be available for sale the
number of shares the Distributor may reasonably be expected to sell. The
Issuer shall make available to the Distributor such number of copies of its
currently effective Prospectus and Statement of Additional Information as
the Distributor may reasonably request. The Issuer shall furnish to the
Distributor copies of all information, financial statements and other
papers which the Distributor may reasonably request for use in connection
with the distribution of shares of the Issuer.
10. Expenses - The Issuer shall pay all fees and expenses (a) in connection
with the preparation, setting in type and filing of any registration
statement, Prospectus and Statement of Additional Information under the
1933 Act and amendments for the issue of its shares, (b) in connection with
the registration and qualification of shares for sale in the various states
in which the Board of Trustees of the Issuer shall determine it advisable
to qualify such shares for sale (including registering the Issuer as a
broker or dealer or any officer of the Issuer as agent or salesman in any
state), (c) of preparing, setting in type, printing and mailing any report
or other communication to shareholders of the Issuer in their capacity as
such, and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements
thereto sent to existing shareholders.
As provided in the Distribution and Service Plan adopted by the Issuer, it
is recognized by the Issuer that FMR may reimburse the Distributor for any
direct expenses incurred in the distribution of shares of the Issuer from
any source available to it, including advisory and service or management
fees paid to it by the Issuer.
11. Indemnification - The Issuer 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 (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages, or expense and reasonable counsel fees incurred in
connection therewith) 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 Issuer (as from time to time
amended) included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make
the statements not misleading under the 1933 Act, or any other statute or
the common law. However, the Issuer 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 Issuer by or on behalf of the Distributor. In no case (i)
is the indemnity of the Issuer in favor of the Distributor or any person
indemnified to be deemed to protect the Distributor or any person against
any liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of its reckless disregard of its obligations and duties under
this Agreement, or (ii) is the Issuer to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
person, as the case may be, shall have notified the Issuer in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or any such person (or after the Distributor or
such person shall have received notice of service on any designated agent).
However, failure to notify the Issuer of any claim shall not relieve the
Issuer from any liability which it may have to the Distributor or any
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Issuer shall be
entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any claims,
but if the Issuer elects to assume the defense, the defense shall be
conducted by counsel chosen by it and satisfactory to the Distributor or
person or persons, defendant or defendants in the suit. In the event the
Issuer elects to assume the defense of any suit and retain counsel, the
Distributor, officers or directors or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them. If the Issuer does not elect to
assume the defense of any suit, it will reimburse the Distributor, officers
or directors or controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by
them. The Issuer agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issuance or sale of any of the
shares.
The Distributor also covenants and agrees that it will indemnify and hold
harmless the Issuer and each of its Board members and officers and each
person, if any, who controls the Issuer within the meaning of Section 15 of
the 1933 Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any person acquiring
any shares, based upon the 1933 Act or any other statute or common law,
alleging any wrongful act of the Distributor or any of its employees or
alleging that the registration statement, Prospectus, Statement of
Additional Information, shareholder reports or other information filed or
made public by the Issuer (as from time to time amended) included an untrue
statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon, and in
conformity with information furnished to the Issuer by or on behalf of the
Distributor. In no case (i) is the indemnity of the Distributor in favor
of the Issuer or any person indemnified to be deemed to protect the Issuer
or any person against any liability to which the Issuer or such person
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Distributor to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Issuer or any person indemnified unless the Issuer or person, as the case
may be, shall have notified the Distributor in writing of the claim within
a reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served upon
the Issuer or any such person (or after the Issuer or such person shall
have received notice of service on any designated agent). However, failure
to notify the Distributor of any claim shall not relieve the Distributor
from any liability which it may have to the Issuer or any person against
whom the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to the
Distributor, it shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought
to enforce the claim, but if the Distributor elects to assume the defense,
the defense shall be conducted by counsel chosen by it and satisfactory to
the Issuer, to its officers and Board and to any controlling person or
persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any suit and retain counsel,
the Issuer or controlling persons, defendant or defendants in the suit,
shall bear the fees and expense of any additional counsel retained by them.
If the Distributor does not elect to assume the defense of any suit, it
will reimburse the Issuer, officers and Board or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Distributor agrees to notify
the Issuer promptly of the commencement of any litigation or proceedings
against it in connection with the issue and sale of any of the shares.
12. Effective Date - This agreement shall be effective upon its execution,
and unless terminated as provided, shall continue in force until January
31, 1994 and thereafter from year to year, provided continuance is approved
annually by the vote of a majority of the Board members of the Issuer, and
by the vote of those Board members of the Issuer who are not "interested
persons" of the Issuer and, if a plan under Rule 12b-1 under the Investment
Company Act of 1940 is in effect, by the vote of those Board members of the
Issuer who are not "interested persons" of the Issuer and who are not
parties to the Distribution and Service Plan or this Agreement and have no
financial interest in the operation of the Distribution and Service Plan or
in any agreements related to the Distribution and Service Plan, cast in
person at a meeting called for the purpose of voting on the approval. This
Agreement shall automatically terminate in the event of its assignment. As
used in this paragraph, the terms "assignment" and "interested persons"
shall have the respective meanings specified in the Investment Company Act
of 1940 as now in effect or as hereafter amended. In addition to
termination by failure to approve continuance or by assignment, this
Agreement may at any time be terminated by either party upon not less than
sixty days' prior written notice to the other party.
13. Notice - Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other
party at the last address furnished by the other party to the party giving
notice: if to the Issuer, at 82 Devonshire Street, Boston, Massachusetts,
and if to the Distributor, at 82 Devonshire Street, Boston, Massachusetts.
14. Limitation of Liability - The Distributor is expressly put on notice of
the limitation of shareholder liability as set forth in the Declaration of
Trust of the Issuer and agrees that the obligations assumed by the Issuer
under this contract shall be limited in all cases to the Issuer and its
assets. The Distributor shall not seek satisfaction of any such obligation
from the shareholders or any shareholder of the Issuer. Nor shall the
Distributor seek satisfaction of any such obligation from the Trustees or
any individual Trustee of the Issuer. The Distributor understands that the
rights and obligations of each series of shares of the Issuer under the
Issuer's Declaration of Trust are separate and distinct from those of any
and all other series.
15. This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without giving effect to the
choice of laws provisions thereof.
IN WITNESS WHEREOF, the Issuer has executed this instrument in its name
and behalf, and its seal affixed, by one of its officers duly authorized,
and the Distributor has executed this instrument in its name and behalf by
one of its officers duly authorized, as of the day and year first above
written.
FIDELITY CALIFORNIA MUNICIPAL TRUST
By /s/ J. Gary Burkhead
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By /s/Kurt A. Lange
Kurt A. Lange
President
Exhibit 15(e)
DISTRIBUTION AND SERVICE PLAN
FIDELITY CALIFORNIA MUNICIPAL TRUST:
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL PORTFOLIO
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by Rule
12b-1 under the Investment Company Act of 1940 (the "Act") of Spartan
California Intermediate Municipal Portfolio (the "Portfolio"), a series of
shares of Fidelity California Municipal Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with respect
to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest ("shares").
Under the agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by the
Distributor, advertising, and other promotional activities in connection
with the offering of shares of the Portfolio for sale to the public. It is
understood that the Adviser may reimburse the Distributor for these
expenses from any source available to it, including management fees paid to
it by the Portfolio.
3. The Adviser directly, or through the Distributor, may, subject to the
approval of the Trustees, make payments to securities dealers and other
third parties who engage in the sale of shares or who render shareholder
support services, including but not limited to providing office space,
equipment and telephone facilities, answering routine inquiries regarding
the Portfolio, processing shareholder transactions and providing such other
shareholder services as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this Plan
to the Adviser, Distributor or any other party, it being recognized that
the Portfolio presently pays, and will continue to pay, a management fee to
the Adviser. To the extent that any payments made by the Portfolio to the
Adviser, including payment of management fees, should be deemed to be
indirect financing of any activity primarily intended to result in the sale
of shares of the Portfolio within the context of Rule 12b-1 under the Act,
then such payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the Act),
the plan having been approved by a vote of a majority of the Trustees of
the Fund, including a majority of Trustees who are not "interested persons"
of the Fund (as defined in the Act) and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements
related to this Plan (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain in
effect from the date specified above until June 30, 1994, and from year to
year thereafter, provided, however, that such continuance is subject to
approval annually by a vote of a majority of the Trustees of the Fund,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may be
amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Portfolio to finance any
activity primarily intended to result in the sale of shares of the
Portfolio, to increase materially the amount spent by the Portfolio for
distribution, or any amendment of the Management Contract to increase the
amount to be paid by the Portfolio thereunder shall be effective only upon
approval by a vote of a majority of the outstanding voting securities of
the Portfolio, and (b) any material amendments of this Plan shall be
effective only upon approval in the manner provided in the first sentence
in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of
a majority of the outstanding voting securities of the Portfolio.
8. During the existence of this Plan, the Fund shall require the Adviser
and/or Distributor to provide the Fund, for review by the Fund's Board of
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any activity
primarily intended to result in the sale of shares of the Portfolio (making
estimates of such costs where necessary or desirable) and the purposes for
which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform any
specific type or level of distribution activities or to incur any specific
level of expenses for activities primarily intended to result in the sale
of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set forth
in the Fund's Declaration of Trust, any obligations assumed by the
Portfolio pursuant to this Plan and any agreements related to this Plan
shall be limited in all cases to the Portfolio and its assets, and shall
not constitute obligations of any other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
