FIDELITY CALIFORNIA MUNICIPAL TRUST, N14EL24, 1997-04-24

FIDELITY CALIFORNIA MUNICIPAL TRUST
N14EL24, 1997-04-24

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As filed with the Securities and Exchange Commission
on April 24, 1997
Registration No. 2-83367
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT

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UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. [ ]

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Fidelity California Municipal Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Offices)
Registrant's Telephone Number (617) 563-7000
Arthur S. Loring, Secretary
82 Devonshire Street
Boston, MA 02109
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of
1933.

The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940; accordingly, no fee is payable herewith because of
reliance upon Rule 24f-2. A Rule 24f-2 Notice for the Registrant's fiscal
year ended February 29, 1996 was filed with the Commission on April 26,
1996. Pursuant to Rule 429, this Registration Statement relates to shares
previously registered on Form N-1A.
It is proposed that this filing will become effective on May 23, 1997,
pursuant to Rule 488.

FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:

Facing Page
Contents of Registration Statement
Cross Reference Sheet
Letter to Shareholders
Forms of Proxy Cards
Notice of Special Meeting
Part A - Proxy Statement and Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
FIDELITY CALIFORNIA MUNICIPAL TRUST:
FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
FORM N-14 CROSS REFERENCE SHEET
PART A

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Form N-14 Item Number and Caption Prospectus/Proxy Statement Caption

1. Beginning of Registration Statement and Out- Cover Page
side Front Cover Page of Prospectus

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2. Beginning and Outside Back Cover Page of Pro- Table of Contents
spectus

3. Fee Tables, Synopsis Information and Risk Fac- Synopsis; Comparative Fee Tables; Comparison of
tors Principal Risk Factors; The Proposed Transactions;
Attachment 2; Attachment 3

4. Information About the Transactions Synopsis; The Proposed Transactions; Exhibit 1;
Exhibit 2; Exhibit 3

5. Information About the Registrant Synopsis; Comparison of Principal Risk Factors;
Miscellaneous; Additional Information About
Fidelity California Municipal Income Fund;
Prospectus of Fidelity California Municipal Income
Fund; Attachment 1

6. Information About the Company Being Acquired Cover Page; Synopsis; Comparison of Principal Risk
Factors; Miscellaneous; Prospectuses of Spartan
California Municipal Income Fund, Spartan
California Intermediate Municipal Income Fund, and
Fidelity California Insured Municipal Income Fund

7. Voting Information Voting Information

8. Interest of Certain Persons and Experts Not Applicable

9. Additional Information Required for Reoffering Not Applicable
by Persons Deemed to be
Underwriters

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PART B
Item Number and Caption Statement of Additional Information Caption

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10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. Additional Information About the Registrant Prospectus and Statement of Additional
Information of Fidelity California Municipal
Income Fund

13. Additional Information About the Company Be- Not applicable
ing Acquired

14. Financial Statements Annual Reports of Spartan California
Municipal Income Fund, Spartan California
Intermediate Municipal Income Fund, and
Fidelity California Insured Municipal
Income Fund for the Fiscal Year Ended
February 28, 1997; Annual Report of
Fidelity California Municipal Income Fund
for the Fiscal Year Ended February 28, 1997.
Pro-Forma Financial Statements for the
Fiscal Year Ended February 28, 1997.

Part C Information required to be included in Part C
is set forth under the appropriate item so
numbered in Part C of this Registration
Statement.

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IMPORTANT
PROXY MATERIALS
PLEASE CAST YOUR VOTE NOW!
Dear Shareholder:
I am writing to ask you for your vote in important proposals to merge
Spartan California Municipal Income Fund (Spartan CA Income), Spartan
California Intermediate Municipal Income Fund (Spartan CA Intermediate),
and Fidelity California Insured Municipal Income Fund (Fidelity CA Insured)
into Fidelity California Municipal Income Fund (Fidelity CA Income). A
shareholder meeting will be held on August 4, 1997 and votes submitted in
time to be counted at the meeting will decide whether the mergers take
place. This package contains information about the proposals and includes
all the materials you will need to vote by mail.
Each fund's Board of Trustees has reviewed the proposed mergers and
recommends presenting proposals to shareholders to approve the merger of
each of the funds into Fidelity CA Income. Each fund votes separately on
the merger proposals.
The Trustees, most of whom are not affiliated with Fidelity, are
responsible for protecting your interests as a shareholder. The Trustees
determined that the mergers are in shareholders' best interest. However,
the final decision is up to you.
Please take the time to read the enclosed materials and cast your vote on
the proxy card promptly. The matters to be voted on are important and
directly affect your investment. As a shareholder, you are entitled to one
vote for each dollar of net asset value you own of a fund on the record
date. YOUR VOTE IS EXTREMELY IMPORTANT, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
The mergers would give shareholders of Spartan CA Income, Spartan CA
Intermediate, and Fidelity CA Insured the opportunity to participate in a
larger fund with similar investment policies. The surviving fund would
also have lower expenses guaranteed for a period of more than two years.
We have attached a Q&A to assist you in understanding the proposals. The
enclosed materials include a detailed description of the funds and the
proposed mergers.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED. We
encourage you to exercise your right as a shareholder and to vote promptly.
To cast your vote, simply complete the proxy card enclosed in this package.
Be sure to sign the card before mailing it in the postage-paid envelope
provided.
If you have any questions before you vote, please call us at
1-800-544-8888. We will be glad to help you get your vote in quickly.
Thank you for your participation in this important initiative for your
fund.
Sincerely,
[signature]
Edward C. Johnson 3d
President
Important information to help you understand the proposals that you are
being asked to vote on
Please read the full text of the enclosed proxy statement. Below is a
brief overview of the matters to be voted upon. Your vote is important.
If you have any questions regarding the proposals, please call us at
1-800-544-8888. We appreciate you placing your trust in Fidelity and look
forward to helping you achieve your financial goals.
WHAT PROPOSALS AM I BEING ASKED TO VOTE ON?
If you are a shareholder in the following fund(s), you will be asked to
vote on the indicated proposals:
SPARTAN CALIFORNIA MUNICIPAL INCOME FUND
(solid bullet) (solid bullet)To approve a merger of Spartan California
Municipal Income Fund into Fidelity California Municipal Income Fund.
(Proposal 1)
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND
(solid bullet) (solid bullet)To approve a merger of Spartan California
Intermediate Municipal Income Fund into Fidelity California Municipal
Income Fund. (Proposal 2)
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND
(solid bullet) (solid bullet)To approve a merger of Fidelity California
Insured Municipal Income Fund into Fidelity California Municipal Income
Fund. (Proposal 3)
Each fund votes separately on the merger proposals. It will not be
necessary for all three proposals to be approved for any one of them to
take place.
WHAT IS THE REASON FOR AND ADVANTAGES OF THESE MERGERS?
Fidelity believes it can offer you a simpler and more efficient California
product line if the four funds are combined into one. Shareholders would
benefit from the more efficient product line through lower expenses,
guaranteed for more than two years.
DO THE FUNDS BEING MERGED HAVE SIMILAR INVESTMENT POLICIES?
All four funds are California municipal bond funds that seek double
tax-free income for California residents. Generally speaking, Fidelity CA
Income has a broader investment mandate than Spartan CA Intermediate or
Fidelity CA Insured.
SPARTAN CA INCOME and Fidelity CA Income have identical investment
policies.
SPARTAN CA INTERMEDIATE maintains a shorter average maturity and has less
interest rate sensitivity than Fidelity CA Income.
FIDELITY CA INSURED is required to invest at least 65% of its assets in
municipal securities that are covered by insurance guaranteeing the timely
payment of principal and interest. Fidelity CA Income does not have a
required level for investments in insured bonds.
WHO IS THE FUND MANAGER FOR THESE FUNDS?
Jonathan Short currently manages all four funds and is expected to manage
the combined fund.
HOW DO THE EXPENSE STRUCTURES AND FEES OF THE FUNDS COMPARE?
All four funds currently have the same expenses, equal to 0.55% of their
assets per year. The combined fund's expenses would be lower through
December 31, 1999, at 0.53%.
Although the funds' expenses are currently the same, they have different
contracts with Fidelity. SPARTAN CA INCOME and SPARTAN CA INTERMEDIATE
each pay an "all-inclusive" management fee to Fidelity Management &
Research Company (FMR) at a rate of 0.55% of average net assets which
covers substantially all fund expenses.
FIDELITY CA INSURED and FIDELITY CA INCOME have an expense structure that
charges separately for management fees and other operating expenses. As of
April 1, 1997, FMR has voluntarily agreed to reimburse these two funds to
the extent that the total operating expenses exceed 0.55% of average net
assets.
If any or all of the mergers are approved, the combined fund will retain
Fidelity CA Income's current expense structure. However, FMR has agreed to
limit the combined fund's expenses to 0.53% of average net assets through
December 31, 1999. This represents an expense reduction of 0.02% of the
fund's average net assets per year. After that date, the combined fund's
expenses could increase.
WHAT WILL BE THE NAME OF THE SURVIVING FUND AFTER THE MERGERS ARE COMPLETE?
Upon approval of the Spartan CA Income merger, the combined fund's name
will be changed to Spartan California Municipal Income Fund.
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM BY THE SCHEDULED
SHAREHOLDER MEETING DATE?
If enough people do not vote, we will need to take further action. We or
outside solicitors may contact you by mail, telephone, facsimile, or by
personal interview. Therefore, we encourage shareholders to vote as soon
as they review the enclosed proxy materials to avoid additional mailings,
telephone calls or other solicitations.
WHAT HAPPENS IF THE PROPOSAL FOR MY FUND IS NOT APPROVED?
If quorum is not reached by the time of the Shareholder Meeting (August 4,
1997), the meeting may be adjourned to permit further solicitation of proxy
votes. If the proposal to merge your fund is not approved by shareholders,
your fund will reopen to new accounts.
WHAT ARE THE FEDERAL TAX IMPLICATIONS OF THE MERGER?
The mergers will not be a taxable event (i.e., no gain or loss will be
recognized) to any of the funds or their shareholders.
WHAT WILL BE THE SIZE OF FIDELITY CA INCOME AFTER THE MERGER AND HOW HAS
THE FUND PERFORMED?
If all three proposals pass, the combined fund will have over $1 billion in
assets. For calendar year 1995, Fidelity CA Income returned 19.17%
compared with 17.45% for the Lehman Brothers Municipal Bond Index. For
calendar year 1996, the fund returned 4.76% compared with 4.43% for the
Lehman Brothers Municipal Bond Index.
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF FIDELITY CA INCOME THAT I
WILL RECEIVE?
As of 4 P.M. Eastern Time on the Closing Date of each merger, shareholders
will receive the number of full and fractional shares of Fidelity CA Income
that is equal in value to the aggregate net asset value of their shares on
that date. Closing Dates for each fund are listed below:
FUND MERGES INTO CLOSING DATE
Spartan CA Income Fidelity CA Income August 14, 1997
Spartan CA Intermediate Fidelity CA Income August 21, 1997
Fidelity CA Insured Fidelity CA Income August 28, 1997
The Shareholder Meetings could be adjourned, or if other circumstances
arise, the Closing Date may be adjusted.
WHAT IMPACT WILL THE MERGER HAVE ON THE SHARE PRICE OF FIDELITY CA INCOME?
The net asset value per share of Fidelity CA Income will not be changed by
the merger.
WHAT ARE MY OTHER INVESTMENT ALTERNATIVES?
Fidelity offers Fidelity California Municipal Money Market Fund, a money
market fund that invests in high quality, short-term municipal securities
and seeks current income exempt from federal and California state personal
income tax. As a money market fund, it seeks to maintain a stable net
asset value. The total return on Fidelity California Municipal Money
Market Fund for calendar 1996 was 2.90%.
Additional California municipal bond funds are available through Fidelity
by calling FundsNetwork at 1-800-544-9697.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy card,
and mailing it in the enclosed postage paid envelope. If you need any
assistance, or have any questions regarding the proposals or how to vote
your shares, please call us at 1-800-544-8888.
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
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FIDELITY CALIFORNIA MUNICIPAL TRUST: SPARTAN CALIFORNIA MUNICIPAL INCOME
FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward C.
Johnson 3d, Arthur S. Loring, and Donald J. Kirk, or any one or more of
them, attorneys, with full power of substitution, to vote all shares of
Fidelity California Municipal Trust: Spartan California Municipal Income
Fund which the undersigned is entitled to vote at the Special Meeting of
Shareholders of the fund to be held at the office of the trust at 82
Devonshire St., Boston, MA 02109, on August 4, 1997 at 9:00 a.m Eastern
time and at any adjournments thereof. All powers may be exercised by a
majority of said proxy holders or substitutes voting or acting or, if only
one votes and acts, then by that one. This Proxy shall be voted on the
proposal described in the Proxy Statement as specified on the reverse side.
Receipt of the Notice of the Meeting and the accompanying Proxy Statement
is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When signing
in a fiduciary capacity, such as executor, administrator, trustee,
attorney, guardian, etc., please so indicate. Corporate and partnership
proxies should be signed by an authorized person indicating the person's
title.
Date _____________, 1997
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316061506/fund# 456

Please refer to the Proxy Statement discussion of this matter.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSAL.
As to any other matter, said attorneys shall vote in accordance with their
best judgment.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
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__________________________________________________________________________
___________________

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1. To approve an Agreement and Plan of Reorganization FOR [ ] AGAINST [ ] ABSTAIN [ ] 1.
between Spartan California Municipal Income Fund
and Fidelity California Municipal Income Fund,
another fund of the trust, providing for the transfer of
all of the assets of Spartan California Municipal
Income Fund to Fidelity California Municipal Income
Fund in exchange solely for shares of beneficial
interest of Fidelity California Municipal Income Fund
and the assumption by Fidelity California Municipal
Income Fund of Spartan California Municipal Income
Fund's liabilities, followed by the distribution of
Fidelity California Municipal Income Fund shares to
shareholders of Spartan California Municipal Income
Fund in liquidation of Spartan California Municipal
Income Fund.

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SCM-PXC-0697 cusip # 316061506/fund# 456
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
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FIDELITY CALIFORNIA MUNICIPAL TRUST: SPARTAN CALIFORNIA INTERMEDIATE
MUNICIPAL INCOME FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward C.
Johnson 3d, Arthur S. Loring, and Donald J. Kirk, or any one or more of
them, attorneys, with full power of substitution, to vote all shares of
Fidelity California Municipal Trust: Spartan California Intermediate
Municipal Income Fund which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the fund to be held at the office of the
trust at 82 Devonshire St., Boston, MA 02109, on August 4, 1997 at 9:00
a.m. Eastern time and at any adjournments thereof. All powers may be
exercised by a majority of said proxy holders or substitutes voting or
acting or, if only one votes and acts, then by that one. This Proxy shall
be voted on the proposal described in the Proxy Statement as specified on
the reverse side. Receipt of the Notice of the Meeting and the
accompanying Proxy Statement is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When signing
in a fiduciary capacity, such as executor, administrator, trustee,
attorney, guardian, etc., please so indicate. Corporate and partnership
proxies should be signed by an authorized person indicating the person's
title.
Date _____________, 1997
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316061605/fund# 432

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2. To approve an Agreement and Plan of Reorganization FOR [ ] AGAINST [ ] ABSTAIN [ ] 2.
between Spartan California Intermediate Municipal
Income Fund and Fidelity California Municipal
Income Fund, another fund of the trust, providing for
the transfer of all of the assets of Spartan California
Intermediate Municipal Income Fund to Fidelity
California Municipal Income Fund in exchange solely
for shares of beneficial interest of Fidelity California
Municipal Income Fund and the assumption by
Fidelity California Municipal Income Fund of Spartan
California Intermediate Municipal Income Fund's
liabilities, followed by the distribution of Fidelity
California Municipal Income Fund shares to
shareholders of Spartan California Intermediate
Municipal Income Fund in liquidation of Spartan
California Intermediate Municipal Income Fund.

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SCI-PXC-0697 cusip # 316061605/fund# 432
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
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FIDELITY CALIFORNIA MUNICIPAL TRUST: FIDELITY CALIFORNIA INSURED MUNICIPAL
INCOME FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward C.
Johnson 3d, Arthur S. Loring, and Donald J. Kirk, or any one or more of
them, attorneys, with full power of substitution, to vote all shares of
Fidelity California Municipal Trust: Fidelity California Insured Municipal
Income Fund which the undersigned is entitled to vote at the Special
Meeting of Shareholders of the fund to be held at the office of the trust
at 82 Devonshire St., Boston, MA 02109, on August 4, 1997 at 9:00 a.m.
Eastern time and at any adjournments thereof. All powers may be exercised
by a majority of said proxy holders or substitutes voting or acting or, if
only one votes and acts, then by that one. This Proxy shall be voted on
the proposal described in the Proxy Statement as specified on the reverse
side. Receipt of the Notice of the Meeting and the accompanying Proxy
Statement is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When signing
in a fiduciary capacity, such as executor, administrator, trustee,
attorney, guardian, etc., please so indicate. Corporate and partnership
proxies should be signed by an authorized person indicating the person's
title.
Date _____________, 1997
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316061308/fund# 403

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3. To approve an Agreement and Plan of Reorganization FOR [ ] AGAINST [ ] ABSTAIN [ ] 3.
between Fidelity California Insured Municipal
Income Fund and Fidelity California Municipal
Income Fund, another fund of the trust, providing for
the transfer of all of the assets of Fidelity California
Insured Municipal Income Fund to Fidelity California
Municipal Income Fund in exchange solely for shares
of beneficial interest of Fidelity California Municipal
Income Fund and the assumption by Fidelity
California Municipal Income Fund of Fidelity
California Insured Municipal Income Fund's
liabilities, followed by the distribution of Fidelity
California Municipal Income Fund shares to
shareholders of Fidelity California Insured Municipal
Income Fund in liquidation of Fidelity California
Insured Municipal Income Fund.

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FCI-PXC-0697 cusip # 316061308/fund# 403

SPARTAN(registered trademark) CALIFORNIA MUNICIPAL INCOME FUND
SPARTAN(registered trademark) CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND
FUNDS OF
FIDELITY CALIFORNIA MUNICIPAL TRUST

82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of Spartan California Municipal Income Fund, Spartan
California Intermediate Municipal Income Fund, and Fidelity California
Insured Municipal Income Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
Meeting) of Spartan California Municipal Income Fund, Spartan California
Intermediate Municipal Income Fund, and Fidelity California Insured
Municipal Income Fund (the funds), will be held at the office of Fidelity
California Municipal Trust (the trust), 82 Devonshire Street, Boston,
Massachusetts 02109 on August 4, 1997, at 9:00 a.m. The purpose of the
Meeting is to consider and act upon the following proposals, and to
transact such other business as may properly come before the Meeting or any
adjournments thereof. Approval of each Reorganization will be determined
solely by approval of the shareholders of each fund. It will not be
necessary for all three Reorganizations to be approved for any one of them
to take place.
(1) To approve an Agreement and Plan of Reorganization (the Agreement)
between Spartan California Municipal Income Fund and Fidelity California
Municipal Income Fund, another fund of the trust, providing for the
transfer of all of the assets of Spartan California Municipal Income Fund
to Fidelity California Municipal Income Fund in exchange solely for shares
of beneficial interest of Fidelity California Municipal Income Fund and the
assumption by Fidelity California Municipal Income Fund of Spartan
California Municipal Income Fund's liabilities, followed by the
distribution of Fidelity California Municipal Income Fund shares to
shareholders of Spartan California Municipal Income Fund in liquidation of
Spartan California Municipal Income Fund.
(2) To approve an Agreement and Plan of Reorganization (the Agreement)
between Spartan California Intermediate Municipal Income Fund and Fidelity
California Municipal Income Fund, another fund of the trust, providing for
the transfer of all of the assets of Spartan California Intermediate
Municipal Income Fund to Fidelity California Municipal Income Fund in
exchange solely for shares of beneficial interest of Fidelity California
Municipal Income Fund and the assumption by Fidelity California Municipal
Income Fund of Spartan California Intermediate Municipal Income Fund's
liabilities, followed by the distribution of Fidelity California Municipal
Income Fund shares to shareholders of Spartan California Intermediate
Municipal Income Fund in liquidation of Spartan California Intermediate
Municipal Income Fund.
(3) To approve an Agreement and Plan of Reorganization (the Agreement)
between Fidelity California Insured Municipal Income Fund and Fidelity
California Municipal Income Fund, another fund of the trust, providing for
the transfer of all of the assets of Fidelity California Insured Municipal
Income Fund to Fidelity California Municipal Income Fund in exchange solely
for shares of beneficial interest of Fidelity California Municipal Income
Fund and the assumption by Fidelity California Municipal Income Fund of
Fidelity California Insured Municipal Income Fund's liabilities, followed
by the distribution of Fidelity California Municipal Income Fund shares to
shareholders of Fidelity California Insured Municipal Income Fund in
liquidation of Fidelity California Insured Municipal Income Fund.
The Board of Trustees has fixed the close of business on June 9, 1997 as
the record date for the determination of the shareholders of the funds
entitled to notice of, and to vote at, such Meeting and any adjournments
thereof.
By order of the Board of Trustees,
ARTHUR S. LORING, Secretary
June 9, 1997
YOUR VOTE IS IMPORTANT -
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER
WHO DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN
THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED
STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE ASK YOUR COOPERATION IN
MAILING YOUR PROXY CARD PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of assistance
to you and help avoid the time and expense involved in validating your vote
if you fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears
in the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual signing.
This can be shown either in the form of the account registration itself or
by the individual executing the proxy card. For example:
REGISTRATION VALID
SIGNATURE

A. 1) ABC Corp. John Smith,
Treasurer

2) ABC Corp. John Smith,
Treasurer

c/o John Smith, Treasurer

B. 1) ABC Corp. Profit Sharing Plan Ann B. Collins,
Trustee

2) ABC Trust Ann B. Collins,
Trustee

3) Ann B. Collins, Trustee Ann B. Collins,
Trustee

u/t/d 12/28/78

C. 1) Anthony B. Craft, Cust. Anthony B. Craft

f/b/o Anthony B. Craft, Jr.

UGMA

SPARTAN CALIFORNIA MUNICIPAL INCOME FUND
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND
FUNDS OF
FIDELITY CALIFORNIA MUNICIPAL TRUST

82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
PROXY STATEMENT AND PROSPECTUS
JUNE 9, 1997
This Proxy Statement and Prospectus (Proxy Statement) is being furnished
to shareholders of Spartan California Municipal Income Fund (Spartan CA
Income), Spartan California Intermediate Municipal Income Fund (Spartan CA
Intermediate), and Fidelity California Insured Municipal Income Fund
(Fidelity CA Insured) (the funds), funds of Fidelity California Municipal
Trust (the trust), in connection with the solicitation of proxies by the
trust's Board of Trustees for use at the Special Meeting of Shareholders of
Spartan CA Income, Spartan CA Intermediate, and Fidelity CA Insured and at
any adjournments thereof (the Meeting). The Meeting will be held on Monday,
August 4, 1997 at 9:00 a.m. Eastern time at 82 Devonshire Street, Boston,
Massachusetts 02109, the principal executive office of the trust.
As more fully described in the Proxy Statement, the purpose of the Meeting
is to vote on proposed reorganizations (Reorganizations). Pursuant to each
Agreement and Plan of Reorganization (the Agreements), Spartan CA Income,
Spartan CA Intermediate, and Fidelity CA Insured each would transfer all of
its assets to Fidelity California Municipal Income Fund (Fidelity CA
Income), another fund of the trust, in exchange solely for shares of
beneficial interest of Fidelity CA Income and the assumption by Fidelity CA
Income of Spartan CA Income's, Spartan CA Intermediate's, and Fidelity CA
Insured's liabilities, respectively. The number of shares to be issued in
the proposed Reorganizations will be based upon the relative net asset
values of each of the funds at the time of the exchange. As provided in
each Agreement, Spartan CA Income, Spartan CA Intermediate, and Fidelity CA
Insured will each distribute shares of Fidelity CA Income to its
shareholders so that each shareholder receives the number of full and
fractional shares of Fidelity CA Income equal in value to the aggregate net
asset values of the shares of each of Spartan CA Income, Spartan CA
Intermediate, and Fidelity CA Insured held by shareholders of each fund on
August 14, 1997, August 21, 1997, and August 28, 1997, respectively, or
such other dates as the parties may agree (the Closing Date). Approval of
each Reorganization will be determined solely by approval of the
shareholders of the individual fund affected. It will not be necessary for
all three Reorganizations to be approved for any one of them to take place.
Fidelity CA Income, a municipal bond fund, is a non-diversified fund of
Fidelity California Municipal Trust, an open-end management investment
company organized as a Massachusetts business trust on April 28, 1983.
Fidelity CA Income's investment objective is to seek high current income
free from federal income tax and California personal income tax. Fidelity
CA Income seeks to achieve its investment objective by investing in
investment-grade municipal securities under normal conditions.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the Reorganizations and Fidelity CA
Income that a shareholder should know before voting on the proposed
Reorganizations. This Proxy Statement is accompanied by the Prospectus
(dated April 19, 1997), which offers shares of Fidelity CA Income. The
Statement of Additional Information for Fidelity CA Income (dated April 19,
1997) is available upon request. Attachment 1 contains excerpts from the
Annual Report of Fidelity CA Income dated February 28, 1997. The Prospectus
and Statement of Additional Information are incorporated herein by
reference. This is the same Prospectus and Statement of Additional
Information which offers shares of Fidelity CA Insured. A Prospectus and
Statement of Additional Information for Spartan CA Income and Spartan CA
Intermediate, both dated April 19, 1997, have been filed with the
Securities and Exchange Commission and are incorporated herein by
reference. Copies of these documents may be obtained without charge by
contacting Fidelity Distributors Corporation at 82 Devonshire Street,
Boston, Massachusetts 02109 or by calling 1-800-544-8888.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS
VOTING INFORMATION
SYNOPSIS
COMPARISON OF OTHER POLICIES OF THE FUNDS
COMPARISON OF PRINCIPAL RISK FACTORS
THE PROPOSED TRANSACTIONS
ADDITIONAL INFORMATION ABOUT FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
MISCELLANEOUS
ATTACHMENT 1. EXCERPTS FROM ANNUAL REPORT OF FIDELITY CALIFORNIA MUNICIPAL
INCOME FUND DATED FEBRUARY 28, 1997
ATTACHMENT 2. ANNUAL FUND OPERATING EXPENSES FOR CERTAIN REORGANIZATIONS
ATTACHMENT 3. EXAMPLES OF FUND EXPENSES FOR CERTAIN REORGANIZATIONS
EXHIBIT 1. FORM OF AGREEMENT AND PLAN OF REORGANIZATION OF SPARTAN
CALIFORNIA MUNICIPAL INCOME FUND
EXHIBIT 2. FORM OF AGREEMENT AND PLAN OF REORGANIZATION OF SPARTAN
CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND
EXHIBIT 3. FORM OF AGREEMENT AND PLAN OF REORGANIZATION OF FIDELITY
CALIFORNIA INSURED MUNICIPAL INCOME FUND
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF
FIDELITY CALIFORNIA MUNICIPAL TRUST:
SPARTAN CALIFORNIA MUNICIPAL INCOME FUND
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND
TO BE HELD ON AUGUST 4, 1997

82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
_________________________________
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of, the
Board of Trustees of Fidelity California Municipal Trust (the trust) to be
used at the Special Meeting of Shareholders of Spartan California Municipal
Income Fund (Spartan CA Income), Spartan California Intermediate Municipal
Income Fund (Spartan CA Intermediate), and Fidelity California Insured
Municipal Income Fund (Fidelity CA Insured) (the funds) and at any
adjournments thereof (the Meeting), to be held on Monday, August 4, 1997 at
9:00 a.m. Eastern time at 82 Devonshire Street, Boston, Massachusetts
02109, the principal executive office of the trust and Fidelity Management
& Research Company (FMR), the funds' investment adviser.
The purpose of the Meeting is set forth in the accompanying Notice. The
solicitation is made primarily by the mailing of this Proxy Statement and
the accompanying proxy cards on or about June 9, 1997. Supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, or by
personal interview by representatives of the trust. In addition, D.F. King
& Co. may be paid on a per-call basis to solicit shareholders on behalf of
Spartan CA Income, Spartan CA Intermediate, and Fidelity CA Insured at an
anticipated cost of approximately $11,198, $4,048, and $10,363,
respectively. For Fidelity CA Insured, the expenses in connection with
preparing this Proxy Statement and its enclosures and of all solicitations
will be paid by the fund, provided that they do not exceed the fund's 0.55%
expense cap in effect since April 1, 1997. Expenses exceeding the 0.55%
expense cap will be paid by FMR. Fidelity CA Insured will reimburse
brokerage firms and others for their reasonable expenses in forwarding
solicitation material to the beneficial owners of shares. For Spartan CA
Income and Spartan CA Intermediate, the expenses in connection with
preparing this Proxy Statement and its enclosures and of all solicitations
will be borne by FMR. FMR will reimburse brokerage firms and others for
their reasonable expenses in forwarding solicitation material to the
beneficial owners of shares.
If the enclosed proxy card is executed and returned, it may nevertheless
be revoked at any time prior to its use by written notification received by
the trust, by the execution of a later-dated proxy card, or by attending
the Meeting and voting in person.
All proxy cards solicited by the Board of Trustees that are properly
executed and received by the Secretary prior to the Meeting, and which are
not revoked, will be voted at the Meeting. Shares represented by such
proxies will be voted in accordance with the instructions thereon. If no
specification is made on a proxy card, it will be voted FOR the matters
specified on the proxy card. Only proxies that are voted will be counted
towards establishing a quorum. Broker non-votes are not considered voted
for this purpose. Shareholders should note that while votes to ABSTAIN will
count toward establishing a quorum, passage of any proposal being
considered at the Meeting will occur only if a sufficient number of votes
are cast FOR the proposal. Accordingly, votes to ABSTAIN and votes AGAINST
will have the same effect in determining whether the proposal is approved.
The funds may also arrange to have votes recorded by telephone. D.F. King
& Co. may be paid on a per-call basis for vote-by-phone solicitations on
behalf of Spartan CA Income, Spartan CA Intermediate, and Fidelity CA
Insured at an anticipated cost of approximately $11,923, $4,177, and
$11,018, respectively. For Fidelity CA Insured, the expenses in connection
with telephone voting will be paid by the fund. For Spartan CA Income and
Spartan CA Intermediate, the expenses in connection with telephone voting
will be borne by FMR. If the funds record votes by telephone, they will use
procedures designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with
their instructions, and to confirm that their instructions have been
properly recorded. Proxies given by telephone may be revoked at any time
before they are voted in the same manner that proxies voted by mail may be
revoked.
If a quorum for each fund is not present at the Meeting, or if a quorum
for each fund is present at the Meeting but sufficient votes to approve one
or more of the proposed items are not received, or if other matters arise
requiring shareholder attention, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of a
majority of those shares present at the Meeting or represented by proxy for
each fund. When voting on a proposed adjournment, the persons named as
proxies will vote FOR the proposed adjournment all shares that they are
entitled to vote with respect to each item, unless directed to vote AGAINST
the item, in which case such shares will be voted against the proposed
adjournment with respect to that item. A shareholder vote may be taken on
one or more of the items in this Proxy Statement or on any other business
properly presented at the meeting prior to such adjournment if sufficient
votes have been received and it is otherwise appropriate.
On February 28, 1997, there were 37,882,646, 7,509,522, and 19,890,562
shares issued and outstanding of Spartan CA Income, Spartan CA
Intermediate, and Fidelity CA Insured, respectively. Shareholders of record
at the close of business on June 9, 1997 will be entitled to vote at the
Meeting. Each such shareholder will be entitled to one vote for each dollar
of net asset value held on that date.
As of February 28, 1997, the Trustees and officers of each fund owned, in
the aggregate, less than 1% of each fund's total outstanding shares.
As of February 28, 1997, the following owned of record or beneficially 5%
or more of the outstanding shares of the funds: National Financial Services
Corporation, Boston, MA (Spartan CA Income) (11.72%); National Financial
Services Corporation, Boston, MA (Spartan CA Intermediate) (25.40%);
Chaiken Family Trust, Walnut Creek, CA (Spartan CA Intermediate) (5.68%);
Fred C. Applegate, La Jolla, CA (Spartan CA Intermediate) (5.82%); National
Financial Services Corporation, Boston, MA (Fidelity CA Insured) (10.38%);
National Financial Services Corporation, Boston, MA (Fidelity CA Income)
(8.19%).
VOTE REQUIRED: APPROVAL OF EACH REORGANIZATION REQUIRES THE AFFIRMATIVE
VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF THE SPECIFIC
FUND INVOLVED IN THAT REORGANIZATION. UNDER THE INVESTMENT COMPANY ACT OF
1940 (THE 1940 ACT), THE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING
SECURITIES" MEANS THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF
THE VOTING SECURITIES PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE
HOLDERS OF MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE PRESENT
OR REPRESENTED BY PROXY OR (B) MORE THAN 50% OF THE OUTSTANDING VOTING
SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED "PRESENT" FOR THIS PURPOSE.
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, in the Agreements, and in the Prospectuses of Spartan
CA Income, Spartan CA Intermediate, Fidelity CA Insured, and Fidelity CA
Income, which are incorporated herein by this reference. Shareholders
should read the entire Proxy Statement and the Prospectus of Fidelity CA
Income carefully for more complete information.
The proposed reorganizations (the Reorganizations) would merge Spartan CA
Income, Spartan CA Intermediate, and Fidelity CA Insured into Fidelity CA
Income, a municipal bond fund also managed by FMR. If the Reorganizations
are approved, Spartan CA Income, Spartan CA Intermediate, and Fidelity CA
Insured will cease to exist and current shareholders of each fund will
become shareholders of Fidelity CA Income instead. However, FMR anticipates
that, upon approval of the Spartan CA Income Reorganization, the combined
fund's name will be changed to Spartan California Municipal Income Fund.
Approval of each Reorganization will be determined solely by approval of
the shareholders of the individual fund affected. It will not be necessary
for all three Reorganizations to be approved for any one of them to take
place.
All four funds seek high current income free from federal income tax and
California personal income tax by investing in California municipal bonds.
They each currently have the same portfolio manager. The funds differ
primarily in their investment policies regarding interest rate sensitivity
and level of holdings in insured bonds and expense structures.
INVESTMENT POLICIES
The following summarizes the investment policy differences, if any,
between each fund and Fidelity CA Income.
Spartan CA Income and Fidelity CA Income have identical investment
policies.
Spartan CA Intermediate is managed to have less interest rate sensitivity
than Fidelity CA Income. Spartan CA Intermediate is managed to have the
same interest rate sensitivity as municipal bonds with maturities between 7
and 10 years and maintains an average maturity between 3 and 10 years.
Fidelity CA Income is managed to have approximately the same sensitivity to
interest rates as municipal bonds with maturities between 8 and 18 years.
As of March 31, 1997, the dollar-weighted average maturity for Spartan CA
Intermediate and Fidelity CA Income was 8.8 years and 14.5 years,
respectively.
Fidelity CA Insured differs from Fidelity CA Income with respect to its
required level of insured bonds. Fidelity CA Insured is required to invest
at least 65% of its assets in insured municipal bonds. Fidelity CA Income
has no required level of investment in insured bonds. As of March 31, 1997,
the level of insured bonds for Fidelity CA Insured and Fidelity CA Income
was 69.0% and 37.4%, respectively.
EXPENSE STRUCTURE
The funds also differ with respect to the contractual structure of the
funds' expenses. Spartan CA Income and Spartan CA Intermediate each pay an
"all-inclusive" management fee to FMR (at a rate of 0.55% of average net
assets per year) which covers substantially all fund expenses. Fidelity CA
Insured and Fidelity CA Income by contrast, each pay its management fee and
other expenses separately. FMR has voluntarily agreed to reimburse Fidelity
CA Insured and Fidelity CA Income to the extent that total operating
expenses exceed 0.55%. If any or all of the Reorganizations are approved,
FMR has agreed to limit the combined fund's expenses to 0.53% of average
net assets through December 31, 1999 (excluding interest, taxes, brokerage
commissions and extraordinary expenses). After that date, the combined
fund's expenses could increase.
In sum, the Spartan CA Income Reorganization would provide that fund's
shareholders with the opportunity to participate in a larger fund with a
comparable investment portfolio and historical performance, and expenses
guaranteed to be lower than Spartan CA Income's for a period of more than
two years.
The Spartan CA Intermediate Reorganization would provide that fund's
shareholders with the opportunity to participate in a larger fund with
greater interest rate sensitivity and expenses guaranteed to be lower than
Spartan CA Intermediate's for a period of more than two years. Greater
interest rate sensitivity would likely result in better performance during
periods of falling interest rates and worse performance during periods of
rising interest rates. In general, Fidelity CA Income has had better
performance and greater interest rate sensitivity than Spartan CA
Intermediate.
The Fidelity CA Insured Reorganization would provide that fund's
shareholders with the opportunity to participate in a larger fund with
generally better overall performance and expenses guaranteed for a period
of more than two years from the effective date of the Reorganization.
The Board of Trustees believes that the Reorganizations would benefit
Spartan CA Income, Spartan CA Intermediate, and Fidelity CA Insured
shareholders and recommends that shareholders vote in favor of the
Reorganizations.
THE PROPOSED REORGANIZATIONS
Shareholders of Spartan CA Income, Spartan CA Intermediate, and Fidelity
CA Insured will be asked at the Meeting to vote upon and approve the
Reorganizations and the Agreements applicable to each fund, which provide
for the acquisition by Fidelity CA Income of all of the assets of Spartan
CA Income, Spartan CA Intermediate, and Fidelity CA Insured in exchange
solely for shares of Fidelity CA Income and the assumption by Fidelity CA
Income of the liabilities of Spartan CA Income, Spartan CA Intermediate,
and Fidelity CA Insured, respectively. Spartan CA Income, Spartan CA
Intermediate, and Fidelity CA Insured will each then distribute the shares
of Fidelity CA Income to its respective shareholders, so that each
shareholder will receive the number of full and fractional shares of
Fidelity CA Income equal in value to the aggregate net asset value of the
shareholder's shares of Spartan CA Income, Spartan CA Intermediate, or
Fidelity CA Insured on the Closing Date (defined below). The exchange of
Spartan CA Income's, Spartan CA Intermediate's, and Fidelity CA Insured's
assets for Fidelity CA Income's shares will occur as of 4:00 p.m. Eastern
time on August 14, 1997, August 21, 1997, and August 28, 1997,
respectively, or such other time and date as the parties may agree (the
Closing Date). Spartan CA Income, Spartan CA Intermediate, and Fidelity CA
Insured will then be liquidated as soon as practicable thereafter. Approval
of each Reorganization will be determined solely by approval of the
shareholders of each fund. It will not be necessary for all three
Reorganizations to be approved for any one of them to take place.
The funds will receive an opinion of counsel that, except with respect to
Section 1256 contracts, the Reorganizations will not result in any gain or
loss for Federal income tax purposes either to Spartan CA Income, Spartan
CA Intermediate, Fidelity CA Insured or Fidelity CA Income or to the
shareholders of any fund. The rights and privileges of the former
shareholders of Spartan CA Income, Spartan CA Intermediate, and Fidelity CA
Insured will be effectively unchanged by the Reorganizations.
COMPARATIVE FEE TABLES
Each fund pays a management fee to FMR for managing its investments and
business affairs which is calculated and paid to FMR every month.
Spartan CA Income and Spartan CA Intermediate each pay FMR a management
fee at an annual rate of 0.55% of its average net assets. FMR not only
provides each fund with investment advisory and research services, but also
pays all of each funds' expenses, with the exception of fees and expenses
of all Trustees of the trust who are not "interested persons" of the trust
or FMR; interest on borrowings; taxes; brokerage commissions (if any); and
such nonrecurring expenses as may arise, including costs of any litigation
to which a fund may be a party, and any obligation it may have to indemnify
the officers and Trustees with respect to litigation. The management fee
that the funds pay FMR is reduced by an amount equal to the fees and
expenses paid by each fund to the non-interested Trustees.
In contrast, Fidelity CA Insured and Fidelity CA Income each pay
management fees and other expenses separately. Fidelity CA Insured's and
Fidelity CA Income's management fee is calculated by adding a group fee
rate to an individual fund fee rate, and multiplying the result by each
fund's average net assets. The group fee rate is based on the average net
assets of all mutual funds advised by FMR. In addition to the management
fee payable by each fund, Fidelity CA Insured and Fidelity CA Income also
incur other expenses for services such as maintaining shareholder records
and furnishing shareholder statements and financial reports. Each fund's
total management fee rate for the 12 months ended February 28, 1997 was
0.39%. For the 12 months ended February 28, 1997, the total operating
expenses for Fidelity CA Insured and Fidelity CA Income were 0.60% and
0.57%, respectively. Effective April 1, 1997, FMR has voluntarily agreed to
reimburse the total operating expenses of Fidelity CA Insured and Fidelity
CA Income to the extent they exceed 0.55% of average net assets (excluding
interest, taxes, brokerage commissions and extraordinary expenses).
Fidelity also reserves the right to deduct an annual maintenance fee of
$12.00 from accounts in each fund with a value of less than $2,500. Spartan
CA Income also imposes a redemption fee equal to 0.50% of the amount
redeemed on shares held less than 180 days. The redemption fee is payable
to Spartan CA Income to help offset the costs associated with short-term
trading. Fidelity CA Income does not currently impose a redemption fee;
however, the combined fund reserves the right to adopt a redemption fee in
the future if it believes it is appropriate.
If any or all Reorganizations are approved, the combined fund will retain
Fidelity CA Income's expense structure, requiring payment of a management
fee and other operating expenses. FMR has agreed to limit the combined
fund's expense ratio to 0.53% of its average net assets through December
31, 1999 (excluding interest, taxes, brokerage commissions and
extraordinary expenses). This expense limitation would result in a 0.02%
lower total operating expense ratio for Spartan CA Income, Spartan CA
Intermediate, and Fidelity CA Insured shareholders beginning on the first
business day after the effective date of each Reorganization. After
December 31, 1999, the combined fund's expenses could increase. If any of
the proposed Reorganizations are not approved, the fund not approving the
Reorganization will maintain its current fee structure. For more
information about the funds' current fees, refer to their Prospectuses.
Under Spartan CA Income's and Spartan CA Intermediate's all-inclusive
management fee arrangements, Spartan CA Income and Spartan CA Intermediate
shareholders currently have the right to vote on any expense increases over
0.55%. Shareholders of the combined fund would also have the right to vote
on any increases in FMR's management fee; however, because the management
fee would not be all-inclusive, shareholders would not have the right to
vote on all types of expense increases.
The following tables show the current fees and expenses of Spartan CA
Income, Spartan CA Intermediate, Fidelity CA Insured, and Fidelity CA
Income for the 12 months ended February 28, 1997, adjusted to reflect
current fees, and pro forma fees for the combined fund based on the same
period after giving effect to the Reorganizations, including the effect of
FMR's guaranteed expense limitation to 0.53% through December 31, 1999.

ANNUAL FUND OPERATING EXPENSES
Annual fund operating expenses are paid out of each fund's assets.
Expenses are factored into each fund's share price or dividends and are not
charged directly to shareholder accounts. The following are based on
historical expenses, adjusted to reflect current fees, and are calculated
as a percentage of average net assets. Attachment 2 provides expense
information for the combined fund if shareholders of each fund affected do
not approve each of the proposed Reorganizations.

IF ALL THREE REORGANIZATIONS ARE APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PRO FORMA
SPARTAN CA SPARTAN CA FIDELITY CA FIDELITY CA EXPENSES
INCOMEC INTERMEDIATEC INSUREDA INCOMEA COMBINED
FUNDB

Management 0.55% 0.55% 0.34% 0.37% 0.36%
Fees (after
reimbursement)

Other Expenses 0.00% 0.00% 0.21% 0.18% 0.17%

Total Fund 0.55% 0.55% 0.55% 0.55% 0.53%
Operating
Expenses (after
reimbursement)

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses). If this agreement
were not in effect, the management fee, other expenses, and total fund
operating expenses, as a percentage of average net assets, would have been
0.39%, 0.21%, and 0.60%, respectively, for Fidelity CA Insured and 0.39%,
0.18%, and 0.57%, respectively, for Fidelity CA Income.
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999. If this
agreement were not in effect, the management fee, other expenses, and total
operating expenses, as a percentage of average net assets, would be 0.39%,
0.17%, and 0.56%, respectively.
C FMR has entered into arrangements on behalf of each fund with the fund's
custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce fund expenses. Including these reductions the
total operating expenses presented in the table would have been 0.54% for
each of Spartan CA Income and Spartan CA Intermediate.
EXAMPLES OF EFFECT OF FUND EXPENSES
The following table illustrates the expenses on a hypothetical $1,000
investment in each fund under the current and pro forma (combined fund)
expenses calculated at the rates stated above, assuming a 5% annual return.
Attachment 3 provides examples of the effect on fund expenses for the
combined fund if shareholders of each fund affected do not approve the
proposed Reorganizations.

IF ALL THREE REORGANIZATIONS ARE APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Spartan CA Income $6 $18 $31 $69

Spartan CA Intermediate $6 $18 $31 $69

Fidelity CA InsuredA $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.
These examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. These examples
illustrate the effect of expenses, but are not meant to suggest actual or
expected costs, which may vary. The assumed return of 5% is not a
prediction of, and does not represent, actual or expected performance of
any fund.

FORMS OF ORGANIZATION
Spartan CA Income, Spartan CA Intermediate, Fidelity CA Insured, and
Fidelity CA Income are non-diversified funds of Fidelity California
Municipal Trust, an open-end management investment company organized as a
Massachusetts business trust on April 28, 1983. The trust is authorized to
issue an unlimited number of shares of beneficial interest. Because the
funds are series of the same Massachusetts business trust, the rights of
the security holders of Spartan CA Income, Spartan CA Intermediate, and
Fidelity CA Insured under state law and the governing documents are
expected to remain unchanged after the Reorganizations. For more
information regarding shareholder rights, refer to the section of the
Funds' Statements of Additional Information called "Description of the
Trusts."
INVESTMENT OBJECTIVES AND POLICIES
The funds have identical investment objectives in that all seek high
current income free from federal income tax and California personal income
tax by investing in California municipal securities. Spartan CA Income,
Fidelity CA Insured, and Fidelity CA Income, as a matter of fundamental
policy, will each normally invest so that at least 80% of its income
distributions are exempt from federal and California state personal income
taxes. Spartan CA Intermediate will normally invest at least 80% of its
assets in municipal securities whose interest is free from federal income
tax.
INVESTMENT POLICIES AND CHARACTERISITCS
The following summarizes the funds' investment policies and
characteristics.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Average Required Insured AMT
Interest Maturity Maturity Holdings in Holdings Debt Ability
Rate Policy as of Insured as of Quality
Sensitivity 3/31/97 Bonds 3/31/97

Spartan CA 8-18 years none 15.5 years none 40.2% 5% below 100%
Income inv. grade

Spartan CA 7-10 years 3-10 years 8.8 years none 42.7% 5% below 100%
Intermediate inv. grade

Fidelity CA 8-18 years none 15.4 years 65% of 69.0% only 100%
Insured assets inv. grade

Fidelity CA 8-18 years none 14.5 years none 37.4% 5% below 100%
Income inv. grade

</TABLE>

SPARTAN CA INCOME
Although Spartan CA Income and Fidelity CA Income can invest in securities
of any maturity, FMR seeks to manage the funds so that they generally react
to changes in interest rates similar to municipal bonds with maturities
between 8 and 18 years. As of March 31, 1997, the dollar-weighted average
maturity of Spartan CA Income and Fidelity CA Income was 15.5 years and
14.5 years, respectively. Spartan CA Income and Fidelity CA Income do not
have required levels for investments in insured bonds. However, as of March
31, 1997, the level of insured bonds for Spartan CA Income and Fidelity CA
Income was 40.2% and 37.4%, respectively.
Spartan CA Income and Fidelity CA Income normally invest in
investment-grade securities, but reserve the right to invest up to 5% of
their assets in below investment-grade securities. As of March 31, 1997,
each fund held only investment-grade securities. Each Fund currently can
invest all of its assets in securities subject to the federal alternative
minimum tax. The interest from these investments is a tax-preference item
for purposes of the federal alternative minimum tax. As of March 31, 1997,
8.01% of Spartan CA Income's and 0.20% of Fidelity CA Income's income
dividends were subject to the federal alternative minimum tax.
SPARTAN CA INTERMEDIATE
Spartan CA Intermediate is managed to have the same interest rate
sensitivity as municipal bonds with maturities between 7 and 10 years and
maintains an average maturity between 3 and 10 years. Although Fidelity CA
Income can invest in securities of any maturity, FMR seeks to manage the
fund so that it generally reacts to changes in interest rates similar to
municipal bonds with maturities between 8 and 18 years. As of March 31,
1997, the dollar-weighted average maturity of Spartan CA Intermediate and
Fidelity CA Income was 8.8 years and 14.5 years, respectively. Spartan CA
Intermediate and Fidelity CA Income do not have required levels for
investments in insured bonds. However, as of March 31, 1997, the level of
insured bonds for Spartan CA Intermediate and Fidelity CA Income was 42.7%
and 37.4%, respectively.
Spartan CA Intermediate and Fidelity CA Income normally invest in
investment-grade securities, but reserve the right to invest up to 5% of
their assets in below investment-grade securities. As of March 31, 1997,
each fund held only investment-grade securities. Each Fund currently can
invest all of its assets in securities subject to the federal alternative
minimum tax. The interest from these investments is a tax-preference item
for purposes of the federal alternative minimum tax. As of March 31, 1997,
8.04% of Spartan CA Intermediate's and 0.20% of Fidelity CA Income's income
dividends were subject to the federal alternative minimum tax.
If shareholder approval of the Reorganization is received, FMR may sell
shorter-term securities held by Spartan CA Intermediate in the period
between shareholder approval and the Closing Date of the Reorganization.
Such selling could cause the average portfolio maturity of Spartan CA
Intermediate to rise above 10 years during this period. In the event of the
sale of any of the fund's assets prior to the Reorganization, any
transaction costs associated with such adjustments will be borne by Spartan
CA Intermediate.
FIDELITY CA INSURED
Although Fidelity CA Insured and Fidelity CA Income can invest in
securities of any maturity, FMR seeks to manage the funds so that they
generally react to changes in interest rates similar to municipal bonds
with maturities between 8 and 18 years. As of March 31, 1997, the
dollar-weighted average maturity of Fidelity CA Insured and Fidelity CA
Income was 15.4 years and 14.5 years, respectively. Fidelity CA Insured, as
a fundamental policy, invests at least 65% of its assets in insured
municipal bonds. Fidelity CA Income does not have a required level for
investments in insured bonds. As of March 31, 1997, the level of insured
bonds for Fidelity CA Insured and Fidelity CA Income was 69.0% and 37.4%,
respectively. However, despite the high credit quality of insured bonds,
Fidelity CA Insured provided less downside protection than the other funds
during 1994's bear market.
Fidelity CA Insured invests only in investment-grade securities. Fidelity
CA Income normally invests in investment-grade securities, but reserves the
right to invest up to 5% of its assets in below investment-grade
securities. As of March 31, 1997, each fund held only investment-grade
securities. Each Fund currently can invest all of its assets in securities
subject to the federal alternative minimum tax. The interest from these
investments is a tax-preference item for purposes of the federal
alternative minimum tax. As of March 31, 1997, 0.47% of Fidelity CA
Insured's and 0.20% of Fidelity CA Income's income dividends were subject
to the federal alternative minimum tax.
If shareholder approval of the Reorganization is received, FMR may sell
insured securities held by Fidelity CA Insured in the period between
shareholder approval and the Closing Date of the Reorganization. Such
selling could cause the level of insured bonds held by Fidelity CA Insured
to fall below 65% during this period. In the event of the sale of any of
the fund's assets prior to the Reorganization, any transaction costs
associated with such adjustments will be borne by Fidelity CA Insured.
The investment objective of each fund is fundamental and may not be
changed without the approval of a vote of at least a majority of the
outstanding voting securities of the fund. There can be no assurance that
any fund will achieve its objective. With the exception of fundamental
policies, investment policies of the funds can be changed without
shareholder approval. The differences between the funds discussed above,
except as noted, could be changed without a vote of shareholders.

PERFORMANCE COMPARISONS OF THE FUNDS
The following table compares the funds' annual total returns for the
periods indicated, as well as each fund's cumulative total return for the
period from December 30, 1993 (commencement of operations of Spartan CA
Intermediate) to March 31, 1997. Please note that total returns are based
on past results and are not an indication of future performance.

Annual Total Return Cumulative
(periods ended March 31) Total
Return

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993
Decembe
1994 1995 1996 1997 r 30,
1993 to
March
31, 1997

Spartan CA Income 10.25% 13.72% 1.27% 5.40% 8.47% 6.13% 13.12%

Spartan CA Intermediate n/a* n/a* -4.77%* 5.73% 8.42% 5.07% 14.70%

Fidelity CA Insured 10.52% 14.07% -0.11% 5.56% 8.07% 5.39% 10.86%

Fidelity CA Income 9.36% 12.94% 1.22% 5.50% 8.44% 6.26% 13.47%

</TABLE>

* Spartan CA Intermediate commenced operations on December 30, 1993;
unannualized.
As the table above shows, each fund has provided its shareholders with
better performance than the others at various times during the periods
shown. This differential in performance can be attributed primarily to the
funds' differences in investment policies and historical differences in
portfolio holdings resulting from the relative asset size of the funds and
their available cash flows. However, despite its high credit quality,
Fidelity CA Insured provided less downside protection than the other funds
during 1994's bear market.
The following graphs show the value of a hypothetical $10,000 investment
in each fund made on December 30, 1993, assuming all distributions are
reinvested. The graph compares the cumulative returns of the funds on a
monthly basis from December 1993 through March 1997, and illustrates the
relative volatility of their performance over shorter periods of time.
1993/12/30 10000.00 10000.00
1993/12/31 10003.18 10003.00
1994/01/31 10116.40 10111.56
1994/02/28 9836.90 9823.16
1994/03/31 9333.86 9322.73
1994/04/30 9373.07 9360.76
1994/05/31 9437.60 9417.18
1994/06/30 9341.16 9332.47
1994/07/31 9531.54 9519.68
1994/08/31 9564.35 9548.49
1994/09/30 9417.60 9406.27
1994/10/31 9186.55 9189.26
1994/11/30 8960.93 8951.14
1994/12/31 9114.73 9105.87
1995/01/31 9441.34 9433.78
1995/02/28 9747.28 9739.22
1995/03/31 9847.39 9825.85
1995/04/30 9849.26 9822.84
1995/05/31 10179.87 10146.23
1995/06/30 10047.78 10014.95
1995/07/31 10139.66 10092.55
1995/08/31 10258.25 10209.43
1995/09/30 10349.57 10306.10
1995/10/31 10523.80 10485.15
1995/11/30 10733.10 10703.62
1995/12/31 10862.33 10833.54
1996/01/31 10928.45 10912.92
1996/02/29 10844.10 10804.97
1996/03/31 10678.51 10658.06
1996/04/30 10643.57 10614.28
1996/05/31 10635.95 10611.25
1996/06/30 10776.72 10741.93
1996/07/31 10881.80 10853.73
1996/08/31 10901.41 10871.06
1996/09/30 11052.31 11034.60
1996/10/31 11196.58 11179.01
1996/11/30 11435.52 11418.46
1996/12/31 11378.85 11350.53
1997/01/31 11399.23 11368.19
1997/02/28 11511.66 11478.10
1997/03/31 11346.82 11311.68
1993/12/30 10000.00 10000.00
1993/12/31 10003.18 10001.08
1994/01/31 10116.40 10115.55
1994/02/28 9836.90 9829.25
1994/03/31 9333.86 9523.29
1994/04/30 9373.07 9580.74
1994/05/31 9437.60 9660.52
1994/06/30 9341.16 9608.34
1994/07/31 9531.54 9784.83
1994/08/31 9564.35 9817.83
1994/09/30 9417.60 9714.96
1994/10/31 9186.55 9560.68
1994/11/30 8960.93 9395.32
1994/12/31 9114.73 9533.73
1995/01/31 9441.34 9775.24
1995/02/28 9747.28 9993.60
1995/03/31 9847.39 10068.68
1995/04/30 9849.26 10079.53
1995/05/31 10179.87 10390.50
1995/06/30 10047.78 10292.56
1995/07/31 10139.66 10420.69
1995/08/31 10258.25 10561.79
1995/09/30 10349.57 10626.21
1995/10/31 10523.80 10768.23
1995/11/30 10733.10 10920.68
1995/12/31 10862.33 10976.68
1996/01/31 10928.45 11076.65
1996/02/29 10844.10 11050.89
1996/03/31 10678.51 10916.41
1996/04/30 10643.57 10903.17
1996/05/31 10635.95 10890.45
1996/06/30 10776.72 10988.74
1996/07/31 10881.80 11077.14
1996/08/31 10901.41 11086.44
1996/09/30 11052.31 11197.32
1996/10/31 11196.58 11344.37
1996/11/30 11435.52 11536.33
1996/12/31 11378.85 11490.63
1997/01/31 11399.23 11523.91
1997/02/28 11511.66 11599.46
1997/03/31 11346.82 11469.81

1993/12/30 10000.00 10000.00
1993/12/31 10003.18 10002.84
1994/01/31 10116.40 10127.76
1994/02/28 9836.90 9786.14
1994/03/31 9333.86 9220.78
1994/04/30 9373.07 9273.73
1994/05/31 9437.60 9355.06
1994/06/30 9341.16 9237.19
1994/07/31 9531.54 9441.72
1994/08/31 9564.35 9457.66
1994/09/30 9417.60 9262.34
1994/10/31 9186.55 9030.22
1994/11/30 8960.93 8796.47
1994/12/31 9114.73 8978.43
1995/01/31 9441.34 9335.11
1995/02/28 9747.28 9659.08
1995/03/31 9847.39 9733.71
1995/04/30 9849.26 9717.84
1995/05/31 10179.87 10069.97
1995/06/30 10047.78 9873.49
1995/07/31 10139.66 9947.44
1995/08/31 10258.25 10091.37
1995/09/30 10349.57 10173.79
1995/10/31 10523.80 10358.91
1995/11/30 10733.10 10603.59
1995/12/31 10862.33 10728.89
1996/01/31 10928.45 10803.07
1996/02/29 10844.10 10669.81
1996/03/31 10678.51 10519.59
1996/04/30 10643.57 10462.39
1996/05/31 10635.95 10447.06
1996/06/30 10776.72 10566.09
1996/07/31 10881.80 10676.41
1996/08/31 10901.41 10669.50
1996/09/30 11052.31 10839.25
1996/10/31 11196.58 10971.63
1996/11/30 11435.52 11221.39
1996/12/31 11378.85 11141.18
1997/01/31 11399.23 11157.76
1997/02/28 11511.66 11255.69
1997/03/31 11346.82 11086.30

COMPARISON OF OTHER POLICIES OF THE FUNDS

DIVERSIFICATION. Spartan CA Income, Spartan CA Intermediate, Fidelity CA
Insured, and Fidelity CA Income have similar policies on diversification.
Each fund is a non-diversified fund. Generally, to meet federal tax
requirements at the close of each quarter, each fund does not invest more
than 25% of its total assets in the securities of any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in the securities of any one issuer. Because each fund can invest a
significant portion of its assets in securities of individual issuers,
changes in the market value of a single issuer could cause greater
share-price fluctuation in these funds than would occur in a more
diversified fund.
OTHER INVESTMENT POLICIES. Each fund may borrow from banks or other funds
advised by FMR, or through reverse repurchase agreements. As a matter of
fundamental policy, each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 33 1/3% of its total assets.
FMR normally invests each fund's assets according to its investment
strategy and does not expect to invest in federally or state taxable
obligations. However, each fund reserves the right to invest without
limitation in short-term instruments for temporary, defensive purposes.
Spartan CA Income and Spartan CA Intermediate also reserve the right to
hold a substantial amount of uninvested cash or to invest more than
normally permitted in taxable obligations for temporary, defensive
purposes. As a fundamental policy, during periods when FMR believes that
California municipal securities that meet the funds' standards are not
available, Fidelity CA Insured and Fidelity CA Income reserve the right to
temporarily invest more than 20% of their assets in obligations that are
only federally tax-exempt. Each fund may also enter into when-issued and
delayed delivery transactions, invest in asset-backed securities, variable
and floating rate securities, municipal lease obligations, securities with
put features, private entity securities, and illiquid and restricted
securities. As stated above, for more information about the risks and
restrictions associated with these policies, see each fund's Prospectus,
and for a more detailed discussion of the funds' investments, see their
Statements of Additional Information, which are incorporated herein by
reference.
OPERATIONS OF FIDELITY CA INCOME FOLLOWING THE REORGANIZATION
FMR does not expect Fidelity CA Income to revise its investment policies
as a result of the Reorganizations. In addition, FMR does not anticipate
significant changes to the fund's management or to agents that provide the
fund with services. Specifically, the Trustees and officers, the investment
adviser, distributor, and other agents will continue to serve Fidelity CA
Income in their current capacities. The funds currently have the same
portfolio manager, Jonathan Short, who is expected to continue to be
responsible for Fidelity CA Income's portfolio management after the
Reorganizations.
All of the current investments of Spartan CA Income, Spartan CA
Intermediate, and Fidelity CA Insured are permissible investments for
Fidelity CA Income. As explained above, however, Spartan CA Intermediate's
maturity is shorter than Fidelity CA Income's, and Fidelity CA Insured's
portfolio consists of a higher percentage of insured securities than
Fidelity CA Income. Therefore, if shareholder approval of each
Reorganization is received, FMR may sell shorter-term securities held by
Spartan CA Intermediate and insured securities held by Fidelity CA Insured
in the period between shareholder approval and the Closing Date of each
Reorganization. Such selling could cause the average portfolio maturity of
Spartan CA Intermediate to rise above 10 years and the level of insured
bonds held by Fidelity CA Insured to fall below 65% during this period. In
the event of the sale of any of the fund's assets after the effective date
of the Reorganization, any transaction costs associated with such
adjustments will be borne by Fidelity CA Income.
PURCHASES AND REDEMPTIONS
The purchase policies for all funds are identical.
Each fund's share price, or net asset value per share (NAV), is calculated
every business day. Shares of each fund are sold without a sales charge.
Shares are purchased at the next share price calculated after an investment
is received and accepted. Share price is normally calculated at 4:00 p.m.
Eastern time. Refer to a fund's Prospectus for more information regarding
how to buy shares.
The redemption policies for all funds are identical with the exception of
Spartan CA Income's redemption fee.
Shares of each fund may be redeemed on any business day at their NAV.
Shares of each fund are redeemed at the next share price calculated after
an order is received and accepted, normally 4:00 p.m. Eastern time. Spartan
CA Income imposes a 0.50% redemption fee on shares held less than 180 days
that, if applicable, is deducted from the amount redeemed.
On February 28, 1997, each of Spartan CA Income, Spartan CA Intermediate,
and Fidelity CA Insured closed to new accounts pending the Reorganizations.
Each of Spartan CA Income's, Spartan CA Intermediate's, and Fidelity CA
Insured's shareholders on or prior to that date, including participants in
an employee benefit plan which offered the respective fund on or prior to
that date (except participants in an employee benefit plan for which an
affiliate of FMR maintains the accounts at the participant level other than
pursuant to a recordkeeping agreement), can continue to purchase shares of
their respective fund. Shareholders may redeem shares through the Closing
Date of each Reorganization. If the Reorganizations are approved, the
purchase and redemption policies of the surviving fund will remain
unchanged. Fidelity CA Income does not currently impose a redemption fee;
however, the combined fund reserves the right to adopt a redemption fee in
the future if it believes it is appropriate.
EXCHANGES
The exchange privilege currently offered by each fund is the same and is
not expected to change after the Reorganizations. Shareholders of the
funds may exchange their shares of a fund for shares of any other Fidelity
fund available in a shareholder's state. Exchanges out of Spartan CA Income
are currently subject to a 0.50% redemption fee on shares held less than
180 days, as described above in the "Purchases and Redemptions" section.
Fidelity CA Income does not currently impose a redemption fee. If the
Spartan CA Income Reorganization is approved, the redemption fee will be
eliminated; however, the combined fund reserves the right to adopt a
redemption fee in the future if it believes it is appropriate.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Each fund declares income
dividends daily and pays them monthly. Each fund normally distributes
capital gains in April and December. On or before each Closing Date, each
of Spartan CA Income, Spartan CA Intermediate, and Fidelity CA Insured may
declare additional dividends or other distributions in order to distribute
substantially all of its investment company taxable income and net realized
capital gain.
Each of Spartan CA Income, Spartan CA Intermediate, and Fidelity CA
Insured will be required to recognize gain or loss on Section 1256
contracts held by the individual fund on the last day of their taxable year
which is February 28. If the Reorganizations are approved, gains or losses
on Section 1256 contracts held on each Closing Date will be recognized on
each Closing Date.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
Each fund has received an opinion of its counsel, Kirkpatrick & Lockhart
LLP, that the Reorganizations will constitute tax-free reorganizations
within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (the Code). Accordingly, except with respect to Section
1256 contracts, no gain or loss will be recognized to the funds or their
shareholders as a result of the Reorganizations. Please see the section
entitled "Federal Income Tax Considerations" for more information.
As of February 28, 1997, Spartan CA Income, Spartan CA Intermediate,
Fidelity CA Insured, and Fidelity CA Income have capital loss carryforwards
for federal tax purposes of approximately $8,463,000, $531,000, $7,171,000,
and $4,627,000, respectively. Under current federal tax law, Fidelity CA
Income may be limited to using only a portion, if any, of its capital loss
carryforward or the capital loss carryforwards transferred by Spartan CA
Income, Spartan CA Intermediate, and Fidelity CA Insured at the time of the
Reorganizations ("capital loss carryforwards"). There is no assurance that
Fidelity CA Income will be able to realize sufficient capital gains to use
the capital loss carryforwards before they expire. The capital loss
carryforward attributable to Spartan CA Income will expire between February
28, 2003 and February 29, 2004. The capital loss carryforward attributable
to Spartan CA Intermediate will expire on February 28, 2003. The capital
loss carryforward attributable to Fidelity CA Insured will expire between
February 28, 2003 and February 29, 2004. The capital loss carryforward
attributable to Fidelity CA Income will expire on February 29, 2004.
COMPARISON OF PRINCIPAL RISK FACTORS
Each fund is subject to the risks normally associated with bond funds. As
described more fully below, the funds have identical investment objectives
and similar policies and permissible investments.
INVESTMENT STRATEGY. Spartan CA Intermediate maintains a shorter average
maturity than Fidelity CA Income. It is managed to react to changes in
interest rates similarly to municipal bonds with maturities between 7 and
10 years. This gives Spartan CA Intermediate less interest rate sensitivity
than Fidelity CA Income which is managed so that it generally reacts to
changes in interest rates similar to municipal bonds with maturities
between 8 and 18 years. Interest rate sensitivity refers to how much a fund
is affected by changes in interest rates. Generally, bond prices go down
when interest rates go up and vice versa. The effects of interest rate
sensitivity are more pronounced for longer-term securities, and therefore,
more pronounced for funds which invest in longer-term securities. Thus,
Fidelity CA Income may have better performance than Spartan CA Intermediate
during periods of falling interest rates but may have worse performance
during periods of rising interest rates.
Fidelity CA Insured is required to invest at least 65% of its assets in
municipal securities that are covered by insurance guaranteeing the timely
payment of principal and interest. Fidelity CA Income does not have a
required level for investments in insured bonds. Generally, insured bonds
receive a higher credit rating than uninsured bonds; therefore, the greater
the percentage of insured holdings, generally the higher the fund's credit
quality. The credit quality of a bond has an impact on its price. In most
cases, the higher the credit quality of a bond, the lower its yield will
be; consequently, the price of the bond may be higher.
THE PROPOSED TRANSACTIONS
1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN
CALIFORNIA MUNICIPAL INCOME FUND AND FIDELITY CALIFORNIA MUNICIPAL INCOME
FUND.
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Agreement. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as
Exhibit 1 to this Proxy Statement.
The Agreement contemplates (a) Fidelity CA Income acquiring as of the
Closing Date all of the assets of Spartan CA Income in exchange solely for
shares of Fidelity CA Income and the assumption by Fidelity CA Income of
Spartan CA Income's liabilities; and (b) the distribution of shares of
Fidelity CA Income to the shareholders of Spartan CA Income as provided for
in the Agreement.
The assets of Spartan CA Income to be acquired by Fidelity CA Income
include all cash, cash equivalents, securities, receivables (including
interest or dividends receivables), claims, choses in action, and other
property owned by Spartan CA Income, and any deferred or prepaid expenses
shown as an asset on the books of Spartan CA Income on the Closing Date.
Fidelity CA Income will assume from Spartan CA Income all liabilities,
debts, obligations, and duties of Spartan CA Income of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable on
the Closing Date, and whether or not specifically referred to in the
Agreement; provided, however, that Spartan CA Income will use its best
efforts, to the extent practicable, to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred in
the ordinary course of business. Fidelity CA Income also will deliver to
Spartan CA Income the number of full and fractional shares of Fidelity CA
Income having an aggregate net asset value equal to the value of the assets
of Spartan CA Income less the respective liabilities of Spartan CA Income
as of the Closing Date. Spartan CA Income shall then distribute the
Fidelity CA Income shares PRO RATA to its shareholders.
The value of Spartan CA Income's assets to be acquired by Fidelity CA
Income and the amount of its liabilities to be assumed by Fidelity CA
Income will be determined as of the close of business (4:00 p.m. Eastern
time) of Spartan CA Income on the Closing Date, using the valuation
procedures set forth in Spartan CA Income's then-current Prospectus and
Statement of Additional Information. The net asset value of a share of
Fidelity CA Income will be determined as of the same time using the
valuation procedures set forth in its then-current Prospectus and Statement
of Additional Information.
As of the Closing Date, Spartan CA Income will distribute to its
shareholders of record the shares of Fidelity CA Income it received, so
that each Spartan CA Income shareholder will receive the number of full and
fractional shares of Fidelity CA Income equal in value to the aggregate net
asset value of shares of Spartan CA Income held by such shareholder on the
Closing Date; Spartan CA Income will be liquidated as soon as practicable
thereafter. Such distribution will be accomplished by opening accounts on
the books of Fidelity CA Income in the names of the Spartan CA Income
shareholders and by transferring thereto shares of Fidelity CA Income. Each
Spartan CA Income shareholder's account shall be credited with the
respective PRO RATA number of full and fractional shares (rounded to the
third decimal place) of Fidelity CA Income due that shareholder. Fidelity
CA Income shall not issue certificates representing its shares in
connection with such exchange.
Accordingly, immediately after the Reorganization, each former Spartan CA
Income shareholder will own shares of Fidelity CA Income equal to the
aggregate net asset value of that shareholder's shares of Spartan CA Income
immediately prior to the Reorganization. The net asset value per share of
Fidelity CA Income will be unchanged by the transaction. Thus, the
Reorganization will not result in a dilution of any shareholder interest.
Any transfer taxes payable upon issuance of shares of Fidelity CA Income
in a name other than that of the registered holder of the shares on the
books of Spartan CA Income as of that time shall be paid by the person to
whom such shares are to be issued as a condition of such transfer. Any
reporting responsibility of Spartan CA Income is and will continue to be
its responsibility up to and including the Closing Date and such later date
on which Spartan CA Income is liquidated.
Pursuant to its management contract with Spartan CA Income and its
all-inclusive management fee, FMR will bear the cost of the Reorganization,
including professional fees, expenses associated with the filing of
registration statements, and the cost of soliciting proxies for the
Meeting, which will consist principally of printing and mailing
prospectuses and proxy statements, together with the cost of any
supplementary solicitation. However, there may be some transaction costs
associated with portfolio adjustments to Spartan CA Income and Fidelity CA
Income due to the Reorganization prior to the Closing Date which will be
borne by Spartan CA Income and Fidelity CA Income, respectively. Any
transaction costs associated with portfolio adjustments to Spartan CA
Income and Fidelity CA Income due to the the Reorganization which occur
after the Closing Date and any additional merger-related costs attributable
to Fidelity CA Income which occur after the Closing Date will be borne by
Fidelity CA Income. The funds may recognize a taxable gain or loss on the
disposition of securities pursuant to these portfolio adjustments. See the
section entitled "Reasons for the Reorganization."
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by a
fund. In addition, the Agreement may be amended in any mutually agreeable
manner, except that no amendment that may have a materially adverse effect
on the shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Board of Trustees (the Board) of the funds have determined that the
Reorganization is in the best interests of the shareholders of both funds
and that the Reorganization will not result in a dilution of the interests
of shareholders of either fund.
In considering the Reorganization, the Board considered a number of
factors, including the following:
(1) the compatibility of the funds' investment objectives and policies;
(2) the historical performance of the funds;
(3) the relative expense ratios of the funds;
(4) the costs to be incurred by each fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) the relative size of the funds;
(7) the elimination of duplicative funds;
(8) the impact of changes to the municipal bond product line on the funds
and their shareholders; and
(9) the benefit to FMR.
FMR recommended the Reorganization to the Board at a meeting of the Board
on February 20, 1997. In recommending the Reorganization, FMR also advised
the Board that the funds have identical investment objectives, policies,
and permissible investments. In particular, at that time FMR informed the
Board that the funds differed primarily with respect to their expense
structures. FMR subsequently noted to the Board that differences between
the funds with respect to minimum investments, service features, and
externalized fees have been eliminated.
The Board also considered that former shareholders of Spartan CA Income
will receive shares of Fidelity CA Income equal to the value of their
shares of Spartan CA Income. In addition, the funds will receive an opinion
of counsel that, except with respect to Section 1256 contracts, the
Reorganization will not result in any gain or loss for Federal income tax
purposes either to Spartan CA Income or Fidelity CA Income or to the
shareholders of either fund.
Furthermore, on February 20, 1997, the Board considered that combining the
funds would result in an immediate benefit to shareholders by lowering
expenses, as a percentage of net assets, by 0.02% for shareholders of
Spartan CA Income and approximately 0.05% for shareholders of Fidelity CA
Income (based on total fund operating expenses for the 12 months ended
December 31, 1996), following the effective date of the Reorganization.
Subsequently, FMR informed the Board that effective April 1, 1997, it would
voluntarily agree to reimburse Fidelity CA Income's total operating
expenses to the extent that they exceeded 0.55% of average net assets. FMR
also represented to the Board that it would guarantee an expense ratio of
0.53% for the surviving fund (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999,
resulting in a 0.02% savings to shareholders of both Spartan CA Income and
Fidelity CA Income, if the Reorganization is approved. FMR informed the
Board that it would pay all of Spartan CA Income's expenses associated with
the Reorganization, including professional fees and the costs of proxy
solicitation. The Board was informed that any expenses associated with the
Reorganization, including professional fees and the costs of proxy
solicitation, directly attributable to Fidelity CA Income would be borne by
Fidelity CA Income, provided they do not exceed the fund's 0.55% expense
cap. FMR further informed the Board that although the funds would bear any
costs (as described above) associated with portfolio adjustments resulting
from the Reorganization, FMR believed that such costs would be
counterbalanced by the reduction in the expense ratio for both funds.
Finally, the Board considered the proposed Reorganization in the context
of a general goal of reducing the number of duplicative funds managed by
FMR. While the reduction of duplicative funds and funds with lower assets
potentially would benefit FMR, it also should benefit shareholders by
facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fidelity California Municipal Trust (the trust) is registered with the
Securities and Exchange Commission (the Commission) as an open-end
management investment company. The trust's Trustees are authorized to issue
an unlimited number of shares of beneficial interest of separate series.
Fidelity CA Income is one of four funds of the trust. Each share of
Fidelity CA Income represents an equal proportionate interest with each
other share of the fund, and each such share of Fidelity CA Income is
entitled to equal voting, dividend, liquidation, and redemption rights.
Each shareholder of the fund is entitled to one vote for each dollar value
of net asset value of the fund that shareholder owns. Shares of Fidelity CA
Income have no preemptive or conversion rights. The voting and dividend
rights, the right of redemption, and the privilege of exchange are
described in the fund's Prospectus. Shares are fully paid and
nonassessable, except as set forth in the fund's Statement of Additional
Information under the heading "Shareholder and Trustee Liability."
The trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless less than a majority of the Trustees holding office have
been elected by shareholders, at which time the Trustees then in office
will call a shareholder meeting for the election of Trustees. Under the
1940 Act, shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a Trustee by votes cast in
person or by proxy at a meeting called for that purpose. The Trustees are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any Trustee when requested in writing to do so
by the shareholders of record holding at least 10% of the trust's
outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Spartan CA Income's assets for Fidelity CA Income's shares
and the assumption of the liabilities of Spartan CA Income by Fidelity CA
Income is intended to qualify for federal income tax purposes as a tax-free
reorganization under the Code. With respect to the Reorganization, the
participating funds have received an opinion from Kirkpatrick & Lockhart
LLP, counsel to Spartan CA Income and Fidelity CA Income, substantially to
the effect that:
(i) The acquisition by Fidelity CA Income of all of the assets of Spartan
CA Income solely in exchange for Fidelity CA Income shares and the
assumption by Fidelity CA Income of Spartan CA Income's liabilities,
followed by the distribution by Spartan CA Income of Fidelity CA Income
shares to the shareholders of Spartan CA Income pursuant to the liquidation
of Spartan CA Income and constructively in exchange for their Spartan CA
Income shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C) of the Code, and Spartan CA Income and Fidelity CA
Income will each be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(ii) No gain or loss will be recognized by Spartan CA Income upon the
transfer of all of its assets to Fidelity CA Income in exchange solely for
Fidelity CA Income shares and Fidelity CA Income's assumption of Spartan CA
Income's liabilities, followed by Spartan CA Income's subsequent
distribution of those shares to shareholders in liquidation of Spartan CA
Income;
(iii) No gain or loss will be recognized by Fidelity CA Income upon the
receipt of the assets of Spartan CA Income in exchange solely for Fidelity
CA Income shares and its assumption of Spartan CA Income's liabilities;
(iv) The shareholders of Spartan CA Income will recognize no gain or loss
upon the exchange of their Spartan CA Income shares solely for Fidelity CA
Income shares;
(v) The basis of Spartan CA Income's assets in the hands of Fidelity CA
Income will be the same as the basis of those assets in the hands of
Spartan CA Income immediately prior to the Reorganization, and the holding
period of those assets in the hands of Fidelity CA Income will include the
holding period of those assets in the hands of Spartan CA Income;
(vi) The basis of Spartan CA Income shareholders in Fidelity CA Income
shares will be the same as their basis in Spartan CA Income shares to be
surrendered in exchange therefor; and
(vii) The holding period of the Fidelity CA Income shares to be received
by the Spartan CA Income shareholders will include the period during which
the Spartan CA Income shares to be surrendered in exchange therefor were
held, provided such Spartan CA Income shares were held as capital assets by
those shareholders on the date of the Reorganization.
Shareholders of Spartan CA Income should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of
their individual circumstances. Because the foregoing discussion only
relates to the federal income tax consequences of the Reorganization, those
shareholders also should consult their tax advisers as to state and local
tax consequences, if any, of the Reorganization.
CAPITALIZATION
The following table shows the capitalization of the funds as of February
28, 1997 and on a pro forma combined basis (unaudited) as of that date
giving effect to the Reorganization.
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING

Spartan CA Income $401,503,212 $10.60 37,882,646

Fidelity CA Income $485,897,915 $11.81 41,148,631

Pro Forma Combined Fund $887,401,127 $11.81 75,139,808

2. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN
CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND AND FIDELITY CALIFORNIA
MUNICIPAL INCOME FUND.
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Agreement. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as
Exhibit 2 to this Proxy Statement.
The Agreement contemplates (a) Fidelity CA Income acquiring as of the
Closing Date all of the assets of Spartan CA Intermediate in exchange
solely for shares of Fidelity CA Income and the assumption by Fidelity CA
Income of Spartan CA Intermediate's liabilities; and (b) the distribution
of shares of Fidelity CA Income to the shareholders of Spartan CA
Intermediate as provided for in the Agreement.
The assets of Spartan CA Intermediate to be acquired by Fidelity CA Income
include all cash, cash equivalents, securities, receivables (including
interest or dividends receivables), claims, choses in action, and other
property owned by Spartan CA Intermediate, and any deferred or prepaid
expenses shown as an asset on the books of Spartan CA Intermediate on the
Closing Date. Fidelity CA Income will assume from Spartan CA Intermediate
all liabilities, debts, obligations, and duties of Spartan CA Intermediate
of whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business,
whether or not determinable on the Closing Date, and whether or not
specifically referred to in the Agreement; provided, however, that Spartan
CA Intermediate will use its best efforts, to the extent practicable, to
discharge all of its known liabilities prior to the Closing Date, other
than liabilities incurred in the ordinary course of business. Fidelity CA
Income also will deliver to Spartan CA Intermediate the number of full and
fractional shares of Fidelity CA Income having an aggregate net asset value
equal to the value of the assets of Spartan CA Intermediate less the
respective liabilities of Spartan CA Intermediate as of the Closing Date.
Spartan CA Intermediate shall then distribute the Fidelity CA Income shares
PRO RATA to its shareholders.
The value of Spartan CA Intermediate's assets to be acquired by Fidelity
CA Income and the amount of its liabilities to be assumed by Fidelity CA
Income will be determined as of the close of business (4:00 p.m. Eastern
time) of Spartan CA Intermediate on the Closing Date, using the valuation
procedures set forth in Spartan CA Intermediate's then-current Prospectus
and Statement of Additional Information. The net asset value of a share of
Fidelity CA Income will be determined as of the same time using the
valuation procedures set forth in its then-current Prospectus and Statement
of Additional Information.
As of the Closing Date, Spartan CA Intermediate will distribute to its
shareholders of record the shares of Fidelity CA Income it received, so
that each Spartan CA Intermediate shareholder will receive the number of
full and fractional shares of Fidelity CA Income equal in value to the
aggregate net asset value of shares of Spartan CA Intermediate held by such
shareholder on the Closing Date; Spartan CA Intermediate will be liquidated
as soon as practicable thereafter. Such distribution will be accomplished
by opening accounts on the books of Fidelity CA Income in the names of the
Spartan CA Intermediate shareholders and by transferring thereto shares of
Fidelity CA Income. Each Spartan CA Intermediate shareholder's account
shall be credited with the respective PRO RATA number of full and
fractional shares (rounded to the third decimal place) of Fidelity CA
Income due that shareholder. Fidelity CA Income shall not issue
certificates representing its shares in connection with such exchange.
Accordingly, immediately after the Reorganization, each former Spartan CA
Intermediate shareholder will own shares of Fidelity CA Income equal to the
aggregate net asset value of that shareholder's shares of Spartan CA
Intermediate immediately prior to the Reorganization. The net asset value
per share of Fidelity CA Income will be unchanged by the transaction. Thus,
the Reorganization will not result in a dilution of any shareholder
interest.
Any transfer taxes payable upon issuance of shares of Fidelity CA Income
in a name other than that of the registered holder of the shares on the
books of Spartan CA Intermediate as of that time shall be paid by the
person to whom such shares are to be issued as a condition of such
transfer. Any reporting responsibility of Spartan CA Intermediate is and
will continue to be its responsibility up to and including the Closing Date
and such later date on which Spartan CA Intermediate is liquidated.
Pursuant to its management contract with Spartan CA Intermediate and its
all-inclusive management fee, FMR will bear the cost of the Reorganization,
including professional fees, expenses associated with the filing of
registration statements, and the cost of soliciting proxies for the
Meeting, which will consist principally of printing and mailing
prospectuses and proxy statements, together with the cost of any
supplementary solicitation. However, there may be some transaction costs
associated with portfolio adjustments to Spartan CA Intermediate and
Fidelity CA Income due to the Reorganization prior to the Closing Date
which will be borne by Spartan CA Intermediate and Fidelity CA Income,
respectively. Any transaction costs associated with portfolio adjustments
to Spartan CA Intermediate and Fidelity CA Income due to the the
Reorganization which occur after the Closing Date and any additional
merger-related costs attributable to Fidelity CA Income which occur after
the Closing Date will be borne by Fidelity CA Income. The funds may
recognize a taxable gain or loss on the disposition of securities pursuant
to these portfolio adjustments. See the section entitled "Reasons for the
Reorganization."
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by a
fund. In addition, the Agreement may be amended in any mutually agreeable
manner, except that no amendment that may have a materially adverse effect
on the shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Board of Trustees (the Board) of the funds have determined that the
Reorganization is in the best interests of the shareholders of both funds
and that the Reorganization will not result in a dilution of the interests
of shareholders of either Fund.
In considering the Reorganization, the Board considered a number of
factors, including the following:
(1) the compatibility of the funds' investment objectives and policies;
(2) the historical performance of the funds;
(3) the relative expense ratios of the funds;
(4) the costs to be incurred by each fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) the relative size of the funds;
(7) the elimination of duplicative funds;
(8) the impact of changes to the municipal bond product line on the funds
and their shareholders; and
(9) the benefit to FMR.
FMR recommended the Reorganization to the Board at a meeting of the Board
on February 20, 1997. In recommending the Reorganization, FMR also advised
the Board that the funds have identical investment objectives and similar
policies and permissible investments. In particular, at that time FMR
informed the Board that the funds differed primarily with respect to their
expense structures and interest rate sensitivity. FMR subsequently noted to
the Board that differences between the funds with respect to minimum
investments, service features, and externalized fees have been eliminated.
The Board also considered that former shareholders of Spartan CA
Intermediate will receive shares of Fidelity CA Income equal to the value
of their shares of Spartan CA Intermediate. In addition, the funds will
receive an opinion of counsel that, except with respect to Section 1256
contracts, the Reorganization will not result in any gain or loss for
Federal income tax purposes either to Spartan CA Intermediate or Fidelity
CA Income or to the shareholders of either fund.
Furthermore, on February 20, 1997, the Board considered that combining the
funds would result in an immediate benefit to shareholders by lowering
expenses, as a percentage of net assets, by 0.02% for shareholders of
Spartan CA Intermediate and approximately 0.05% for shareholders of
Fidelity CA Income (based on total fund operating expenses for the 12
months ended December 31, 1996), following the effective date of the
Reorganization. Subsequently, FMR informed the Board that effective April
1, 1997, it would voluntarily agree to reimburse Fidelity CA Income's total
operating expenses to the extent that they exceeded 0.55% of average net
assets. FMR also represented to the Board that it would guarantee an
expense ratio of 0.53% for the surviving fund (excluding interest, taxes,
brokerage commissions and extraordinary expenses) through December 31,
1999, resulting in a 0.02% savings to shareholders of both Spartan CA
Intermediate and Fidelity CA Income, if the Reorganization is approved. FMR
informed the Board that it would pay all of Spartan CA Intermediate's
expenses associated with the Reorganization, including professional fees
and the costs of proxy solicitation. The Board was informed that any
expenses associated with the Reorganization, including professional fees
and the costs of proxy solicitation, directly attributable to Fidelity CA
Income would be borne by Fidelity CA Income, provided they do not exceed
the fund's 0.55% expense cap. FMR further informed the Board that although
the funds would bear any costs (as described above) associated with
portfolio adjustments resulting from the Reorganization, FMR believed that
such costs would be counterbalanced by the reduction in the expense ratio
for both funds.
Finally, the Board considered the proposed Reorganization in the context
of a general goal of reducing the number of duplicative funds managed by
FMR. While the reduction of duplicative funds and funds with lower assets
potentially would benefit FMR, it also should benefit shareholders by
facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fidelity California Municipal Trust (the trust) is registered with the
Securities and Exchange Commission (the Commission) as an open-end
management investment company. The trust's Trustees are authorized to issue
an unlimited number of shares of beneficial interest of separate series.
Fidelity CA Income is one of four funds of the trust. Each share of
Fidelity CA Income represents an equal proportionate interest with each
other share of the fund, and each such share of Fidelity CA Income is
entitled to equal voting, dividend, liquidation, and redemption rights.
Each shareholder of the fund is entitled to one vote for each dollar value
of net asset value of the fund that shareholder owns. Shares of Fidelity CA
Income have no preemptive or conversion rights. The voting and dividend
rights, the right of redemption, and the privilege of exchange are
described in the fund's Prospectus. Shares are fully paid and
nonassessable, except as set forth in the fund's Statement of Additional
Information under the heading "Shareholder and Trustee Liability."
The trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless less than a majority of the Trustees holding office have
been elected by shareholders, at which time the Trustees then in office
will call a shareholder meeting for the election of Trustees. Under the
1940 Act, shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a Trustee by votes cast in
person or by proxy at a meeting called for that purpose. The Trustees are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any Trustee when requested in writing to do so
by the shareholders of record holding at least 10% of the trust's
outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Spartan CA Intermediate's assets for Fidelity CA Income's
shares and the assumption of the liabilities of Spartan CA Intermediate by
Fidelity CA Income is intended to qualify for federal income tax purposes
as a tax-free reorganization under the Code. With respect to the
Reorganization, the participating funds have received an opinion from
Kirkpatrick & Lockhart LLP, counsel to Spartan CA Intermediate and Fidelity
CA Income, substantially to the effect that:
(i) The acquisition by Fidelity CA Income of all of the assets of Spartan
CA Intermediate solely in exchange for Fidelity CA Income shares and the
assumption by Fidelity CA Income of Spartan CA Intermediate's liabilities,
followed by the distribution by Spartan CA Intermediate of Fidelity CA
Income shares to the shareholders of Spartan CA Intermediate pursuant to
the liquidation of Spartan CA Intermediate and constructively in exchange
for their Spartan CA Intermediate shares, will constitute a reorganization
within the meaning of section 368(a)(1)(C) of the Code, and Spartan CA
Intermediate and Fidelity CA Income will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized by Spartan CA Intermediate upon
the transfer of all of its assets to Fidelity CA Income in exchange solely
for Fidelity CA Income shares and Fidelity CA Income's assumption of
Spartan CA Intermediate's liabilities, followed by Spartan CA
Intermediate's subsequent distribution of those shares to shareholders in
liquidation of Spartan CA Intermediate;
(iii) No gain or loss will be recognized by Fidelity CA Income upon the
receipt of the assets of Spartan CA Intermediate in exchange solely for
Fidelity CA Income shares and its assumption of Spartan CA Intermediate's
liabilities;
(iv) The shareholders of Spartan CA Intermediate will recognize no gain or
loss upon the exchange of their Spartan CA Intermediate shares solely for
Fidelity CA Income shares;
(v) The basis of Spartan CA Intermediate's assets in the hands of
Fidelity CA Income will be the same as the basis of those assets in the
hands of Spartan CA Intermediate immediately prior to the Reorganization,
and the holding period of those assets in the hands of Fidelity CA Income
will include the holding period of those assets in the hands of Spartan CA
Intermediate;
(vi) The basis of Spartan CA Intermediate shareholders in Fidelity CA
Income shares will be the same as their basis in Spartan CA Intermediate
shares to be surrendered in exchange therefor; and
(vii) The holding period of the Fidelity CA Income shares to be received
by the Spartan CA Intermediate shareholders will include the period during
which the Spartan CA Intermediate shares to be surrendered in exchange
therefor were held, provided such Spartan CA Intermediate shares were held
as capital assets by those shareholders on the date of the Reorganization.
Shareholders of Spartan CA Intermediate should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of
their individual circumstances. Because the foregoing discussion only
relates to the federal income tax consequences of the Reorganization, those
shareholders also should consult their tax advisers as to state and local
tax consequences, if any, of the Reorganization.
CAPITALIZATION
The following tables show the capitalization of the funds as of February
28, 1997 and on a pro forma combined basis (unaudited) as of that date
giving effect to the Reorganization.
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING

Spartan CA Intermediate $74,735,701 $9.95 7,509,522

Fidelity CA Income $485,897,915 $11.81 41,148,631

Pro Forma Combined Fund $560,633,616 $11.81 47,471,094

3. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN FIDELITY
CALIFORNIA INSURED MUNICIPAL INCOME FUND AND FIDELITY CALIFORNIA MUNICIPAL
INCOME FUND.
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Agreement. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as
Exhibit 3 to this Proxy Statement.
The Agreement contemplates (a) Fidelity CA Income acquiring as of the
Closing Date all of the assets of Fidelity CA Insured in exchange solely
for shares of Fidelity CA Income and the assumption by Fidelity CA Income
of Fidelity CA Insured's liabilities; and (b) the distribution of shares of
Fidelity CA Income to the shareholders of Fidelity CA Insured as provided
for in the Agreement.
The assets of Fidelity CA Insured to be acquired by Fidelity CA Income
include all cash, cash equivalents, securities, receivables (including
interest or dividends receivables), claims, choses in action, and other
property owned by Fidelity CA Insured, and any deferred or prepaid expenses
shown as an asset on the books of Fidelity CA Insured on the Closing Date.
Fidelity CA Income will assume from Fidelity CA Insured all liabilities,
debts, obligations, and duties of Fidelity CA Insured of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable on
the Closing Date, and whether or not specifically referred to in the
Agreement; provided, however, that Fidelity CA Insured will use its best
efforts, to the extent practicable, to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred in
the ordinary course of business. Fidelity CA Income also will deliver to
Fidelity CA Insured the number of full and fractional shares of Fidelity CA
Income having an aggregate net asset value equal to the value of the assets
of Fidelity CA Insured less the respective liabilities of Fidelity CA
Insured as of the Closing Date. Fidelity CA Insured shall then distribute
the Fidelity CA Income shares PRO RATA to its shareholders.
The value of Fidelity CA Insured's assets to be acquired by Fidelity CA
Income and the amount of its liabilities to be assumed by Fidelity CA
Income will be determined as of the close of business (4:00 p.m. Eastern
time) of Fidelity CA Insured on the Closing Date, using the valuation
procedures set forth in Fidelity CA Insured's then-current Prospectus and
Statement of Additional Information. The net asset value of a share of
Fidelity CA Income will be determined as of the same time using the
valuation procedures set forth in its then-current Prospectus and Statement
of Additional Information.
As of the Closing Date, Fidelity CA Insured will distribute to its
shareholders of record the shares of Fidelity CA Income it received, so
that each Fidelity CA Insured shareholder will receive the number of full
and fractional shares of Fidelity CA Income equal in value to the aggregate
net asset value of shares of Fidelity CA Insured held by such shareholder
on the Closing Date; Fidelity CA Insured will be liquidated as soon as
practicable thereafter. Such distribution will be accomplished by opening
accounts on the books of Fidelity CA Income in the names of the Fidelity CA
Insured shareholders and by transferring thereto shares of Fidelity CA
Income. Each Fidelity CA Insured shareholder's account shall be credited
with the respective PRO RATA number of full and fractional shares (rounded
to the third decimal place) of Fidelity CA Income due that shareholder.
Fidelity CA Income shall not issue certificates representing its shares in
connection with such exchange.
Accordingly, immediately after the Reorganization, each former Fidelity CA
Insured shareholder will own shares of Fidelity CA Income equal to the
aggregate net asset value of that shareholder's shares of Fidelity CA
Insured immediately prior to the Reorganization. The net asset value per
share of Fidelity CA Income will be unchanged by the transaction. Thus, the
Reorganization will not result in a dilution of any shareholder interest.
Any transfer taxes payable upon issuance of shares of Fidelity CA Income
in a name other than that of the registered holder of the shares on the
books of Fidelity CA Insured as of that time shall be paid by the person to
whom such shares are to be issued as a condition of such transfer. Any
reporting responsibility of Fidelity CA Insured is and will continue to be
its responsibility up to and including the Closing Date and such later date
on which Fidelity CA Insured is liquidated.
Pursuant to FMR's management contract with Fidelity CA Insured and
Fidelity CA Income, any merger-related expenses directly attributable to
Fidelity CA Insured or Fidelity CA Income will be borne by the individual
fund which incurs them. There may be some transaction costs associated with
portfolio adjustments to Fidelity CA Insured and Fidelity CA Income due to
the the Reorganization prior to the Closing Date which will be borne by
Fidelity CA Insured and Fidelity CA Income, respectively. Any transaction
costs associated with portfolio adjustments to Fidelity CA Insured and
Fidelity CA Income due to the Reorganization which occur after the Closing
Date will be borne by Fidelity CA Income. The funds may recognize a taxable
gain or loss on the disposition of securities pursuant to these portfolio
adjustments. See the section entitled "Reasons for the Reorganization."
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by a
fund. In addition, the Agreement may be amended in any mutually agreeable
manner, except that no amendment that may have a materially adverse effect
on the shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Board of Trustees (the Board) of the funds have determined that the
Reorganization is in the best interests of the shareholders of both funds
and that the Reorganization will not result in a dilution of the interests
of shareholders of either Fund.
In considering the Reorganization, the Board considered a number of
factors, including the following:
(1) the compatibility of the funds' investment objectives and policies;
(2) the historical performance of the funds;
(3) the relative expense ratios of the funds;
(4) the costs to be incurred by each fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) the relative size of the funds;
(7) the elimination of duplicative funds;
(8) the impact of changes to the municipal bond product line on the funds
and their shareholders; and
(9) the benefit to FMR.
FMR recommended the Reorganization to the Board at a meeting of the Board
on February 20, 1997. In recommending the Reorganization, FMR also advised
the Board that the funds have identical investment objectives and similar
policies and permissible investments. In particular, at that time FMR
informed the Board that the funds differed primarily with respect to their
level of holdings in insured bonds. FMR subsequently noted to the Board
that changes to the funds with respect to minimum investments have been
made.
The Board also considered that former shareholders of Fidelity CA Insured
will receive shares of Fidelity CA Income equal to the value of their
shares of Fidelity CA Insured. In addition, the funds will receive an
opinion of counsel that, except with respect to Section 1256 contracts, the
Reorganization will not result in any gain or loss for Federal income tax
purposes either to Fidelity CA Insured or Fidelity CA Income or to the
shareholders of either fund.
Furthermore, on February 20, 1997, the Board considered that combining the
funds would result in an immediate benefit to shareholders by lowering
expenses, as a percentage of net assets, by approximately 0.07% for
shareholders of Fidelity CA Insured and approximately 0.05% for
shareholders of Fidelity CA Income (based on total fund operating expenses
for the 12 months ended December 31, 1996), following the effective date of
the Reorganization. Subsequently, FMR informed the Board that effective
April 1, 1997, it would voluntarily agree to reimburse Fidelity CA
Insured's and Fidelity CA Income's total operating expenses to the extent
that they exceeded 0.55% of average net assets. FMR also represented to the
Board that it would guarantee an expense ratio of 0.53% for the surviving
fund (excluding interest, taxes, brokerage commissions and extraordinary
expenses) through December 31, 1999, resulting in a 0.02% savings to
shareholders of both Fidelity CA Insured and Fidelity CA Income, if the
Reorganization is approved. FMR informed the Board that any expenses
associated with the Reorganization, including professional fees and the
costs of proxy solicitation, directly attributable to Fidelity CA Insured
or Fidelity CA Income would be borne by the individual fund which incurred
them, provided they do not exceed the funds' 0.55% expense caps. FMR
further informed the Board that although the funds would bear any costs (as
described above) associated with portfolio adjustments resulting from the
Reorganization, FMR believed that such costs would be counterbalanced by
the reduction in the expense ratio for both funds.
Finally, the Board considered the proposed Reorganization in the context
of a general goal of reducing the number of duplicative funds managed by
FMR. While the reduction of duplicative funds and funds with lower assets
potentially would benefit FMR, it also should benefit shareholders by
facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fidelity California Municipal Trust (the trust) is registered with the
Securities and Exchange Commission (the Commission) as an open-end
management investment company. The trust's Trustees are authorized to issue
an unlimited number of shares of beneficial interest of separate series.
Fidelity CA Income is one of four funds of the trust. Each share of
Fidelity CA Income represents an equal proportionate interest with each
other share of the fund, and each such share of Fidelity CA Income is
entitled to equal voting, dividend, liquidation, and redemption rights.
Each shareholder of the fund is entitled to one vote for each dollar value
of net asset value of the fund that shareholder owns. Shares of Fidelity CA
Income have no preemptive or conversion rights. The voting and dividend
rights, the right of redemption, and the privilege of exchange are
described in the fund's Prospectus. Shares are fully paid and
nonassessable, except as set forth in the fund's Statement of Additional
Information under the heading "Shareholder and Trustee Liability."
The trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless less than a majority of the Trustees holding office have
been elected by shareholders, at which time the Trustees then in office
will call a shareholder meeting for the election of Trustees. Under the
1940 Act, shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a Trustee by votes cast in
person or by proxy at a meeting called for that purpose. The Trustees are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any Trustee when requested in writing to do so
by the shareholders of record holding at least 10% of the trust's
outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Fidelity CA Insured's assets for Fidelity CA Income's
shares and the assumption of the liabilities of Fidelity CA Insured by
Fidelity CA Income is intended to qualify for federal income tax purposes
as a tax-free reorganization under the Code. With respect to the
Reorganization, the participating funds have received an opinion from
Kirkpatrick & Lockhart LLP, counsel to Fidelity CA Insured and Fidelity CA
Income, substantially to the effect that:
(i) The acquisition by Fidelity CA Income of all of the assets of
Fidelity CA Insured solely in exchange for Fidelity CA Income shares and
the assumption by Fidelity CA Income of Fidelity CA Insured's liabilities,
followed by the distribution by Fidelity CA Insured of Fidelity CA Income
shares to the shareholders of Fidelity CA Insured pursuant to the
liquidation of Fidelity CA Insured and constructively in exchange for their
Fidelity CA Insured shares, will constitute a reorganization within the
meaning of section 368(a)(1)(C) of the Code, and Fidelity CA Insured and
Fidelity CA Income will each be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized by Fidelity CA Insured upon the
transfer of all of its assets to Fidelity CA Income in exchange solely for
Fidelity CA Income shares and Fidelity CA Income's assumption of Fidelity
CA Insured's liabilities, followed by Fidelity CA Insured's subsequent
distribution of those shares to shareholders in liquidation of Fidelity CA
Insured;
(iii) No gain or loss will be recognized by Fidelity CA Income upon the
receipt of the assets of Fidelity CA Insured in exchange solely for
Fidelity CA Income shares and its assumption of Fidelity CA Insured's
liabilities;
(iv) The shareholders of Fidelity CA Insured will recognize no gain or
loss upon the exchange of their Fidelity CA Insured shares solely for
Fidelity CA Income shares;
(v) The basis of Fidelity CA Insured's assets in the hands of Fidelity CA
Income will be the same as the basis of those assets in the hands of
Fidelity CA Insured immediately prior to the Reorganization, and the
holding period of those assets in the hands of Fidelity CA Income will
include the holding period of those assets in the hands of Fidelity CA
Insured;
(vi) The basis of Fidelity CA Insured shareholders in Fidelity CA Income
shares will be the same as their basis in Fidelity CA Insured shares to be
surrendered in exchange therefor; and
(vii) The holding period of the Fidelity CA Income shares to be received
by the Fidelity CA Insured shareholders will include the period during
which the Fidelity CA Insured shares to be surrendered in exchange therefor
were held, provided such Fidelity CA Insured shares were held as capital
assets by those shareholders on the date of the Reorganization.
Shareholders of Fidelity CA Insured should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of
their individual circumstances. Because the foregoing discussion only
relates to the federal income tax consequences of the Reorganization, those
shareholders also should consult their tax advisers as to state and local
tax consequences, if any, of the Reorganization.
CAPITALIZATION
The following tables show the capitalization of the funds as of February
28, 1997 and on a pro forma combined basis (unaudited) as of that date
giving effect to the Reorganizations.
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING

Fidelity CA Insured $205,917,279 $10.35 19,890,562

Fidelity CA Income $485,897,915 $11.81 41,148,631

Pro Forma Combined Fund $691,815,194 $11.81 58,578,763

CONCLUSION
The Agreement and Plan of Reorganization and the transactions provided for
therein were approved by the Board at a meeting held on February 20, 1997.
The Board of Trustees of Fidelity California Municipal Trust determined
that the proposed Reorganization is in the best interests of shareholders
of each fund and that the interests of existing shareholders of Fidelity CA
Insured and Fidelity CA Income would not be diluted as a result of the
Reorganization. In the event that the Reorganization is not consummated,
Fidelity CA Insured will continue to engage in business as a fund of a
registered investment company and the Board of Fidelity California
Municipal Trust will consider other proposals for the reorganization or
liquidation of the fund.
ADDITIONAL INFORMATION ABOUT FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
Fidelity California Municipal Income Fund's Prospectus dated April 19,
1997, is enclosed with this Proxy Statement and is incorporated herein by
reference. The Prospectus contains additional information about the fund
including its investment objective and policies, investment adviser,
advisory fees and expenses, organization, and procedures for purchasing and
redeeming shares.

FINANCIAL HIGHLIGHTS
CALIFORNIA MUNICIPAL INCOME FUND

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

2.Years ended 1997 1996E 1995 1994F 1993D 1992C 1991C 1990C 1989C 1988C
February 28

3.Net asset value, beginning
of period $ 11.7 $ 11.1 $ 12.1 $ 12.4 $ 11.5 $ 11.3 $ 10.9 $ 11.0 $ 10.6 $ 10.9
20 20 00 30 40 00 40 80 20 50

4.Income from Investment
Operations .599 .625 .685 .719 .611 .744 .752 .756 .758 .760
Net interest income

5. Net realized and
unrealized gain (loss) .096 .597 (.830) (.060) .890 .240 .360 (.140) .460 (.270)

6. Total from .695 1.222 (.145) .659 1.501 .984 1.112 .616 1.218 .490
investment
operations

7.Less Distributions (.602) (.622) (.685) (.719) (.611) (.744) (.752) (.756) (.758) (.760)
From net interest
income

8. From net realized (.003) -- (.150) (.270) -- -- -- -- -- (.060)
gain

9. Total distributions (.605) (.622) (.835) (.989) (.611) (.744) (.752) (.756) (.758) (.820)

10.Net asset value, $ 11.8 $ 11.7 $ 11.1 $ 12.1 $ 12.4 $ 11.5 $ 11.3 $ 10.9 $ 11.0 $ 10.6
end of period 10 20 20 00 30 40 00 40 80 20

11.Total returnB 6.16 11.25 (.91) 5.41 13.40 8.94 10.44 5.61 11.85 4.72
% % % % % % % % % %

12.Net assets, end of period
(In millions) $ 486 $ 498 $ 477 $ 575 $ 587 $ 529 $ 524 $ 514 $ 494 $ 399

13.Ratio of expenses to
average net assets .57% .58% .56% .57% .60% .59% .58% .60% .61% .73%
A

14.Ratio of net interest income
to average net assets 5.19 5.44 6.16 5.78 6.17 6.52 6.71 6.73 7.05 7.15
% % % % % A % % % % %

15.Portfolio turnover rate 17% 37% 29% 44% 32% 23% 15% 34% 21% 52%
A

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C YEARS ENDED APRIL 30
D MAY 1, 1992 TO FEBRUARY 28, 1993
E YEAR ENDED FEBRUARY 29
F EFFECTIVE MARCH 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
MISCELLANEOUS
LEGAL MATTERS. Certain legal matters in connection with the issuance of
Fidelity CA Income shares will be passed upon by Kirkpatrick & Lockhart
LLP, counsel to the trust.
EXPERTS. The audited financial statements of Spartan CA Income, Spartan CA
Intermediate, Fidelity CA Insured, and Fidelity CA Income, incorporated by
reference into the Statements of Additional Information, have been examined
by Price Waterhouse LLP, independent accountants, whose reports thereon are
included in the Annual Reports to Shareholders for the fiscal year ended
February 28, 1997. The financial statements audited by Price Waterhouse LLP
have been incorporated by reference in reliance on their reports given on
their authority as experts in auditing and accounting.
AVAILABLE INFORMATION. Spartan CA Income, Spartan CA Intermediate, Fidelity
CA Insured, and Fidelity CA Income are each subject to the informational
requirements of the Securities and Exchange Act of 1934 and the 1940 Act,
and in accordance therewith file reports, proxy material, and other
information with the SEC. Such reports, proxy material, and other
information can be inspected and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington D.C. 20549 and
7 World Trade Center, New York, NY 10048. Copies of such material can also
be obtained from the Public Reference Branch Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington D.C.
20549, at prescribed rates.
Attachment 1
EXCERPTS FROM ANNUAL REPORT OF FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
DATED FEBRUARY 28, 1997
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED FEBRUARY 28, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

Fidelity California Municipal Income 6.16% 7.10% 6.68%

Lehman Brothers California Municipal 5.49% n/a n/a
Bond Index

California Municipal Debt Funds Average 4.81% 6.94% 6.67%

AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)

$10,000 OVER 10 YEARS
1987/02/28 10000.00 10000.00
1987/03/31 9928.89 9894.00
1987/04/30 9168.64 9397.52
1987/05/31 9030.60 9350.91
1987/06/30 9192.73 9625.45
1987/07/31 9297.32 9723.63
1987/08/31 9343.70 9745.51
1987/09/30 8839.66 9386.19
1987/10/31 8921.84 9419.42
1987/11/30 9133.43 9665.36
1987/12/31 9311.80 9805.60
1988/01/31 9756.04 10154.88
1988/02/29 9881.50 10262.22
1988/03/31 9562.47 10143.17
1988/04/30 9601.15 10220.26
1988/05/31 9640.37 10190.73
1988/06/30 9796.64 10339.82
1988/07/31 9854.18 10407.23
1988/08/31 9894.08 10416.39
1988/09/30 10109.48 10604.93
1988/10/31 10344.86 10791.57
1988/11/30 10226.16 10692.72
1988/12/31 10408.28 10802.11
1989/01/31 10553.08 11025.50
1989/02/28 10451.49 10899.70
1989/03/31 10436.14 10873.65
1989/04/30 10738.93 11131.79
1989/05/31 10966.42 11362.99
1989/06/30 11106.09 11517.30
1989/07/31 11206.73 11674.05
1989/08/31 11070.50 11559.76
1989/09/30 11084.77 11525.32
1989/10/31 11195.17 11666.27
1989/11/30 11369.23 11870.43
1989/12/31 11414.96 11967.53
1990/01/31 11335.13 11910.92
1990/02/28 11480.00 12016.93
1990/03/31 11505.39 12020.54
1990/04/30 11341.38 11933.51
1990/05/31 11613.96 12194.02
1990/06/30 11720.72 12301.20
1990/07/31 11901.84 12482.03
1990/08/31 11737.09 12300.79
1990/09/30 11783.67 12307.80
1990/10/31 11935.94 12531.07
1990/11/30 12163.21 12783.07
1990/12/31 12209.23 12838.67
1991/01/31 12320.09 13010.97
1991/02/28 12365.58 13124.16
1991/03/31 12379.13 13128.89
1991/04/30 12525.10 13303.50
1991/05/31 12649.53 13421.77
1991/06/30 12652.35 13408.48
1991/07/31 12811.84 13571.80
1991/08/31 12926.63 13750.54
1991/09/30 13065.19 13929.57
1991/10/31 13226.52 14054.94
1991/11/30 13228.49 14094.15
1991/12/31 13449.54 14396.61
1992/01/31 13521.98 14429.43
1992/02/29 13545.04 14434.05
1992/03/31 13537.66 14439.39
1992/04/30 13644.81 14567.90
1992/05/31 13814.63 14739.37
1992/06/30 14030.25 14986.69
1992/07/31 14464.75 15435.99
1992/08/31 14264.15 15285.49
1992/09/30 14336.93 15385.46
1992/10/31 14071.18 15234.22
1992/11/30 14399.42 15507.07
1992/12/31 14621.55 15665.39
1993/01/31 14796.09 15847.58
1993/02/28 15472.68 16420.79
1993/03/31 15289.18 16247.22
1993/04/30 15426.34 16411.15
1993/05/31 15516.13 16503.39
1993/06/30 15766.18 16778.83
1993/07/31 15766.16 16800.81
1993/08/31 16150.62 17150.60
1993/09/30 16354.82 17345.95
1993/10/31 16382.74 17379.42
1993/11/30 16213.59 17226.31
1993/12/31 16585.71 17589.96
1994/01/31 16773.43 17790.84
1994/02/28 16310.01 17330.05
1994/03/31 15475.95 16624.37
1994/04/30 15540.95 16765.35
1994/05/31 15647.95 16910.70
1994/06/30 15488.04 16807.38
1994/07/31 15803.70 17115.46
1994/08/31 15858.11 17174.68
1994/09/30 15614.79 16922.55
1994/10/31 15231.70 16622.01
1994/11/30 14857.60 16321.48
1994/12/31 15112.62 16680.72
1995/01/31 15654.16 17157.45
1995/02/28 16161.40 17656.39
1995/03/31 16327.39 17859.26
1995/04/30 16330.49 17880.34
1995/05/31 16878.67 18450.90
1995/06/30 16659.65 18290.38
1995/07/31 16811.99 18463.77
1995/08/31 17008.61 18697.89
1995/09/30 17160.04 18816.25
1995/10/31 17448.91 19089.84
1995/11/30 17795.94 19406.54
1995/12/31 18010.21 19593.03
1996/01/31 18119.84 19740.96
1996/02/29 17979.98 19607.71
1996/03/31 17705.43 19357.12
1996/04/30 17647.50 19302.34
1996/05/31 17634.86 19294.62
1996/06/30 17868.26 19504.74
1996/07/31 18042.50 19682.23
1996/08/31 18075.01 19677.51
1996/09/30 18325.21 19952.99
1996/10/31 18564.41 20178.66
1996/11/30 18960.59 20547.93
1996/12/31 18866.62 20461.63
1997/01/31 18900.42 20500.30
1997/02/28 19086.83 20688.50
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity California Municipal Income Fund on February 28, 1987. As the
chart shows, by February 28, 1997, the value of the investment would have
grown to $19,087 - a 90.87% increase on the initial investment. For
comparison, look at how the Lehman Brothers Municipal Bond Index, which
reflects the performance of the investment-grade municipal bond market, did
over the same period. With dividends and capital gains, if any, reinvested,
the same $10,000 would have grown to $20,688 - a 106.88% increase.

MARKET RECAP
Stable demand helped municipal
bonds perform better than their
investment-grade taxable
counterparts in the 12 months
ending February 28, 1997. However,
anticipation of short-term interest
rate increases by the Federal
Reserve Board negatively affected
all bonds. For the period, the
Lehman Brothers Municipal
Bond Index - a broad measure
of the municipal bond market - had
a total return of 5.51%. In
comparison, the Lehman Brothers
Aggregate Bond Index - a broad
measure of the performance of the
U.S. taxable bond market -
returned 5.35%. New issue supply
in the municipal market was strong
through the first half of the period,
but insurance companies and
individual investors helped sustain
demand. The diminishing likelihood of
significant tax reform in the near
future also helped support the muni
market. Like most domestic bonds,
munis were affected by signs of
strength in the economy in the first
half of 1996. Nevertheless, the
market conditions that supported the
muni market helped it enter the fall
trading at expensive levels relative
to its taxable counterparts. Munis
stalled because their rich valuations
inhibited demand and encouraged
selling. From December on, most
bond markets suffered from fears -
confirmed by Fed Chairman Alan
Greenspan's testimony before
Congress in late February - that
latent inflation pressures might
encourage the Fed to raise
short-term rates. Munis, however,
outperformed over the past few
months, in part because of a thin
supply of new issues.

An interview with Jonathan Short, Portfolio Manager of Fidelity California
Municipal Income Fund
Q. HOW DID THE FUND PERFORM, JON?
A. For the year ending February 28, 1997, the fund had a total return of
6.16%. For comparison purposes, the California municipal debt funds
average, as tracked by Lipper Analytical Services, returned 4.81%, and the
Lehman Brothers California Municipal Bond Index returned 5.49% for the same
one year period.
Q. WHAT TYPES OF BONDS DID WELL?
A. Baa-rated securities were some of the market's - and the fund's - best
performers and were a key reason why the fund fared better than many of its
competitors. The main driver for their strong returns was tightening credit
spreads - meaning lower-quality bonds' yields fell relative to
higher-quality bonds during the period. As a result, the prices of
lower-quality bonds generally performed better than higher-quality
securities. Toward the end of the period, I sold some of these Baa-rated
securities in order to lock in their gains. I would also point to
non-callable bonds, which can't be redeemed by their issuer prior to
maturity, as other winners during the past six months. When interest rates
fall, municipal issuers often call - or redeem - bonds before their
maturity and issue new bonds as a way to lower their interest costs.
Because the bond market experienced a small rally over the past six months,
non-callable bonds generally performed better than callable bonds.
Q. WHAT STRATEGIES DID YOU EMPLOY OVER THE PAST SIX MONTHS?
A. I focused on bonds with maturities in the intermediate range - those
with maturities of between five and 20 years - while keeping the fund's
holdings in shorter- and longer-term bonds light. I chose to emphasize
intermediate bonds because I believed that their expected total return was
greater than that of longer-maturity bonds. Additionally, I did not believe
that many longer-term securities offered enough additional yield to
compensate investors for their added interest rate sensitivity. All in all,
I felt that intermediate maturity bonds were attractive on a risk/return
basis.
Q. THERE HAS BEEN A LOT OF CONSOLIDATION IN THE HEALTH CARE SECTOR
RECENTLY. DID IT HAVE ANY EFFECT ON THE FUND?
A. Yes, it did. To the benefit of the fund, bonds issued by Sequoia
Hospital performed well when it was merged with Catholic Health Care West.
Additionally, our holdings in Eisenhower Hospital, issued by Rancho Mirage
Joint Powers Financing Authority, were advance refunded. With an advance
refunding, an issuer with existing bonds in the market will issue a second
set of bonds. Proceeds from this sale are then invested in high-quality
U.S. Treasury securities, and these Treasuries then secure the original
bonds until the call date.
Q. THE FUND'S STAKE IN GENERAL OBLIGATION BONDS (GOS) ISSUED BY THE STATE
HAS INCREASED OVER THE PAST SIX MONTHS. WHY WERE THESE SECURITIES
ATTRACTIVE?
A. GOs issued by the state are backed by its full faith and credit and are
repaid by general revenue, in contrast to revenue from a specific facility
or project built with borrowed funds. In my opinion the state's credit
worthiness has improved as its economy has rebounded. In fact, revenue
collections have improved to the point where estimates call for the state's
budget to post $1 billion more in revenues than originally projected.
Q. WHAT'S YOUR OUTLOOK?
A. From a supply and demand standpoint, I'm optimistic about municipals. I
don't expect to see a tremendous amount of new bonds issued. What increase
in supply we see likely will be easily digested if demand remains firm. How
municipals fare over the next year will depend heavily on the direction of
interest rates, but I don't think anyone can accurately pinpoint where
interest rates will be a year from now. That said, we may continue to see
some volatility in the bond market as long as there are conflicting signs
about the economy and inflation trends.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT DATED FEBRUARY 28, 1997.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.

JONATHAN SHORT ON
CALIFORNIA'S ECONOMY:
"The strength of California's
economic rebound is an
important component in the
overall performance of
California municipal bonds.
For a number of reasons, I am
optimistic about California's
economy. The first is
employment growth,
which continues to outpace
the nation as a whole.
Second, the state budget is
posting revenues well ahead
of projections, thanks mostly
to rising tax collections. Third,
the rebound has grown to be
more broad-based, with
Southern California finally
showing improvements after
lagging behind the northern
part of the state. Finally,
permits to build new houses
are up about 15% this year
and sales of existing homes
seem to have stabilized."
Attachment 2
ANNUAL FUND OPERATING EXPENSES FOR CERTAIN REORGANIZATIONS

IF JUST SPARTAN CA INCOME REORGANIZATION IS APPROVED:

SPARTAN CA FIDELITY CA PRO FORMA EXPENSES
INCOMEC INCOMEA COMBINED FUNDB

Management Fees 0.55% 0.37% 0.36%
(after reimbursement)

Other Expenses 0.00% 0.18% 0.17%

Total Fund 0.55% 0.55% 0.53%
Operating Expenses
(after reimbursement)

IF JUST SPARTAN CA INTERMEDIATE REORGANIZATION IS APPROVED:

SPARTAN CA FIDELITY CA PRO FORMA EXPENSES
INTERMEDIATEC INCOMEA COMBINED FUNDB

Management Fees 0.55% 0.37% 0.35%
(after reimbursement)

Other Expenses 0.00% 0.18% 0.18%

Total Fund 0.55% 0.55% 0.53%
Operating Expenses
(after reimbursement)

IF JUST FIDELITY CA INSURED REORGANIZATION IS APPROVED:

FIDELITY CA FIDELITY CA PRO FORMA EXPENSES
INSUREDA INCOMEA COMBINED FUNDB

Management Fees 0.34% 0.37% 0.35%
(after reimbursement)

Other Expenses 0.21% 0.18% 0.18%

Total Fund 0.55% 0.55% 0.53%
Operating Expenses
(after reimbursement)

IF JUST SPARTAN CA INCOME AND SPARTAN CA INTERMEDIATE REORGANIZATIONS ARE
APPROVED:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRO FORMA
SPARTAN CA SPARTAN CA FIDELITY CA EXPENSES
INCOMEC INTERMEDIATEC INCOMEA COMBINED FUNDB

Management Fees 0.55% 0.55% 0.37% 0.36%
(after
reimbursement)

Other Expenses 0.00% 0.00% 0.18% 0.17%

Total Fund 0.55% 0.55% 0.55% 0.53%
Operating Expenses
(after
reimbursement)
</TABLE>
A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses). If this agreement
were not in effect, the management fee, other expenses, and total fund
operating expenses, as a percentage of average net assets, would have been
0.39%, 0.18%, and 0.57%, respectively.
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999. If this
agreement were not in effect, the management fee, other expenses, and total
operating expenses, as a percentage of average net assets, would be 0.39%,
0.17%, and 0.56%, respectively.
C FMR has entered into arrangements on behalf of each fund with the fund's
custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce fund expenses. Including these reductions the
total operating expenses presented in the table would have been 0.54% for
each of Spartan CA Income and Spartan CA Intermediate.

IF JUST SPARTAN CA INCOME AND FIDELITY CA INSURED REORGANIZATIONS ARE
APPROVED:
PRO FORMA
SPARTAN CA FIDELITY CA FIDELITY CA EXPENSES
INCOMEC INSUREDA INCOMEA COMBINED FUNDB

Management Fees 0.55% 0.34% 0.37% 0.36%
(after
reimbursement)

Other Expenses 0.00% 0.21% 0.18% 0.17%

Total Fund 0.55% 0.55% 0.55% 0.53%
Operating Expenses
(after
reimbursement)

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses). If this agreement
were not in effect, the management fee, other expenses, and total fund
operating expenses, as a percentage of average net assets, would have been
0.39%, 0.21%, and 0.60%, respectively, for Fidelity CA Insured and 0.39%,
0.18%, and 0.57%, respectively for Fidelity CA Income.
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999. If this
agreement were not in effect, the management fee, other expenses, and total
operating expenses, as a percentage of average net assets, would be 0.39%,
0.17%, and 0.56%, respectively.
C FMR has entered into arrangements on behalf of the fund with the fund's
custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce fund expenses. Including these reductions the
total operating expenses presented in the table would have been 0.54%.

IF JUST SPARTAN CA INTERMEDIATE AND FIDELITY CA INSURED REORGANIZATIONS ARE
APPROVED:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRO FORMA
SPARTAN CA FIDELITY CA FIDELITY CA EXPENSES
INTERMEDIATEC INSUREDA INCOMEA COMBINED FUNDB

Management Fees 0.55% 0.34% 0.37% 0.36%
(after
reimbursement)

Other Expenses 0.00% 0.21% 0.18% 0.17%

Total Fund 0.55% 0.55% 0.55% 0.53%
Operating Expenses
(after
reimbursement)
</TABLE>
A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses). If this agreement
were not in effect, the management fee, other expenses, and total fund
operating expenses, as a percentage of average net assets, would have been
0.39%, 0.21%, and 0.60%, respectively, for Fidelity CA Insured and 0.39%,
0.18%, and 0.57%, respectively, for Fidelity CA Income.
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999. If this
agreement were not in effect, the management fee, other expenses, and total
operating expenses, as a percentage of average net assets, would be 0.39%,
0.17%, and 0.56%, respectively.
C FMR has entered into arrangements on behalf of the fund with the fund's
custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce fund expenses. Including these reductions the
total operating expenses presented in the table would have been 0.54%.
Attachment 3
EXAMPLES OF FUND EXPENSES FOR CERTAIN REORGANIZATIONS

IF JUST SPARTAN CA INCOME REORGANIZATION IS APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Spartan CA Income $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.

IF JUST SPARTAN CA INTERMEDIATE REORGANIZATION IS APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Spartan CA Intermediate $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.

IF JUST FIDELITY CA INSURED REORGANIZATION IS APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Fidelity CA InsuredA $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.

IF JUST SPARTAN CA INCOME AND SPARTAN CA INTERMEDIATE REORGANIZATIONS ARE
APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Spartan CA Income $6 $18 $31 $69

Spartan CA Intermediate $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.

IF JUST SPARTAN CA INCOME AND FIDELITY CA INSURED REORGANIZATIONS ARE
APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Spartan CA Income $6 $18 $31 $69

Fidelity CA InsuredA $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.

IF JUST SPARTAN CA INTERMEDIATE AND FIDELITY CA INSURED REORGANIZATIONS ARE
APPROVED:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS

Spartan CA Intermediate $6 $18 $31 $69

Fidelity CA InsuredA $6 $18 $31 $69

Fidelity CA IncomeA $6 $18 $31 $69

Combined FundB $5 $17 $30 $66

</TABLE>

A Effective April 1, 1997, FMR voluntarily agreed to reimburse the fund to
the extent that total operating expenses exceed 0.55% (excluding interest,
taxes, brokerage commissions and extraordinary expenses).
B FMR has agreed to limit the combined fund's total operating expenses to
0.53% of its average net assets (excluding interest, taxes, brokerage
commissions and extraordinary expenses) through December 31, 1999.
These examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. These examples
illustrate the effect of expenses, but are not meant to suggest actual or
expected costs, which may vary. The assumed return of 5% is not a
prediction of, and does not represent, actual or expected performance of
any fund.

Exhibit 1
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of
the 6th day of June, 1997 by and between Spartan California Municipal
Income Fund (Spartan CA Income) and Fidelity California Municipal Income
Fund (Fidelity CA Income), funds of Fidelity California Municipal Trust
(the trust). The trust is a duly organized business trust under the laws
of the Commonwealth of Massachusetts with its principal place of business
at 82 Devonshire Street, Boston, Massachusetts 02109. Spartan California
Municipal Income Fund and Fidelity California Municipal Income Fund may be
referred to herein collectively as the "funds" or each individually as the
"fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the Code). The reorganization will
comprise: (a) the transfer of all of the assets of Spartan CA Income to
Fidelity CA Income solely in exchange for shares of beneficial interest in
Fidelity CA Income (the Fidelity CA Income Shares) and the assumption by
Fidelity CA Income of Spartan CA Income's liabilities; and (b) the
constructive distribution of such shares by Spartan CA Income PRO RATA to
its shareholders in complete liquidation and termination of Spartan CA
Income in exchange for all of Spartan CA Income's outstanding shares.
Spartan CA Income shall receive shares of Fidelity CA Income having an
aggregate net asset value equal to the value of the assets of Spartan CA
Income on the Closing Date (as defined in Section 6), which Spartan CA
Income shall then distribute PRO RATA to its shareholders. The foregoing
transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SPARTAN CA INCOME. Spartan CA Income
represents and warrants to and agrees with Fidelity CA Income that:
(a) Spartan CA Income is a series of Fidelity California Municipal Trust,
a business trust duly organized, validly existing, and in good standing
under the laws of the Commonwealth of Massachusetts, and has the power to
own all of its properties and assets and to carry out its obligations under
this Agreement. It has all necessary federal, state, and local
authorizations to carry on its business as now being conducted and to carry
out this Agreement;
(b) Fidelity California Municipal Trust is an open-end, management
investment company duly registered under the Investment Company Act of
1940, as amended (the 1940 Act), and such registration is in full force and
effect;
(c) The Prospectus and Statement of Additional Information of Spartan CA
Income dated April 19, 1997, previously furnished to Fidelity CA Income,
did not and does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Spartan CA Income, threatened against
Spartan CA Income which assert liability on the part of Spartan CA Income.
Spartan CA Income knows of no facts which might form the basis for the
institution of such proceedings;
(e) Spartan CA Income is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Spartan CA Income, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Spartan CA
Income is a party or by which Spartan CA Income is bound or result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment or decree to which Spartan CA Income is a party or is
bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Spartan CA Income at
February 28, 1997, have been audited by Price Waterhouse LLP, independent
accountants, and have been furnished to Fidelity CA Income. Said Statements
of Assets and Liabilities and Schedule of Investments fairly present the
fund's financial position as of such date and said Statement of Operations,
Changes in Net Assets, and Financial Highlights fairly reflect its results
of operations, changes in financial position, and financial highlights for
the periods covered thereby in conformity with generally accepted
accounting principles consistently applied;
(g) Spartan CA Income has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of February 28, 1997 and those
incurred in the ordinary course of Spartan CA Income's business as an
investment company since February 28, 1997;
(h) The registration statement (Registration Statement) filed with the
Securities and Exchange Commission (Commission) by Fidelity California
Municipal Trust on Form N-14 relating to the shares of Fidelity CA Income
issuable hereunder and the proxy statement of Spartan CA Income included
therein (Proxy Statement), on the effective date of the Registration
Statement and insofar as they relate to Spartan CA Income (i) comply in all
material respects with the provisions of the Securities Act of 1933, as
amended (the 1933 Act), the Securities Exchange Act of 1934, as amended
(the 1934 Act), and the 1940 Act, and the rules and regulations thereunder,
and (ii) do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Closing Date, the prospectus
contained in the Registration Statement of which the Proxy Statement is a
part (the Prospectus), as amended or supplemented, insofar as it relates to
Spartan CA Income, does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading;
(i) All material contracts and commitments of Spartan CA Income (other
than this Agreement) will be terminated without liability to Spartan CA
Income prior to the Closing Date (other than those made in connection with
redemptions of shares and the purchase and sale of portfolio securities
made in the ordinary course of business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Spartan CA
Income of the transactions contemplated by this Agreement, except such as
have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and
state securities or blue sky laws (which term as used herein shall include
the District of Columbia and Puerto Rico);
(k) Spartan CA Income has filed or will file all federal and state tax
returns which, to the knowledge of Spartan CA Income's officers, are
required to be filed by Spartan CA Income and has paid or will pay all
federal and state taxes shown to be due on said returns or provision shall
have been made for the payment thereof, and, to the best of Spartan CA
Income's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(l) Spartan CA Income has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company for all
prior taxable years and intends to meet such requirements for its current
taxable year ending on the Closing Date;
(m) All of the issued and outstanding shares of Spartan CA Income are, and
at the Closing Date will be, duly and validly issued and outstanding and
fully paid and nonassessable as a matter of Massachusetts law (except as
disclosed in the fund's Statement of Additional Information), and have been
offered for sale and in conformity with all applicable federal securities
laws. All of the issued and outstanding shares of Spartan CA Income will,
at the Closing Date, be held by the persons and in the amounts set forth in
the list of shareholders submitted to Fidelity CA Income in accordance with
this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Spartan CA Income will have the full right, power, and
authority to sell, assign, transfer, and deliver its portfolio securities
and any other assets of Spartan CA Income to be transferred to Fidelity CA
Income pursuant to this Agreement. As of the Closing Date, subject only to
the delivery of Spartan CA Income's portfolio securities and any such other
assets as contemplated by this Agreement, Fidelity CA Income will acquire
Spartan CA Income's portfolio securities and any such other assets subject
to no encumbrances, liens, or security interests (except for those that may
arise in the ordinary course and are disclosed to Fidelity CA Income) and
without any restrictions upon the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Spartan CA Income, and this Agreement constitutes a
valid and binding obligation of Spartan CA Income enforceable in accordance
with its terms, subject to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF FIDELITY CA INCOME. Fidelity CA
Income represents and warrants to and agrees with Spartan CA Income that:
(a) Fidelity CA Income is a series of Fidelity California Municipal Trust,
a business trust duly organized, validly existing, and in good standing
under the laws of the Commonwealth of Massachusetts, and has the power to
own all of its properties and assets and to carry out its obligations under
this Agreement. It has all necessary federal, state, and local
authorizations to carry on its business as now being conducted and to carry
out this Agreement;
(b) Fidelity California Municipal Trust is an open-end, management
investment company duly registered under the 1940 Act, and such
registration is in full force and effect;
(c) The Prospectus and Statement of Additional Information of Fidelity CA
Income, dated April 19, 1997, previously furnished to Spartan CA Income did
not and does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Fidelity CA Income, threatened against
Fidelity CA Income which assert liability on the part of Fidelity CA
Income. Fidelity CA Income knows of no facts which might form the basis
for the institution of such proceedings;
(e) Fidelity CA Income is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Fidelity CA Income, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Fidelity CA
Income is a party or by which Fidelity CA Income is bound or result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which Fidelity CA Income is a party or is
bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Fidelity CA Income at
February 28, 1997, have been audited by Price Waterhouse LLP, independent
accountants, and have been furnished to Spartan CA Income. Said Statements
of Assets and Liabilities and Schedule of Investments fairly present its
financial position as of such date and said Statement of Operations,
Changes in Net Assets, and Financial Highlights fairly reflect its results
of operations, changes in financial position, and financial highlights for
the periods covered thereby in conformity with generally accepted
accounting principles consistently applied;
(g) Fidelity CA Income has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of February 28, 1997 and those
incurred in the ordinary course of Fidelity CA Income's business as an
investment company since February 28, 1997;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Fidelity CA
Income of the transactions contemplated by this Agreement, except such as
have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and
state securities or blue sky laws (which term as used herein shall include
the District of Columbia and Puerto Rico);
(i) Fidelity CA Income has filed or will file all federal and state tax
returns which, to the knowledge of Fidelity CA Income's officers, are
required to be filed by Fidelity CA Income and has paid or will pay all
federal and state taxes shown to be due on said returns or provision shall
have been made for the payment thereof, and, to the best of Fidelity CA
Income's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) Fidelity CA Income has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company for
all prior taxable years and intends to meet such requirements for its
current taxable year ending on February 28, 1998;
(k) As of the Closing Date, the shares of beneficial interest of Fidelity
CA Income to be issued to Spartan CA Income will have been duly authorized
and, when issued and delivered pursuant to this Agreement, will be legally
and validly issued and will be fully paid and nonassessable (except as
disclosed in the fund's Statement of Additional Information) by Fidelity CA
Income, and no shareholder of Fidelity CA Income will have any preemptive
right of subscription or purchase in respect thereof;
(l) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Fidelity CA Income, and this Agreement constitutes a
valid and binding obligation of Fidelity CA Income enforceable in
accordance with its terms, subject to approval by the shareholders of
Spartan CA Income;
(m) The Registration Statement and the Proxy Statement, on the effective
date of the Registration Statement and insofar as they relate to Fidelity
CA Income, (i) will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act, and the 1940 Act, and the rules and regulations
thereunder, and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 and on the Closing Date,
the Prospectus, as amended or supplemented, insofar as it relates to
Fidelity CA Income, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(n) The issuance of the Fidelity CA Income Shares pursuant to this
Agreement will be in compliance with all applicable federal securities
laws; and
(o) All of the issued and outstanding shares of beneficial interest of
Fidelity CA Income have been offered for sale and sold in conformity with
the federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Spartan CA
Income and to the other terms and conditions contained herein, Spartan CA
Income agrees to assign, sell, convey, transfer, and deliver to Fidelity CA
Income as of the Closing Date all of the assets of Spartan CA Income of
every kind and nature existing on the Closing Date. Fidelity CA Income
agrees in exchange therefor: (i) to assume all of Spartan CA Income's
liabilities existing on or after the Closing Date, whether or not
determinable on the Closing Date, and (ii) to issue and deliver to Spartan
CA Income the number of full and fractional shares of Fidelity CA Income
having an aggregate net asset value equal to the value of the assets of
Spartan CA Income transferred hereunder, less the value of the liabilities
of Spartan CA Income, determined as provided for under Section 4.
(b) The assets of Spartan CA Income to be acquired by Fidelity CA Income
shall include, without limitation, all cash, cash equivalents, securities,
receivables (including interest or dividends receivable), claims, choses in
action, and other property owned by Spartan CA Income, and any deferred or
prepaid expenses shown as an asset on the books of Spartan CA Income on the
Closing Date. Spartan CA Income will pay or cause to be paid to Fidelity CA
Income any dividend or interest payments received by it on or after the
Closing Date with respect to the assets transferred to Fidelity CA Income
hereunder, and Fidelity CA Income will retain any dividend or interest
payments received by it after the Valuation Time with respect to the assets
transferred hereunder without regard to the payment date thereof.
(c) The liabilities of Spartan CA Income to be assumed by Fidelity CA
Income shall include (except as otherwise provided for herein) all of
Spartan CA Income's liabilities, debts, obligations, and duties, of
whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business,
whether or not determinable on the Closing Date, and whether or not
specifically referred to in this Agreement. Notwithstanding the foregoing,
Spartan CA Income agrees to use its best efforts to discharge all of its
known liabilities prior to the Closing Date, other than liabilities
incurred in the ordinary course of business.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable (the Liquidation Date), Spartan CA Income will
constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the Fidelity CA
Income Shares in exchange for such shareholders' shares of beneficial
interest in Spartan CA Income and Spartan CA Income will be liquidated in
accordance with Spartan CA Income's Amended and Restated Declaration of
Trust. Such distribution shall be accomplished by the funds' transfer
agent opening accounts on Fidelity CA Income's share transfer books in the
names of the Spartan CA Income shareholders and transferring the Fidelity
CA Income Shares thereto. Each Spartan CA Income shareholder's account
shall be credited with the respective PRO RATA number of full and
fractional (rounded to the third decimal place) Fidelity CA Income Shares
due that shareholder. All outstanding Spartan CA Income shares, including
any represented by certificates, shall simultaneously be canceled on
Spartan CA Income's share transfer records. Fidelity CA Income shall not
issue certificates representing the Fidelity CA Income Shares in connection
with the Reorganization.
(e) Any reporting responsibility of Spartan CA Income is and shall remain
its responsibility up to and including the date on which it is terminated.

(f) Any transfer taxes payable upon issuance of the Fidelity CA Income
Shares in a name other than that of the registered holder on Spartan CA
Income's books of the Spartan CA Income shares constructively exchanged for
the Fidelity CA Income Shares shall be paid by the person to whom such
Fidelity CA Income Shares are to be issued, as a condition of such
transfer.
4. VALUATION.
(a) The Valuation Time shall be 4:00 p.m. Eastern time on the Closing
Date, or such other date as may be mutually agreed upon in writing by the
parties hereto (the Valuation Time).
(b) As of the Closing Date, Fidelity CA Income will deliver to Spartan CA
Income the number of Fidelity CA Income Shares having an aggregate net
asset value equal to the value of the assets of Spartan CA Income
transferred hereunder less the liabilities of Spartan CA Income, determined
as provided in this Section 4.
(c) The net asset value per share of the Fidelity CA Income Shares to be
delivered to Spartan CA Income, the value of the assets of Spartan CA
Income transferred hereunder, and the value of the liabilities of Spartan
CA Income to be assumed hereunder shall in each case be determined as of
the Valuation Time.
(d) The net asset value per share of the Fidelity CA Income Shares shall
be computed in the manner set forth in the then-current Fidelity CA Income
Prospectus and Statement of Additional Information, and the value of the
assets and liabilities of Spartan CA Income shall be computed in the manner
set forth in the then-current Spartan CA Income Prospectus and Statement of
Additional Information.
(e) All computations pursuant to this Section shall be made by or under
the direction of Fidelity Service Company, Inc., a wholly owned subsidiary
of FMR Corp., in accordance with its regular practice as pricing agent for
Spartan CA Income and Fidelity CA Income.
5. FEES; EXPENSES.
(a) Pursuant to Spartan CA Income's all-inclusive management contract with
Fidelity Management & Research Company (FMR), FMR will pay all fees and
expenses, including legal, accounting, printing, filing, and proxy
solicitation expenses, portfolio transfer taxes (if any), or other similar
expenses incurred in connection with the transactions contemplated by this
Agreement (but not including costs incurred in connection with the purchase
or sale of portfolio securities). Any merger-related expenses which may be
attributable to Fidelity CA Income will be borne by Fidelity CA Income.
(b) Each of Fidelity CA Income and Spartan CA Income represents that there
is no person who has dealt with it who by reason of such dealings is
entitled to any broker's or finder's or other similar fee or commission
arising out of the transactions contemplated by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to consummate
the same (the Closing), unless otherwise provided herein, shall occur at
the principal office of the Trust, 82 Devonshire Street, Boston,
Massachusetts, as of the Valuation Time on August 14, 1997, or at some
other time, date, and place agreed to by Spartan CA Income and Fidelity CA
Income (the Closing Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the funds is closed to trading, or (ii) trading thereon
is restricted, or (iii) trading or the reporting of trading on said market
or elsewhere is disrupted, all so that accurate appraisal of the total net
asset value of Spartan CA Income and the net asset value per share of
Fidelity CA Income is impracticable, the Valuation Time and the Closing
Date shall be postponed until the first business day after the day when
such trading shall have been fully resumed and such reporting shall have
been restored, or such other date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF SPARTAN CA INCOME.
(a) Spartan CA Income agrees to call a meeting of its shareholders after
the effective date of the Registration Statement, to consider transferring
its assets to Fidelity CA Income as herein provided, adopting this
Agreement, and authorizing the liquidation of Spartan CA Income.
(b) Spartan CA Income agrees that as soon as reasonably practicable after
distribution of the Fidelity CA Income Shares, Spartan CA Income shall be
terminated as a series of Fidelity California Municipal Trust pursuant to
its Amended and Restated Declaration of Trust, any further actions shall be
taken in connection therewith as required by applicable law, and on and
after the Closing Date Spartan CA Income shall not conduct any business
except in connection with its liquidation and termination.
8. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INCOME.
(a) That Spartan CA Income furnishes to Fidelity CA Income a statement,
dated as of the Closing Date, signed by an officer of Fidelity California
Municipal Trust, certifying that as of the Valuation Time and the Closing
Date all representations and warranties of Spartan CA Income made in this
Agreement are true and correct in all material respects and that Spartan CA
Income has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such
dates;
(b) That Spartan CA Income furnishes Fidelity CA Income with copies of the
resolutions, certified by an officer of Fidelity California Municipal
Trust, evidencing the adoption of this Agreement and the approval of the
transactions contemplated herein by the requisite vote of the holders of
the outstanding shares of beneficial interest of Spartan CA Income;

(c) That, on or prior to the Closing Date, Spartan CA Income will declare
one or more dividends or distributions which, together with all previous
such dividends or distributions attributable to its current taxable year,
shall have the effect of distributing to the shareholders of Spartan CA
Income substantially all of Spartan CA Income's investment company taxable
income and all of its net realized capital gain, if any, as of the Closing
Date;
(d) That Spartan CA Income shall deliver to Fidelity CA Income at the
Closing a statement of its assets and liabilities, together with a list of
its portfolio securities showing each such security's adjusted tax basis
and holding period by lot, with values determined as provided in Section 4
of this Agreement, all as of the Valuation Time, certified on Spartan CA
Income's behalf by its Treasurer or Assistant Treasurer;
(e) That Spartan CA Income's custodian shall deliver to Fidelity CA Income
a certificate identifying the assets of Spartan CA Income held by such
custodian as of the Valuation Time on the Closing Date and stating that as
of the Valuation Time: (i) the assets held by the custodian will be
transferred to Fidelity CA Income; (ii) Spartan CA Income's assets have
been duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof; and (iii) to the best of the custodian's
knowledge, all necessary taxes in conjunction with the delivery of the
assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made;
(f) That Spartan CA Income's transfer agent shall deliver to Fidelity CA
Income at the Closing a certificate setting forth the number of shares of
Spartan CA Income outstanding as of the Valuation Time and the name and
address of each holder of record of any such shares and the number of
shares held of record by each such shareholder;
(g) That Spartan CA Income calls a meeting of its shareholders to be held
after the effective date of the Registration Statement, to consider
transferring its assets to Fidelity CA Income as herein provided, adopting
this Agreement, and authorizing the liquidation and termination of Spartan
CA Income;
(h) That Spartan CA Income delivers to Fidelity CA Income a certificate of
an officer of Fidelity California Municipal Trust, dated as of the Closing
Date, that there has been no material adverse change in Spartan CA Income's
financial position since February 28, 1997, other than changes in the
market value of its portfolio securities, or changes due to net redemptions
of its shares, dividends paid, or losses from operations; and
(i) That all of the issued and outstanding shares of beneficial interest
of Spartan CA Income shall have been offered for sale and sold in
conformity with all applicable state securities laws and, to the extent
that any audit of the records of Spartan CA Income or its transfer agent by
Fidelity CA Income or its agents shall have revealed otherwise, Spartan CA
Income shall have taken all actions that in the opinion of Fidelity CA
Income are necessary to remedy any prior failure on the part of Spartan CA
Income to have offered for sale and sold such shares in conformity with
such laws.
9. CONDITIONS TO OBLIGATIONS OF SPARTAN CA INCOME.
(a) That Fidelity CA Income shall have executed and delivered to Spartan
CA Income an Assumption of Liabilities, certified by an officer of Fidelity
California Municipal Trust, dated as of the Closing Date pursuant to which
Fidelity CA Income will assume all of the liabilities of Spartan CA Income
existing at the Valuation Time in connection with the transactions
contemplated by this Agreement;
(b) That Fidelity CA Income furnishes to Spartan CA Income a statement,
dated as of the Closing Date, signed by an officer of Fidelity California
Municipal Trust, certifying that as of the Valuation Time and the Closing
Date all representations and warranties of Fidelity CA Income made in this
Agreement are true and correct in all material respects, and Fidelity CA
Income has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such
dates; and
(c) That Spartan CA Income shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to Spartan CA Income and Fidelity CA Income, to the
effect that the Fidelity CA Income Shares are duly authorized and upon
delivery to Spartan CA Income as provided in this Agreement will be validly
issued and will be fully paid and nonassessable by Fidelity CA Income
(except as disclosed in Spartan CA Income's Statement of Additional
Information) and no shareholder of Fidelity CA Income has any preemptive
right of subscription or purchase in respect thereof.
10. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INCOME AND SPARTAN CA INCOME.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of the
holders of the outstanding shares of beneficial interest of Spartan CA
Income;
(b) That all consents of other parties and all other consents, orders, and
permits of federal, state, and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no action" positions of such federal or state authorities)
deemed necessary by Fidelity CA Income or Spartan CA Income to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of Fidelity CA Income or Spartan CA
Income, provided that either party hereto may for itself waive any of such
conditions;
(c) That all proceedings taken by either fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to it and its counsel,
Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Fidelity CA Income and Spartan CA
Income, threatened by the Commission; and
(f) That Fidelity CA Income and Spartan CA Income shall have received an
opinion of Kirkpatrick & Lockhart LLP satisfactory to Fidelity CA Income
and Spartan CA Income that for federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Spartan CA Income and Fidelity CA Income
will each be parties to the Reorganization under section 368(b) of the
Code;
(ii) No gain or loss will be recognized by Spartan CA Income upon the
transfer of all of its assets to Fidelity CA Income in exchange solely for
the Fidelity CA Income Shares and the assumption of Spartan CA Income's
liabilities followed by the distribution of those Fidelity CA Income Shares
to the shareholders of Spartan CA Income in liquidation of Spartan CA
Income;
(iii) No gain or loss will be recognized by Fidelity CA Income on the
receipt of Spartan CA Income's assets in exchange solely for the Fidelity
CA Income Shares and the assumption of Spartan CA Income's liabilities;
(iv) The basis of Spartan CA Income's assets in the hands of Fidelity CA
Income will be the same as the basis of such assets in Spartan CA Income's
hands immediately prior to the Reorganization;
(v) Fidelity CA Income's holding period in the assets to be received from
Spartan CA Income will include Spartan CA Income's holding period in such
assets;
(vi) A Spartan CA Income shareholder will recognize no gain or loss on
the exchange of his or her shares of beneficial interest in Spartan CA
Income for the Fidelity CA Income Shares in the Reorganization;
(vii) A Spartan CA Income shareholder's basis in the Fidelity CA Income
Shares to be received by him or her will be the same as his or her basis in
the Spartan CA Income shares exchanged therefor;
(viii) A Spartan CA Income shareholder's holding period for his or her
Fidelity CA Income Shares will include the holding period of Spartan CA
Income shares exchanged, provided that those Spartan CA Income shares were
held as capital assets on the date of the Reorganization.

Notwithstanding anything herein to the contrary, each of Spartan CA Income
and Fidelity CA Income may not waive the conditions set forth in this
subsection 10(f).
11. COVENANTS OF FIDELITY CA INCOME AND SPARTAN CA INCOME.
(a) Fidelity CA Income and Spartan CA Income each covenants to operate its
respective business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include the payment of customary dividends and distributions;
(b) Spartan CA Income covenants that it is not acquiring the Fidelity CA
Income Shares for the purpose of making any distribution other than in
accordance with the terms of this Agreement;
(c) Spartan CA Income covenants that it will assist Fidelity CA Income in
obtaining such information as Fidelity CA Income reasonably requests
concerning the beneficial ownership of Spartan CA Income's shares; and
(d) Spartan CA Income covenants that its liquidation and termination will
be effected in the manner provided in its Amended and Restated Declaration
of Trust in accordance with applicable law and after the Closing Date,
Spartan CA Income will not conduct any business except in connection with
its liquidation and termination.
12. TERMINATION; WAIVER.
Fidelity CA Income and Spartan CA Income may terminate this Agreement by
mutual agreement. In addition, either Fidelity CA Income or Spartan CA
Income may at its option terminate this Agreement at or prior to the
Closing Date because:
(i) of a material breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date;
or
(ii) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Spartan CA Income or Fidelity CA Income, or their
respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may
not be changed except by a letter of agreement signed by each party hereto
and shall be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Fidelity CA Income or
Spartan CA Income; provided, however, that following the shareholders'
meeting called by Spartan CA Income pursuant to Section 7 of this
Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Fidelity CA Income Shares to be paid to
Spartan CA Income shareholders under this Agreement to the detriment of
such shareholders without their further approval.
(c) Either fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on the
interests of such fund's shareholders.
The representations, warranties, and covenants contained in the Agreement,
or in any document delivered pursuant hereto or in connection herewith,
shall survive the consummation of the transactions contemplated hereunder.

14. DECLARATIONS OF TRUST.
A copy of the Declaration of Trust of each fund, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed
on behalf of the Trustees of each fund as trustees and not individually and
that the obligations of each Fund under this instrument are not binding
upon any of such fund's Trustees, officers, or shareholders individually
but are binding only upon the assets and property of such fund. Each fund
agrees that its obligations hereunder apply only to such fund and not to
its shareholders individually or to the Trustees of such fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
of any rights or obligations hereunder shall be made by any party without
the written consent of the other parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any
person, firm, or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by an appropriate officer.
SIGNATURE LINES OMITTED

Exhibit 2
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of
the 6th day of June, 1997 by and between Spartan California Intermediate
Municipal Income Fund (Spartan CA Intermediate) and Fidelity California
Municipal Income Fund (Fidelity CA Income), funds of Fidelity California
Municipal Trust (the trust). The trust is a duly organized business trust
under the laws of the Commonwealth of Massachusetts with its principal
place of business at 82 Devonshire Street, Boston, Massachusetts 02109.
Spartan California Intermediate Municipal Income Fund and Fidelity
California Municipal Income Fund may be referred to herein collectively as
the "funds" or each individually as the "fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the Code). The reorganization will
comprise: (a) the transfer of all of the assets of Spartan CA
Intermediate to Fidelity CA Income solely in exchange for shares of
beneficial interest in Fidelity CA Income (the Fidelity CA Income Shares)
and the assumption by Fidelity CA Income of Spartan CA Intermediate's
liabilities; and (b) the constructive distribution of such shares by
Spartan CA Intermediate PRO RATA to its shareholders in complete
liquidation and termination of Spartan CA Intermediate in exchange for all
of Spartan CA Intermediate's outstanding shares. Spartan CA Intermediate
shall receive shares of Fidelity CA Income having an aggregate net asset
value equal to the value of the assets of Spartan CA Intermediate on the
Closing Date (as defined in Section 6), which Spartan CA Intermediate shall
then distribute PRO RATA to its shareholders. The foregoing transactions
are referred to herein as the "Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SPARTAN CA INTERMEDIATE. Spartan CA
Intermediate represents and warrants to and agrees with Fidelity CA Income
that:
(a) Spartan CA Intermediate is a series of Fidelity California Municipal
Trust, a business trust duly organized, validly existing, and in good
standing under the laws of the Commonwealth of Massachusetts, and has the
power to own all of its properties and assets and to carry out its
obligations under this Agreement. It has all necessary federal, state, and
local authorizations to carry on its business as now being conducted and to
carry out this Agreement;
(b) Fidelity California Municipal Trust is an open-end, management
investment company duly registered under the Investment Company Act of
1940, as amended (the 1940 Act), and such registration is in full force and
effect;
(c) The Prospectus and Statement of Additional Information of Spartan CA
Intermediate dated April 19, 1997, previously furnished to Fidelity CA
Income, did not and does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Spartan CA Intermediate, threatened against
Spartan CA Intermediate which assert liability on the part of Spartan CA
Intermediate. Spartan CA Intermediate knows of no facts which might form
the basis for the institution of such proceedings;
(e) Spartan CA Intermediate is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Spartan CA Intermediate, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Spartan CA
Intermediate is a party or by which Spartan CA Intermediate is bound or
result in the acceleration of any obligation or the imposition of any
penalty under any agreement, judgment or decree to which Spartan CA
Intermediate is a party or is bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Spartan CA
Intermediate at February 28, 1997, have been audited by Price Waterhouse
LLP, independent accountants, and have been furnished to Fidelity CA
Income. Said Statements of Assets and Liabilities and Schedule of
Investments fairly present the fund's financial position as of such date
and said Statement of Operations, Changes in Net Assets, and Financial
Highlights fairly reflect its results of operations, changes in financial
position, and financial highlights for the periods covered thereby in
conformity with generally accepted accounting principles consistently
applied;
(g) Spartan CA Intermediate has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of February 28, 1997 and those
incurred in the ordinary course of Spartan CA Intermediate's business as an
investment company since February 28, 1997;
(h) The registration statement (Registration Statement) filed with the
Securities and Exchange Commission (Commission) by Fidelity California
Municipal Trust on Form N-14 relating to the shares of Fidelity CA Income
issuable hereunder and the proxy statement of Spartan CA Intermediate
included therein (Proxy Statement), on the effective date of the
Registration Statement and insofar as they relate to Spartan CA
Intermediate (i) comply in all material respects with the provisions of the
Securities Act of 1933, as amended (the 1933 Act), the Securities Exchange
Act of 1934, as amended (the 1934 Act), and the 1940 Act, and the rules and
regulations thereunder, and (ii) do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7 and on the
Closing Date, the prospectus contained in the Registration Statement of
which the Proxy Statement is a part (the Prospectus), as amended or
supplemented, insofar as it relates to Spartan CA Intermediate, does not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
(i) All material contracts and commitments of Spartan CA Intermediate
(other than this Agreement) will be terminated without liability to Spartan
CA Intermediate prior to the Closing Date (other than those made in
connection with redemptions of shares and the purchase and sale of
portfolio securities made in the ordinary course of business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Spartan CA
Intermediate of the transactions contemplated by this Agreement, except
such as have been obtained under the 1933 Act, the 1934 Act, the 1940 Act,
and state securities or blue sky laws (which term as used herein shall
include the District of Columbia and Puerto Rico);
(k) Spartan CA Intermediate has filed or will file all federal and state
tax returns which, to the knowledge of Spartan CA Intermediate's officers,
are required to be filed by Spartan CA Intermediate and has paid or will
pay all federal and state taxes shown to be due on said returns or
provision shall have been made for the payment thereof, and, to the best of
Spartan CA Intermediate's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such returns;
(l) Spartan CA Intermediate has met the requirements of Subchapter M of
the Code for qualification and treatment as a regulated investment company
for all prior taxable years and intends to meet such requirements for its
current taxable year ending on the Closing Date;
(m) All of the issued and outstanding shares of Spartan CA Intermediate
are, and at the Closing Date will be, duly and validly issued and
outstanding and fully paid and nonassessable as a matter of Massachusetts
law (except as disclosed in the fund's Statement of Additional
Information), and have been offered for sale and in conformity with all
applicable federal securities laws. All of the issued and outstanding
shares of Spartan CA Intermediate will, at the Closing Date, be held by the
persons and in the amounts set forth in the list of shareholders submitted
to Fidelity CA Income in accordance with this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Spartan CA Intermediate will have the full right, power, and
authority to sell, assign, transfer, and deliver its portfolio securities
and any other assets of Spartan CA Intermediate to be transferred to
Fidelity CA Income pursuant to this Agreement. As of the Closing Date,
subject only to the delivery of Spartan CA Intermediate's portfolio
securities and any such other assets as contemplated by this Agreement,
Fidelity CA Income will acquire Spartan CA Intermediate's portfolio
securities and any such other assets subject to no encumbrances, liens, or
security interests (except for those that may arise in the ordinary course
and are disclosed to Fidelity CA Income) and without any restrictions upon
the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Spartan CA Intermediate, and this Agreement
constitutes a valid and binding obligation of Spartan CA Intermediate
enforceable in accordance with its terms, subject to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF FIDELITY CA INCOME. Fidelity CA
Income represents and warrants to and agrees with Spartan CA Intermediate
that:
(a) Fidelity CA Income is a series of Fidelity California Municipal Trust,
a business trust duly organized, validly existing, and in good standing
under the laws of the Commonwealth of Massachusetts, and has the power to
own all of its properties and assets and to carry out its obligations under
this Agreement. It has all necessary federal, state, and local
authorizations to carry on its business as now being conducted and to carry
out this Agreement;
(b) Fidelity California Municipal Trust is an open-end, management
investment company duly registered under the 1940 Act, and such
registration is in full force and effect;
(c) The Prospectus and Statement of Additional Information of Fidelity CA
Income, dated April 19, 1997, previously furnished to Spartan CA
Intermediate did not and does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Fidelity CA Income, threatened against
Fidelity CA Income which assert liability on the part of Fidelity CA
Income. Fidelity CA Income knows of no facts which might form the basis
for the institution of such proceedings;
(e) Fidelity CA Income is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Fidelity CA Income, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Fidelity CA
Income is a party or by which Fidelity CA Income is bound or result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which Fidelity CA Income is a party or is
bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Fidelity CA Income at
February 28, 1997, have been audited by Price Waterhouse LLP, independent
accountants, and have been furnished to Spartan CA Intermediate. Said
Statements of Assets and Liabilities and Schedule of Investments fairly
present its financial position as of such date and said Statement of
Operations, Changes in Net Assets, and Financial Highlights fairly reflect
its results of operations, changes in financial position, and financial
highlights for the periods covered thereby in conformity with generally
accepted accounting principles consistently applied;
(g) Fidelity CA Income has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of February 28, 1997 and those
incurred in the ordinary course of Fidelity CA Income's business as an
investment company since February 28, 1997;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Fidelity CA
Income of the transactions contemplated by this Agreement, except such as
have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and
state securities or blue sky laws (which term as used herein shall include
the District of Columbia and Puerto Rico);
(i) Fidelity CA Income has filed or will file all federal and state tax
returns which, to the knowledge of Fidelity CA Income's officers, are
required to be filed by Fidelity CA Income and has paid or will pay all
federal and state taxes shown to be due on said returns or provision shall
have been made for the payment thereof, and, to the best of Fidelity CA
Income's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) Fidelity CA Income has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company for
all prior taxable years and intends to meet such requirements for its
current taxable year ending on February 28, 1998;
(k) As of the Closing Date, the shares of beneficial interest of Fidelity
CA Income to be issued to Spartan CA Intermediate will have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued and will be fully paid and nonassessable
(except as disclosed in the fund's Statement of Additional Information) by
Fidelity CA Income, and no shareholder of Fidelity CA Income will have any
preemptive right of subscription or purchase in respect thereof;
(l) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Fidelity CA Income, and this Agreement constitutes a
valid and binding obligation of Fidelity CA Income enforceable in
accordance with its terms, subject to approval by the shareholders of
Spartan CA Intermediate;
(m) The Registration Statement and the Proxy Statement, on the effective
date of the Registration Statement and insofar as they relate to Fidelity
CA Income, (i) will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act, and the 1940 Act, and the rules and regulations
thereunder, and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 and on the Closing Date,
the Prospectus, as amended or supplemented, insofar as it relates to
Fidelity CA Income, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(n) The issuance of the Fidelity CA Income Shares pursuant to this
Agreement will be in compliance with all applicable federal securities
laws; and
(o) All of the issued and outstanding shares of beneficial interest of
Fidelity CA Income have been offered for sale and sold in conformity with
the federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Spartan CA
Intermediate and to the other terms and conditions contained herein,
Spartan CA Intermediate agrees to assign, sell, convey, transfer, and
deliver to Fidelity CA Income as of the Closing Date all of the assets of
Spartan CA Intermediate of every kind and nature existing on the Closing
Date. Fidelity CA Income agrees in exchange therefor: (i) to assume all
of Spartan CA Intermediate's liabilities existing on or after the Closing
Date, whether or not determinable on the Closing Date, and (ii) to issue
and deliver to Spartan CA Intermediate the number of full and fractional
shares of Fidelity CA Income having an aggregate net asset value equal to
the value of the assets of Spartan CA Intermediate transferred hereunder,
less the value of the liabilities of Spartan CA Intermediate, determined as
provided for under Section 4.
(b) The assets of Spartan CA Intermediate to be acquired by Fidelity CA
Income shall include, without limitation, all cash, cash equivalents,
securities, receivables (including interest or dividends receivable),
claims, choses in action, and other property owned by Spartan CA
Intermediate, and any deferred or prepaid expenses shown as an asset on the
books of Spartan CA Intermediate on the Closing Date. Spartan CA
Intermediate will pay or cause to be paid to Fidelity CA Income any
dividend or interest payments received by it on or after the Closing Date
with respect to the assets transferred to Fidelity CA Income hereunder, and
Fidelity CA Income will retain any dividend or interest payments received
by it after the Valuation Time with respect to the assets transferred
hereunder without regard to the payment date thereof.
(c) The liabilities of Spartan CA Intermediate to be assumed by Fidelity
CA Income shall include (except as otherwise provided for herein) all of
Spartan CA Intermediate's liabilities, debts, obligations, and duties, of
whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business,
whether or not determinable on the Closing Date, and whether or not
specifically referred to in this Agreement. Notwithstanding the foregoing,
Spartan CA Intermediate agrees to use its best efforts to discharge all of
its known liabilities prior to the Closing Date, other than liabilities
incurred in the ordinary course of business.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable (the Liquidation Date), Spartan CA Intermediate
will constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the Fidelity CA
Income Shares in exchange for such shareholders' shares of beneficial
interest in Spartan CA Intermediate and Spartan CA Intermediate will be
liquidated in accordance with Spartan CA Intermediate's Amended and
Restated Declaration of Trust. Such distribution shall be accomplished by
the funds' transfer agent opening accounts on Fidelity CA Income's share
transfer books in the names of the Spartan CA Intermediate shareholders and
transferring the Fidelity CA Income Shares thereto. Each Spartan CA
Intermediate shareholder's account shall be credited with the respective
PRO RATA number of full and fractional (rounded to the third decimal place)
Fidelity CA Income Shares due that shareholder. All outstanding Spartan CA
Intermediate shares, including any represented by certificates, shall
simultaneously be canceled on Spartan CA Intermediate's share transfer
records. Fidelity CA Income shall not issue certificates representing the
Fidelity CA Income Shares in connection with the Reorganization.
(e) Any reporting responsibility of Spartan CA Intermediate is and shall
remain its responsibility up to and including the date on which it is
terminated.
(f) Any transfer taxes payable upon issuance of the Fidelity CA Income
Shares in a name other than that of the registered holder on Spartan CA
Intermediate's books of the Spartan CA Intermediate shares constructively
exchanged for the Fidelity CA Income Shares shall be paid by the person to
whom such Fidelity CA Income Shares are to be issued, as a condition of
such transfer.
4. VALUATION.
(a) The Valuation Time shall be 4:00 p.m. Eastern time on the Closing
Date, or such other date as may be mutually agreed upon in writing by the
parties hereto (the Valuation Time).
(b) As of the Closing Date, Fidelity CA Income will deliver to Spartan CA
Intermediate the number of Fidelity CA Income Shares having an aggregate
net asset value equal to the value of the assets of Spartan CA Intermediate
transferred hereunder less the liabilities of Spartan CA Intermediate,
determined as provided in this Section 4.
(c) The net asset value per share of the Fidelity CA Income Shares to be
delivered to Spartan CA Intermediate, the value of the assets of Spartan CA
Intermediate transferred hereunder, and the value of the liabilities of
Spartan CA Intermediate to be assumed hereunder shall in each case be
determined as of the Valuation Time.
(d) The net asset value per share of the Fidelity CA Income Shares shall
be computed in the manner set forth in the then-current Fidelity CA Income
Prospectus and Statement of Additional Information, and the value of the
assets and liabilities of Spartan CA Intermediate shall be computed in the
manner set forth in the then-current Spartan CA Intermediate Prospectus and
Statement of Additional Information.
(e) All computations pursuant to this Section shall be made by or under
the direction of Fidelity Service Company, Inc., a wholly owned subsidiary
of FMR Corp., in accordance with its regular practice as pricing agent for
Spartan CA Intermediate and Fidelity CA Income.
5. FEES; EXPENSES.
(a) Pursuant to Spartan CA Intermediate's all-inclusive management
contract with Fidelity Management & Research Company (FMR), FMR will pay
all fees and expenses, including legal, accounting, printing, filing, and
proxy solicitation expenses, portfolio transfer taxes (if any), or other
similar expenses incurred in connection with the transactions contemplated
by this Agreement (but not including costs incurred in connection with the
purchase or sale of portfolio securities). Any merger-related expenses
which may be attributable to Fidelity CA Income will be borne by Fidelity
CA Income.
(b) Each of Fidelity CA Income and Spartan CA Intermediate represents that
there is no person who has dealt with it who by reason of such dealings is
entitled to any broker's or finder's or other similar fee or commission
arising out of the transactions contemplated by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to consummate
the same (the Closing), unless otherwise provided herein, shall occur at
the principal office of the Trust, 82 Devonshire Street, Boston,
Massachusetts, as of the Valuation Time on August 21, 1997, or at some
other time, date, and place agreed to by Spartan CA Intermediate and
Fidelity CA Income (the Closing Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the funds is closed to trading, or (ii) trading thereon
is restricted, or (iii) trading or the reporting of trading on said market
or elsewhere is disrupted, all so that accurate appraisal of the total net
asset value of Spartan CA Intermediate and the net asset value per share of
Fidelity CA Income is impracticable, the Valuation Time and the Closing
Date shall be postponed until the first business day after the day when
such trading shall have been fully resumed and such reporting shall have
been restored, or such other date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF SPARTAN CA INTERMEDIATE.
(a) Spartan CA Intermediate agrees to call a meeting of its shareholders
after the effective date of the Registration Statement, to consider
transferring its assets to Fidelity CA Income as herein provided, adopting
this Agreement, and authorizing the liquidation of Spartan CA Intermediate.
(b) Spartan CA Intermediate agrees that as soon as reasonably practicable
after distribution of the Fidelity CA Income Shares, Spartan CA
Intermediate shall be terminated as a series of Fidelity California
Municipal Trust pursuant to its Amended and Restated Declaration of Trust,
any further actions shall be taken in connection therewith as required by
applicable law, and on and after the Closing Date Spartan CA Intermediate
shall not conduct any business except in connection with its liquidation
and termination.
8. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INCOME.
(a) That Spartan CA Intermediate furnishes to Fidelity CA Income a
statement, dated as of the Closing Date, signed by an officer of Fidelity
California Municipal Trust, certifying that as of the Valuation Time and
the Closing Date all representations and warranties of Spartan CA
Intermediate made in this Agreement are true and correct in all material
respects and that Spartan CA Intermediate has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such dates;
(b) That Spartan CA Intermediate furnishes Fidelity CA Income with copies
of the resolutions, certified by an officer of Fidelity California
Municipal Trust, evidencing the adoption of this Agreement and the approval
of the transactions contemplated herein by the requisite vote of the
holders of the outstanding shares of beneficial interest of Spartan CA
Intermediate;

(c) That, on or prior to the Closing Date, Spartan CA Intermediate will
declare one or more dividends or distributions which, together with all
previous such dividends or distributions attributable to its current
taxable year, shall have the effect of distributing to the shareholders of
Spartan CA Intermediate substantially all of Spartan CA Intermediate's
investment company taxable income and all of its net realized capital gain,
if any, as of the Closing Date;
(d) That Spartan CA Intermediate shall deliver to Fidelity CA Income at
the Closing a statement of its assets and liabilities, together with a list
of its portfolio securities showing each such security's adjusted tax basis
and holding period by lot, with values determined as provided in Section 4
of this Agreement, all as of the Valuation Time, certified on Spartan CA
Intermediate's behalf by its Treasurer or Assistant Treasurer;
(e) That Spartan CA Intermediate's custodian shall deliver to Fidelity CA
Income a certificate identifying the assets of Spartan CA Intermediate held
by such custodian as of the Valuation Time on the Closing Date and stating
that as of the Valuation Time: (i) the assets held by the custodian will
be transferred to Fidelity CA Income; (ii) Spartan CA Intermediate's assets
have been duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof; and (iii) to the best of the custodian's
knowledge, all necessary taxes in conjunction with the delivery of the
assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made;
(f) That Spartan CA Intermediate's transfer agent shall deliver to
Fidelity CA Income at the Closing a certificate setting forth the number of
shares of Spartan CA Intermediate outstanding as of the Valuation Time and
the name and address of each holder of record of any such shares and the
number of shares held of record by each such shareholder;
(g) That Spartan CA Intermediate calls a meeting of its shareholders to be
held after the effective date of the Registration Statement, to consider
transferring its assets to Fidelity CA Income as herein provided, adopting
this Agreement, and authorizing the liquidation and termination of Spartan
CA Intermediate;
(h) That Spartan CA Intermediate delivers to Fidelity CA Income a
certificate of an officer of Fidelity California Municipal Trust, dated as
of the Closing Date, that there has been no material adverse change in
Spartan CA Intermediate's financial position since February 28, 1997, other
than changes in the market value of its portfolio securities, or changes
due to net redemptions of its shares, dividends paid, or losses from
operations; and
(i) That all of the issued and outstanding shares of beneficial interest
of Spartan CA Intermediate shall have been offered for sale and sold in
conformity with all applicable state securities laws and, to the extent
that any audit of the records of Spartan CA Intermediate or its transfer
agent by Fidelity CA Income or its agents shall have revealed otherwise,
Spartan CA Intermediate shall have taken all actions that in the opinion of
Fidelity CA Income are necessary to remedy any prior failure on the part of
Spartan CA Intermediate to have offered for sale and sold such shares in
conformity with such laws.
9. CONDITIONS TO OBLIGATIONS OF SPARTAN CA INTERMEDIATE.
(a) That Fidelity CA Income shall have executed and delivered to Spartan
CA Intermediate an Assumption of Liabilities, certified by an officer of
Fidelity California Municipal Trust, dated as of the Closing Date pursuant
to which Fidelity CA Income will assume all of the liabilities of Spartan
CA Intermediate existing at the Valuation Time in connection with the
transactions contemplated by this Agreement;
(b) That Fidelity CA Income furnishes to Spartan CA Intermediate a
statement, dated as of the Closing Date, signed by an officer of Fidelity
California Municipal Trust, certifying that as of the Valuation Time and
the Closing Date all representations and warranties of Fidelity CA Income
made in this Agreement are true and correct in all material respects, and
Fidelity CA Income has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to such
dates; and
(c) That Spartan CA Intermediate shall have received an opinion of
Kirkpatrick & Lockhart LLP, counsel to Spartan CA Intermediate and Fidelity
CA Income, to the effect that the Fidelity CA Income Shares are duly
authorized and upon delivery to Spartan CA Intermediate as provided in this
Agreement will be validly issued and will be fully paid and nonassessable
by Fidelity CA Income (except as disclosed in Spartan CA Intermediate's
Statement of Additional Information) and no shareholder of Fidelity CA
Income has any preemptive right of subscription or purchase in respect
thereof.
10. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INCOME AND SPARTAN CA
INTERMEDIATE.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of the
holders of the outstanding shares of beneficial interest of Spartan CA
Intermediate;
(b) That all consents of other parties and all other consents, orders, and
permits of federal, state, and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no action" positions of such federal or state authorities)
deemed necessary by Fidelity CA Income or Spartan CA Intermediate to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of Fidelity CA Income or Spartan CA
Intermediate, provided that either party hereto may for itself waive any of
such conditions;
(c) That all proceedings taken by either fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to it and its counsel,
Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Fidelity CA Income and Spartan CA
Intermediate, threatened by the Commission; and
(f) That Fidelity CA Income and Spartan CA Intermediate shall have
received an opinion of Kirkpatrick & Lockhart LLP satisfactory to Fidelity
CA Income and Spartan CA Intermediate that for federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Spartan CA Intermediate and Fidelity CA
Income will each be parties to the Reorganization under section 368(b) of
the Code;
(ii) No gain or loss will be recognized by Spartan CA Intermediate upon
the transfer of all of its assets to Fidelity CA Income in exchange solely
for the Fidelity CA Income Shares and the assumption of Spartan CA
Intermediate's liabilities followed by the distribution of those Fidelity
CA Income Shares to the shareholders of Spartan CA Intermediate in
liquidation of Spartan CA Intermediate;
(iii) No gain or loss will be recognized by Fidelity CA Income on the
receipt of Spartan CA Intermediate's assets in exchange solely for the
Fidelity CA Income Shares and the assumption of Spartan CA Intermediate's
liabilities;
(iv) The basis of Spartan CA Intermediate's assets in the hands of
Fidelity CA Income will be the same as the basis of such assets in Spartan
CA Intermediate's hands immediately prior to the Reorganization;
(v) Fidelity CA Income's holding period in the assets to be received from
Spartan CA Intermediate will include Spartan CA Intermediate's holding
period in such assets;
(vi) A Spartan CA Intermediate shareholder will recognize no gain or loss
on the exchange of his or her shares of beneficial interest in Spartan CA
Intermediate for the Fidelity CA Income Shares in the Reorganization;
(vii) A Spartan CA Intermediate shareholder's basis in the Fidelity CA
Income Shares to be received by him or her will be the same as his or her
basis in the Spartan CA Intermediate shares exchanged therefor;
(viii) A Spartan CA Intermediate shareholder's holding period for his or
her Fidelity CA Income Shares will include the holding period of Spartan CA
Intermediate shares exchanged, provided that those Spartan CA Intermediate
shares were held as capital assets on the date of the Reorganization.

Notwithstanding anything herein to the contrary, each of Spartan CA
Intermediate and Fidelity CA Income may not waive the conditions set forth
in this subsection 10(f).
11. COVENANTS OF FIDELITY CA INCOME AND SPARTAN CA INTERMEDIATE.
(a) Fidelity CA Income and Spartan CA Intermediate each covenants to
operate its respective business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course
of business will include the payment of customary dividends and
distributions;
(b) Spartan CA Intermediate covenants that it is not acquiring the
Fidelity CA Income Shares for the purpose of making any distribution other
than in accordance with the terms of this Agreement;
(c) Spartan CA Intermediate covenants that it will assist Fidelity CA
Income in obtaining such information as Fidelity CA Income reasonably
requests concerning the beneficial ownership of Spartan CA Intermediate's
shares; and
(d) Spartan CA Intermediate covenants that its liquidation and termination
will be effected in the manner provided in its Amended and Restated
Declaration of Trust in accordance with applicable law and after the
Closing Date, Spartan CA Intermediate will not conduct any business except
in connection with its liquidation and termination.
12. TERMINATION; WAIVER.
Fidelity CA Income and Spartan CA Intermediate may terminate this
Agreement by mutual agreement. In addition, either Fidelity CA Income or
Spartan CA Intermediate may at its option terminate this Agreement at or
prior to the Closing Date because:
(i) of a material breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date;
or
(ii) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Spartan CA Intermediate or Fidelity CA Income, or
their respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may
not be changed except by a letter of agreement signed by each party hereto
and shall be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Fidelity CA Income or
Spartan CA Intermediate; provided, however, that following the
shareholders' meeting called by Spartan CA Intermediate pursuant to Section
7 of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of Fidelity CA Income Shares to be
paid to Spartan CA Intermediate shareholders under this Agreement to the
detriment of such shareholders without their further approval.
(c) Either fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on the
interests of such fund's shareholders.
The representations, warranties, and covenants contained in the Agreement,
or in any document delivered pursuant hereto or in connection herewith,
shall survive the consummation of the transactions contemplated hereunder.

14. DECLARATIONS OF TRUST.
A copy of the Declaration of Trust of each fund, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed
on behalf of the Trustees of each fund as trustees and not individually and
that the obligations of each fund under this instrument are not binding
upon any of such fund's Trustees, officers, or shareholders individually
but are binding only upon the assets and property of such fund. Each fund
agrees that its obligations hereunder apply only to such fund and not to
its shareholders individually or to the Trustees of such fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
of any rights or obligations hereunder shall be made by any party without
the written consent of the other parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any
person, firm, or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by an appropriate officer.
SIGNATURE LINES OMITTED

Exhibit 3
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of
the 6th day of June, 1997 by and between Fidelity California Insured
Municipal Income Fund (Fidelity CA Insured) and Fidelity California
Municipal Income Fund (Fidelity CA Income), funds of Fidelity California
Municipal Trust (the trust). The trust is a duly organized business trust
under the laws of the Commonwealth of Massachusetts with its principal
place of business at 82 Devonshire Street, Boston, Massachusetts 02109.
Fidelity California Insured Municipal Income Fund and Fidelity California
Municipal Income Fund may be referred to herein collectively as the "funds"
or each individually as the "fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the Code). The reorganization will
comprise: (a) the transfer of all of the assets of Fidelity CA Insured to
Fidelity CA Income solely in exchange for shares of beneficial interest in
Fidelity CA Income (the Fidelity CA Income Shares) and the assumption by
Fidelity CA Income of Fidelity CA Insured's liabilities; and (b) the
constructive distribution of such shares by Fidelity CA Insured PRO RATA to
its shareholders in complete liquidation and termination of Fidelity CA
Insured in exchange for all of Fidelity CA Insured's outstanding shares.
Fidelity CA Insured shall receive shares of Fidelity CA Income having an
aggregate net asset value equal to the value of the assets of Fidelity CA
Insured on the Closing Date (as defined in Section 6), which Fidelity CA
Insured shall then distribute PRO RATA to its shareholders. The foregoing
transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF FIDELITY CA INSURED. Fidelity CA
Insured represents and warrants to and agrees with Fidelity CA Income that:
(a) Fidelity CA Insured is a series of Fidelity California Municipal
Trust, a business trust duly organized, validly existing, and in good
standing under the laws of the Commonwealth of Massachusetts, and has the
power to own all of its properties and assets and to carry out its
obligations under this Agreement. It has all necessary federal, state, and
local authorizations to carry on its business as now being conducted and to
carry out this Agreement;
(b) Fidelity California Municipal Trust is an open-end, management
investment company duly registered under the Investment Company Act of
1940, as amended (the 1940 Act), and such registration is in full force and
effect;
(c) The Prospectus and Statement of Additional Information of Fidelity CA
Insured dated April 19, 1997, previously furnished to Fidelity CA Income,
did not and does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Fidelity CA Insured, threatened against
Fidelity CA Insured which assert liability on the part of Fidelity CA
Insured. Fidelity CA Insured knows of no facts which might form the basis
for the institution of such proceedings;
(e) Fidelity CA Insured is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Fidelity CA Insured, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Fidelity CA
Insured is a party or by which Fidelity CA Insured is bound or result in
the acceleration of any obligation or the imposition of any penalty under
any agreement, judgment or decree to which Fidelity CA Insured is a party
or is bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Fidelity CA Insured at
February 28, 1997, have been audited by Price Waterhouse LLP, independent
accountants, and have been furnished to Fidelity CA Income. Said Statements
of Assets and Liabilities and Schedule of Investments fairly present the
fund's financial position as of such date and said Statement of Operations,
Changes in Net Assets, and Financial Highlights fairly reflect its results
of operations, changes in financial position, and financial highlights for
the periods covered thereby in conformity with generally accepted
accounting principles consistently applied;
(g) Fidelity CA Insured has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of February 28, 1997 and those
incurred in the ordinary course of Fidelity CA Insured's business as an
investment company since February 28, 1997;
(h) The registration statement (Registration Statement) filed with the
Securities and Exchange Commission (Commission) by Fidelity California
Municipal Trust on Form N-14 relating to the shares of Fidelity CA Income
issuable hereunder and the proxy statement of Fidelity CA Insured included
therein (Proxy Statement), on the effective date of the Registration
Statement and insofar as they relate to Fidelity CA Insured (i) comply in
all material respects with the provisions of the Securities Act of 1933, as
amended (the 1933 Act), the Securities Exchange Act of 1934, as amended
(the 1934 Act), and the 1940 Act, and the rules and regulations thereunder,
and (ii) do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 and on the Closing Date, the prospectus
contained in the Registration Statement of which the Proxy Statement is a
part (the Prospectus), as amended or supplemented, insofar as it relates to
Fidelity CA Insured, does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(i) All material contracts and commitments of Fidelity CA Insured (other
than this Agreement) will be terminated without liability to Fidelity CA
Insured prior to the Closing Date (other than those made in connection with
redemptions of shares and the purchase and sale of portfolio securities
made in the ordinary course of business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Fidelity CA
Insured of the transactions contemplated by this Agreement, except such as
have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and
state securities or blue sky laws (which term as used herein shall include
the District of Columbia and Puerto Rico);
(k) Fidelity CA Insured has filed or will file all federal and state tax
returns which, to the knowledge of Fidelity CA Insured's officers, are
required to be filed by Fidelity CA Insured and has paid or will pay all
federal and state taxes shown to be due on said returns or provision shall
have been made for the payment thereof, and, to the best of Fidelity CA
Insured's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(l) Fidelity CA Insured has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company for
all prior taxable years and intends to meet such requirements for its
current taxable year ending on the Closing Date;
(m) All of the issued and outstanding shares of Fidelity CA Insured are,
and at the Closing Date will be, duly and validly issued and outstanding
and fully paid and nonassessable as a matter of Massachusetts law (except
as disclosed in the fund's Statement of Additional Information), and have
been offered for sale and in conformity with all applicable federal
securities laws. All of the issued and outstanding shares of Fidelity CA
Insured will, at the Closing Date, be held by the persons and in the
amounts set forth in the list of shareholders submitted to Fidelity CA
Income in accordance with this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Fidelity CA Insured will have the full right, power, and
authority to sell, assign, transfer, and deliver its portfolio securities
and any other assets of Fidelity CA Insured to be transferred to Fidelity
CA Income pursuant to this Agreement. As of the Closing Date, subject only
to the delivery of Fidelity CA Insured's portfolio securities and any such
other assets as contemplated by this Agreement, Fidelity CA Income will
acquire Fidelity CA Insured's portfolio securities and any such other
assets subject to no encumbrances, liens, or security interests (except for
those that may arise in the ordinary course and are disclosed to Fidelity
CA Income) and without any restrictions upon the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Fidelity CA Insured, and this Agreement constitutes a
valid and binding obligation of Fidelity CA Insured enforceable in
accordance with its terms, subject to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF FIDELITY CA INCOME. Fidelity CA
Income represents and warrants to and agrees with Fidelity CA Insured that:
(a) Fidelity CA Income is a series of Fidelity California Municipal Trust,
a business trust duly organized, validly existing, and in good standing
under the laws of the Commonwealth of Massachusetts, and has the power to
own all of its properties and assets and to carry out its obligations under
this Agreement. It has all necessary federal, state, and local
authorizations to carry on its business as now being conducted and to carry
out this Agreement;
(b) Fidelity California Municipal Trust is an open-end, management
investment company duly registered under the 1940 Act, and such
registration is in full force and effect;
(c) The Prospectus and Statement of Additional Information of Fidelity CA
Income, dated April 19, 1997, previously furnished to Fidelity CA Insured
did not and does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Fidelity CA Income, threatened against
Fidelity CA Income which assert liability on the part of Fidelity CA
Income. Fidelity CA Income knows of no facts which might form the basis
for the institution of such proceedings;
(e) Fidelity CA Income is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Fidelity CA Income, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Fidelity CA
Income is a party or by which Fidelity CA Income is bound or result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which Fidelity CA Income is a party or is
bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Fidelity CA Income at
February 28, 1997, have been audited by Price Waterhouse LLP, independent
accountants, and have been furnished to Fidelity CA Insured. Said
Statements of Assets and Liabilities and Schedule of Investments fairly
present its financial position as of such date and said Statement of
Operations, Changes in Net Assets, and Financial Highlights fairly reflect
its results of operations, changes in financial position, and financial
highlights for the periods covered thereby in conformity with generally
accepted accounting principles consistently applied;
(g) Fidelity CA Income has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of February 28, 1997 and those
incurred in the ordinary course of Fidelity CA Income's business as an
investment company since February 28, 1997;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Fidelity CA
Income of the transactions contemplated by this Agreement, except such as
have been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and
state securities or blue sky laws (which term as used herein shall include
the District of Columbia and Puerto Rico);
(i) Fidelity CA Income has filed or will file all federal and state tax
returns which, to the knowledge of Fidelity CA Income's officers, are
required to be filed by Fidelity CA Income and has paid or will pay all
federal and state taxes shown to be due on said returns or provision shall
have been made for the payment thereof, and, to the best of Fidelity CA
Income's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) Fidelity CA Income has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company for
all prior taxable years and intends to meet such requirements for its
current taxable year ending on February 28, 1998;
(k) As of the Closing Date, the shares of beneficial interest of Fidelity
CA Income to be issued to Fidelity CA Insured will have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued and will be fully paid and nonassessable
(except as disclosed in the fund's Statement of Additional Information) by
Fidelity CA Income, and no shareholder of Fidelity CA Income will have any
preemptive right of subscription or purchase in respect thereof;
(l) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Fidelity CA Income, and this Agreement constitutes a
valid and binding obligation of Fidelity CA Income enforceable in
accordance with its terms, subject to approval by the shareholders of
Fidelity CA Insured;
(m) The Registration Statement and the Proxy Statement, on the effective
date of the Registration Statement and insofar as they relate to Fidelity
CA Income, (i) will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act, and the 1940 Act, and the rules and regulations
thereunder, and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 and on the Closing Date,
the Prospectus, as amended or supplemented, insofar as it relates to
Fidelity CA Income, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(n) The issuance of the Fidelity CA Income Shares pursuant to this
Agreement will be in compliance with all applicable federal securities
laws; and
(o) All of the issued and outstanding shares of beneficial interest of
Fidelity CA Income have been offered for sale and sold in conformity with
the federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Fidelity CA
Insured and to the other terms and conditions contained herein, Fidelity CA
Insured agrees to assign, sell, convey, transfer, and deliver to Fidelity
CA Income as of the Closing Date all of the assets of Fidelity CA Insured
of every kind and nature existing on the Closing Date. Fidelity CA Income
agrees in exchange therefor: (i) to assume all of Fidelity CA Insured's
liabilities existing on or after the Closing Date, whether or not
determinable on the Closing Date, and (ii) to issue and deliver to Fidelity
CA Insured the number of full and fractional shares of Fidelity CA Income
having an aggregate net asset value equal to the value of the assets of
Fidelity CA Insured transferred hereunder, less the value of the
liabilities of Fidelity CA Insured, determined as provided for under
Section 4.
(b) The assets of Fidelity CA Insured to be acquired by Fidelity CA Income
shall include, without limitation, all cash, cash equivalents, securities,
receivables (including interest or dividends receivable), claims, choses in
action, and other property owned by Fidelity CA Insured, and any deferred
or prepaid expenses shown as an asset on the books of Fidelity CA Insured
on the Closing Date. Fidelity CA Insured will pay or cause to be paid to
Fidelity CA Income any dividend or interest payments received by it on or
after the Closing Date with respect to the assets transferred to Fidelity
CA Income hereunder, and Fidelity CA Income will retain any dividend or
interest payments received by it after the Valuation Time with respect to
the assets transferred hereunder without regard to the payment date
thereof.
(c) The liabilities of Fidelity CA Insured to be assumed by Fidelity CA
Income shall include (except as otherwise provided for herein) all of
Fidelity CA Insured's liabilities, debts, obligations, and duties, of
whatever kind or nature, whether absolute, accrued, contingent, or
otherwise, whether or not arising in the ordinary course of business,
whether or not determinable on the Closing Date, and whether or not
specifically referred to in this Agreement. Notwithstanding the foregoing,
Fidelity CA Insured agrees to use its best efforts to discharge all of its
known liabilities prior to the Closing Date, other than liabilities
incurred in the ordinary course of business.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable (the Liquidation Date), Fidelity CA Insured will
constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the Fidelity CA
Income Shares in exchange for such shareholders' shares of beneficial
interest in Fidelity CA Insured and Fidelity CA Insured will be liquidated
in accordance with Fidelity CA Insured's Amended and Restated Declaration
of Trust. Such distribution shall be accomplished by the funds' transfer
agent opening accounts on Fidelity CA Income's share transfer books in the
names of the Fidelity CA Insured shareholders and transferring the Fidelity
CA Income Shares thereto. Each Fidelity CA Insured shareholder's account
shall be credited with the respective PRO RATA number of full and
fractional (rounded to the third decimal place) Fidelity CA Income Shares
due that shareholder. All outstanding Fidelity CA Insured shares,
including any represented by certificates, shall simultaneously be canceled
on Fidelity CA Insured's share transfer records. Fidelity CA Income shall
not issue certificates representing the Fidelity CA Income Shares in
connection with the Reorganization.
(e) Any reporting responsibility of Fidelity CA Insured is and shall
remain its responsibility up to and including the date on which it is
terminated.
(f) Any transfer taxes payable upon issuance of the Fidelity CA Income
Shares in a name other than that of the registered holder on Fidelity CA
Insured's books of the Fidelity CA Insured shares constructively exchanged
for the Fidelity CA Income Shares shall be paid by the person to whom such
Fidelity CA Income Shares are to be issued, as a condition of such
transfer.
4. VALUATION.
(a) The Valuation Time shall be 4:00 p.m. Eastern time on the Closing
Date, or such other date as may be mutually agreed upon in writing by the
parties hereto (the Valuation Time).
(b) As of the Closing Date, Fidelity CA Income will deliver to Fidelity CA
Insured the number of Fidelity CA Income Shares having an aggregate net
asset value equal to the value of the assets of Fidelity CA Insured
transferred hereunder less the liabilities of Fidelity CA Insured,
determined as provided in this Section 4.
(c) The net asset value per share of the Fidelity CA Income Shares to be
delivered to Fidelity CA Insured, the value of the assets of Fidelity CA
Insured transferred hereunder, and the value of the liabilities of Fidelity
CA Insured to be assumed hereunder shall in each case be determined as of
the Valuation Time.
(d) The net asset value per share of the Fidelity CA Income Shares shall
be computed in the manner set forth in the then-current Fidelity CA Income
Prospectus and Statement of Additional Information, and the value of the
assets and liabilities of Fidelity CA Insured shall be computed in the
manner set forth in the then-current Fidelity CA Insured Prospectus and
Statement of Additional Information.
(e) All computations pursuant to this Section shall be made by or under
the direction of Fidelity Service Company, Inc., a wholly owned subsidiary
of FMR Corp., in accordance with its regular practice as pricing agent for
Fidelity CA Insured and Fidelity CA Income.
5. FEES; EXPENSES.
a. Fidelity CA Insured shall be responsible for all expenses, fees and
other charges, subject to FMR's voluntary expense limitation (2.5% of
average net assets), if applicable. Any merger-related expenses which may
be attributable to Fidelity CA Income will be borne by Fidelity CA Income.
(b) Each of Fidelity CA Income and Fidelity CA Insured represents that
there is no person who has dealt with it who by reason of such dealings is
entitled to any broker's or finder's or other similar fee or commission
arising out of the transactions contemplated by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to consummate
the same (the Closing), unless otherwise provided herein, shall occur at
the principal office of the Trust, 82 Devonshire Street, Boston,
Massachusetts, as of the Valuation Time on August 28, 1997, or at some
other time, date, and place agreed to by Fidelity CA Insured and Fidelity
CA Income (the Closing Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the funds is closed to trading, or (ii) trading thereon
is restricted, or (iii) trading or the reporting of trading on said market
or elsewhere is disrupted, all so that accurate appraisal of the total net
asset value of Fidelity CA Insured and the net asset value per share of
Fidelity CA Income is impracticable, the Valuation Time and the Closing
Date shall be postponed until the first business day after the day when
such trading shall have been fully resumed and such reporting shall have
been restored, or such other date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF FIDELITY CA INSURED.
(a) Fidelity CA Insured agrees to call a meeting of its shareholders after
the effective date of the Registration Statement, to consider transferring
its assets to Fidelity CA Income as herein provided, adopting this
Agreement, and authorizing the liquidation of Fidelity CA Insured.
(b) Fidelity CA Insured agrees that as soon as reasonably practicable
after distribution of the Fidelity CA Income Shares, Fidelity CA Insured
shall be terminated as a series of Fidelity California Municipal Trust
pursuant to its Amended and Restated Declaration of Trust, any further
actions shall be taken in connection therewith as required by applicable
law, and on and after the Closing Date Fidelity CA Insured shall not
conduct any business except in connection with its liquidation and
termination.
8. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INCOME. The obligations of
Fidelity CA Income hereunder shall be subject to the following conditions:
(a) That Fidelity CA Insured furnishes to Fidelity CA Income a statement,
dated as of the Closing Date, signed by an officer of Fidelity California
Municipal Trust, certifying that as of the Valuation Time and the Closing
Date all representations and warranties of Fidelity CA Insured made in this
Agreement are true and correct in all material respects and that Fidelity
CA Insured has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such
dates;
(b) That Fidelity CA Insured furnishes Fidelity CA Income with copies of
the resolutions, certified by an officer of Fidelity California Municipal
Trust, evidencing the adoption of this Agreement and the approval of the
transactions contemplated herein by the requisite vote of the holders of
the outstanding shares of beneficial interest of Fidelity CA Insured;

(c) That, on or prior to the Closing Date, Fidelity CA Insured will
declare one or more dividends or distributions which, together with all
previous such dividends or distributions attributable to its current
taxable year, shall have the effect of distributing to the shareholders of
Fidelity CA Insured substantially all of Fidelity CA Insured's investment
company taxable income and all of its net realized capital gain, if any, as
of the Closing Date;
(d) That Fidelity CA Insured shall deliver to Fidelity CA Income at the
Closing a statement of its assets and liabilities, together with a list of
its portfolio securities showing each such security's adjusted tax basis
and holding period by lot, with values determined as provided in Section 4
of this Agreement, all as of the Valuation Time, certified on Fidelity CA
Insured's behalf by its Treasurer or Assistant Treasurer;
(e) That Fidelity CA Insured's custodian shall deliver to Fidelity CA
Income a certificate identifying the assets of Fidelity CA Insured held by
such custodian as of the Valuation Time on the Closing Date and stating
that as of the Valuation Time: (i) the assets held by the custodian will
be transferred to Fidelity CA Income; (ii) Fidelity CA Insured's assets
have been duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof; and (iii) to the best of the custodian's
knowledge, all necessary taxes in conjunction with the delivery of the
assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made;
(f) That Fidelity CA Insured's transfer agent shall deliver to Fidelity CA
Income at the Closing a certificate setting forth the number of shares of
Fidelity CA Insured outstanding as of the Valuation Time and the name and
address of each holder of record of any such shares and the number of
shares held of record by each such shareholder;
(g) That Fidelity CA Insured calls a meeting of its shareholders to be
held after the effective date of the Registration Statement, to consider
transferring its assets to Fidelity CA Income as herein provided, adopting
this Agreement, and authorizing the liquidation and termination of Fidelity
CA Insured;
(h) That Fidelity CA Insured delivers to Fidelity CA Income a certificate
of an officer of Fidelity California Municipal Trust, dated as of the
Closing Date, that there has been no material adverse change in Fidelity CA
Insured's financial position since February 28, 1997, other than changes in
the market value of its portfolio securities, or changes due to net
redemptions of its shares, dividends paid, or losses from operations; and

(i) That all of the issued and outstanding shares of beneficial interest
of Fidelity CA Insured shall have been offered for sale and sold in
conformity with all applicable state securities laws and, to the extent
that any audit of the records of Fidelity CA Insured or its transfer agent
by Fidelity CA Income or its agents shall have revealed otherwise, Fidelity
CA Insured shall have taken all actions that in the opinion of Fidelity CA
Income are necessary to remedy any prior failure on the part of Fidelity CA
Insured to have offered for sale and sold such shares in conformity with
such laws.
9. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INSURED.
(a) That Fidelity CA Income shall have executed and delivered to Fidelity
CA Insured an Assumption of Liabilities, certified by an officer of
Fidelity California Municipal Trust, dated as of the Closing Date pursuant
to which Fidelity CA Income will assume all of the liabilities of Fidelity
CA Insured existing at the Valuation Time in connection with the
transactions contemplated by this Agreement;
(b) That Fidelity CA Income furnishes to Fidelity CA Insured a statement,
dated as of the Closing Date, signed by an officer of Fidelity California
Municipal Trust, certifying that as of the Valuation Time and the Closing
Date all representations and warranties of Fidelity CA Income made in this
Agreement are true and correct in all material respects, and Fidelity CA
Income has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such
dates; and
(c) That Fidelity CA Insured shall have received an opinion of Kirkpatrick
& Lockhart LLP, counsel to Fidelity CA Insured and Fidelity CA Income, to
the effect that the Fidelity CA Income Shares are duly authorized and upon
delivery to Fidelity CA Insured as provided in this Agreement will be
validly issued and will be fully paid and nonassessable by Fidelity CA
Income (except as disclosed in Fidelity CA Insured's Statement of
Additional Information) and no shareholder of Fidelity CA Income has any
preemptive right of subscription or purchase in respect thereof.
10. CONDITIONS TO OBLIGATIONS OF FIDELITY CA INCOME AND FIDELITY CA
INSURED.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of the
holders of the outstanding shares of beneficial interest of Fidelity CA
Insured;
(b) That all consents of other parties and all other consents, orders, and
permits of federal, state, and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no action" positions of such federal or state authorities)
deemed necessary by Fidelity CA Income or Fidelity CA Insured to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of Fidelity CA Income or Fidelity CA
Insured, provided that either party hereto may for itself waive any of such
conditions;
(c) That all proceedings taken by either fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to it and its counsel,
Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Fidelity CA Income and Fidelity CA
Insured, threatened by the Commission; and
(f) That Fidelity CA Income and Fidelity CA Insured shall have received an
opinion of Kirkpatrick & Lockhart LLP satisfactory to Fidelity CA Income
and Fidelity CA Insured that for federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Fidelity CA Insured and Fidelity CA Income
will each be parties to the Reorganization under section 368(b) of the
Code;
(ii) No gain or loss will be recognized by Fidelity CA Insured upon the
transfer of all of its assets to Fidelity CA Income in exchange solely for
the Fidelity CA Income Shares and the assumption of Fidelity CA Insured's
liabilities followed by the distribution of those Fidelity CA Income Shares
to the shareholders of Fidelity CA Insured in liquidation of Fidelity CA
Insured;
(iii) No gain or loss will be recognized by Fidelity CA Income on the
receipt of Fidelity CA Insured's assets in exchange solely for the Fidelity
CA Income Shares and the assumption of Fidelity CA Insured's liabilities;
(iv) The basis of Fidelity CA Insured's assets in the hands of Fidelity
CA Income will be the same as the basis of such assets in Fidelity CA
Insured's hands immediately prior to the Reorganization;
(v) Fidelity CA Income's holding period in the assets to be received from
Fidelity CA Insured will include Fidelity CA Insured's holding period in
such assets;
(vi) A Fidelity CA Insured shareholder will recognize no gain or loss on
the exchange of his or her shares of beneficial interest in Fidelity CA
Insured for the Fidelity CA Income Shares in the Reorganization;
(vii) A Fidelity CA Insured shareholder's basis in the Fidelity CA Income
Shares to be received by him or her will be the same as his or her basis in
the Fidelity CA Insured shares exchanged therefor;
(viii) A Fidelity CA Insured shareholder's holding period for his or her
Fidelity CA Income Shares will include the holding period of Fidelity CA
Insured shares exchanged, provided that those Fidelity CA Insured shares
were held as capital assets on the date of the Reorganization.

Notwithstanding anything herein to the contrary, each of Fidelity CA
Insured and Fidelity CA Income may not waive the conditions set forth in
this subsection 10(f).
11. COVENANTS OF FIDELITY CA INCOME AND FIDELITY CA INSURED.
(a) Fidelity CA Income and Fidelity CA Insured each covenants to operate
its respective business in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary course of business
will include the payment of customary dividends and distributions;
(b) Fidelity CA Insured covenants that it is not acquiring the Fidelity CA
Income Shares for the purpose of making any distribution other than in
accordance with the terms of this Agreement;
(c) Fidelity CA Insured covenants that it will assist Fidelity CA Income
in obtaining such information as Fidelity CA Income reasonably requests
concerning the beneficial ownership of Fidelity CA Insured's shares; and
(d) Fidelity CA Insured covenants that its liquidation and termination
will be effected in the manner provided in its Amended and Restated
Declaration of Trust in accordance with applicable law and after the
Closing Date, Fidelity CA Insured will not conduct any business except in
connection with its liquidation and termination.
12. TERMINATION; WAIVER.
Fidelity CA Income and Fidelity CA Insured may terminate this Agreement by
mutual agreement. In addition, either Fidelity CA Income or Fidelity CA
Insured may at its option terminate this Agreement at or prior to the
Closing Date because:
(i) of a material breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date;
or
(ii) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Fidelity CA Insured or Fidelity CA Income, or their
respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may
not be changed except by a letter of agreement signed by each party hereto
and shall be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Fidelity CA Income or
Fidelity CA Insured; provided, however, that following the shareholders'
meeting called by Fidelity CA Insured pursuant to Section 7 of this
Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Fidelity CA Income Shares to be paid to
Fidelity CA Insured shareholders under this Agreement to the detriment of
such shareholders without their further approval.
(c) Either fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on the
interests of such fund's shareholders.
The representations, warranties, and covenants contained in the Agreement,
or in any document delivered pursuant hereto or in connection herewith,
shall survive the consummation of the transactions contemplated hereunder.

14. DECLARATIONS OF TRUST.
A copy of the Declaration of Trust of each fund, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed
on behalf of the Trustees of each fund as trustees and not individually and
that the obligations of each fund under this instrument are not binding
upon any of such fund's Trustees, officers, or shareholders individually
but are binding only upon the assets and property of such fund. Each fund
agrees that its obligations hereunder apply only to such fund and not to
its shareholders individually or to the Trustees of such fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
of any rights or obligations hereunder shall be made by any party without
the written consent of the other parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any
person, firm, or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by an appropriate officer.
SIGNATURE LINES OMITTED

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
each fund's most recent financial report and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated April 19, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
available along with other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated herein by reference (legally
forms a part of the prospectus). For a free copy of either document, call
Fidelity at 1-800-544-8888.
Investments in the money market fund are neither insured nor guaranteed by
the U.S. Government, and there can be no assurance that the fund will
maintain a stable $1.00 share price.
CALIFORNIA MUNICIPAL MONEY MARKET FUND MAY INVEST A SIGNIFICANT PERCENTAGE
OF ITS ASSETS IN THE SECURITIES OF A SINGLE ISSUER AND THEREFORE MAY BE
RISKIER THAN OTHER TYPES OF MONEY MARKET FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, Federal
Reserve Board, or any other agency, and are subject to investment risks,
including possible loss of principal amount invested.

FIDELITY
CALIFORNIA
MUNICIPAL
FUNDS

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-0497
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 and yield
potential.
FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND
(fund number 097, trading symbol FCFXX)
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND
(fund number 403, trading symbol FCXIX)
FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
(fund number 091, trading symbol FCTFX)
PROSPECTUS
APRIL 19, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109

CONTENTS

KEY FACTS THE FUNDS AT A GLANCE

WHO MAY WANT TO INVEST

EXPENSES Each fund's yearly
operating expenses.

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

PERFORMANCE How each fund has
done over time.

THE FUNDS IN DETAIL CHARTER How each fund is
organized.

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

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

YOUR ACCOUNT DOING BUSINESS WITH FIDELITY

TYPES OF ACCOUNTS Different
ways to set up your account.

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

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

INVESTOR SERVICES Services to
help you manage your account.

SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES

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

EXCHANGE RESTRICTIONS

KEY FACTS

THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FMR Texas), a
subsidiary of FMR, chooses investments for Fidelity California Municipal
Money Market Fund.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
CA MONEY MARKET
GOAL: High current tax-free income for California residents while
maintaining a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and California
personal income tax.
SIZE: As of February 28, 1997, the fund had over $819 million in assets.
CA INSURED
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in municipal 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.
SIZE: As of February 28, 1997, the fund had over $205 million in assets.
CA INCOME
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in investment-grade municipal securities whose
interest is free from federal income tax and California personal income
tax.
SIZE: As of February 28, 1997, the fund had over $485 million in assets.
WHO MAY WANT TO INVEST
The Board of Trustees of Fidelity California Municipal Trust has
unanimously approved an Agreement and Plan of Reorganization ("Agreement")
between Fidelity California Insured Municipal Income Fund and Fidelity
California Municipal Income Fund, a fund of Fidelity California Municipal
Trust. The Agreement will be presented to Fidelity California Insured
Municipal Income shareholders for their vote of approval or disapproval at
a special meeting to be held on August 4, 1997. If the proposal is approved
by a majority of the fund's shareholders and certain conditions required by
the Agreement are satisfied, the reorganization is expected to become
effective on or about August 28, 1997.
Effective the close of business on February 28, 1997, California Insured
Municipal Income Fund was closed to new accounts. Only shareholders of the
fund on or prior to that date, including participants in an employee
benefit plan which offered the fund on or prior to that date (except
participants in an employee benefit plan for which an affiliate of FMR
maintains the accounts at the participant level other than pursuant to a
recordkeeping agreement), can continue to purchase shares of the fund.
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. California Money
Market is managed to keep its share price stable at $1.00. California
Insured and California Income with their broader range of investments, have
the potential for higher yields, but also carry a higher degree of risk.
The insured fund provides a high degree of credit quality because insurance
covers the timely payment of interest and principal. However, insurance
does not guarantee the market value of a security or the insured fund's
share price. You should consider your investment objective and tolerance
for risk when making an investment decision.
The value of the funds' investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other federal and state political and economic news. When you sell your
shares of California Insured and California Income, they may be worth more
or less than what you paid for them. By themselves, these funds do not
constitute a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets in
securities of individual issuers than diversified funds. As a result,
changes in the market value of a single issuer could cause greater
fluctuations in share value than would occur in a more diversified fund.

THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The
funds in this prospectus are
in the INCOME category,
except for California Money
Market, which is in the
MONEY MARKET category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy or
sell shares of a fund. In addition, you may be charged an annual account
maintenance fee if your account balance falls below $2,500. See
"Transaction Details," page , for an explanation of how and when these
charges apply.
Maximum sales charge on purchases None
and reinvested distributions

Deferred sales charge on redemptions None

Exchange fee None

Annual account maintenance fee (for accounts under $2,500) $12.0
0

ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports. A fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The following figures are based on historical expenses, adjusted to reflect
current fees, and are calculated as a percentage of average net assets. In
addition, each fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances is used
to reduce custodian and transfer agent expenses. Including this reduction,
the total operating expenses presented in the table would have been 0.61%
for California Money Market.
CA MONEY MARKET
Management fee 0.39
%

12b-1 fee None

Other expenses 0.23
%

Total fund operating expenses 0.62
%

CA INSURED
Management fee (after reimbursement) 0.34
%

12b-1 fee None

Other expenses 0.21
%

Total fund operating expenses 0.55
(after reimbursement) %

CA INCOME
Management fee (after reimbursement) 0.37
%

12b-1 fee None

Other expenses 0.18
%

Total fund operating expenses 0.55
(after reimbursement) %

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:
CA MONEY MARKET
After 1 year $ 6

After 3 years $ 20

After 5 years $ 35

After 10 years $ 77

CA INSURED
After 1 year $ 6

After 3 years $ 18

After 5 years $ 31

After 10 years $ 69

CA INCOME
After 1 year $ 6

After 3 years $ 18

After 5 years $ 31

After 10 years $ 69

These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
Effective April 1, 1997, FMR voluntarily agreed to implement an expense cap
for California Insured and California Income. FMR has voluntarily agreed to
reimburse each fund to the extent that total operating expenses exceed
0.55% of its average net assets. If these agreements were not in effect,
the management fee and total operating expenses would have been 0.39%, and
0.60%, respectively, for California Insured and 0.39% and 0.57%,
respectively, for California Income. Expenses eligible for reimbursement do
not include interest, taxes, brokerage commissions, or extraordinary
expenses.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by Price
Waterhouse LLP, independent accountants. The funds' financial highlights,
financial statements, and reports of the auditor are included in the funds'
Annual Report, and are incorporated by reference into (are legally a part
of) the funds' SAI. Contact Fidelity for a free copy of the Annual Report
or the SAI.
CALIFORNIA MUNICIPAL MONEY MARKET FUND

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

2.Years ended 1997 1996 1995 1994 1993D 1992 1991 1990 1989C 1988C
February 28 E C C C

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

4.Income from .029 .032 .026 .020 .019 .035 .047 .054 .052 .042
Investment
Operations
Net interest
income

5.Less Distributions (.029) (.032 (.026 (.020 (.019) (.035 (.047 (.054 (.052) (.042)
From net interest ) ) ) ) ) )
income

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

7.Total returnB 2.90% 3.21 2.60 1.97 1.92% 3.59 4.85 5.53 5.36% 4.27%
% % % % % %

8.Net assets, end $ 820 $ 733 $ 675 $ 612 $ 568 $ 557 $ 539 $ 624 $ 736 $ 547
of period (In
millions)

9.Ratio of expenses .62% .64% .62% .64% .62% .63% .61% .60% .53%F .58%F
to average net A
assets

10.Ratio of .61%G .64% .62% .64% .62% .63% .61% .60% .53% .58%
expenses to A F F
average net assets
after expense
reductions

11.Ratio of net 2.86% 3.17 2.58 1.95 2.29% 3.50 4.75 5.42 5.31% 4.17%
interest income to % % % A % % %
average net assets

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THE
TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED
DURING THE PERIODS SHOWN.
C YEARS ENDED APRIL 30
D MAY 1, 1992 TO FEBRUARY 28, 1993
E YEAR ENDED FEBRUARY 29
F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
CALIFORNIA INSURED MUNICIPAL INCOME FUND

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

13.Years ended 1997 1996E 1995 1994F 1993D 1992C 1991C 1990 1989C 1988C
February 28 C

14.Net asset value, $ 10.3 $ 9.84 $ 10.7 $ 11.0 $ 10.1 $ 9.74 $ 9.37 $ 9.5 $ 9.20 $ 9.28
beginning of period 30 0 40 30 00 0 0 90 0 0

15.Income from .524 .517 .558 .589 .492 .603 .605 .618 .610 .611
Investment
Operations
Net interest income

16. Net realized .022 .489 (.730) (.090) .930 .360 .370 (.220 .390 (.080)
and )
unrealized gain
(loss)

17. Total from .546 1.006 (.172) .499 1.422 .963 .975 .398 1.000 .531
investment
operations

18.Less (.525) (.516) (.558) (.589) (.492) (.603) (.605) (.618 (.610) (.611)
Distributions )
From net interest
income

19. From net (.001) -- (.170) (.200) -- -- -- -- -- --
realized
gain

20. Total (.526) (.516) (.728) (.789) (.492) (.603) (.605) (.618 (.610) (.611)
distributions )

21.Net asset value, $ 10.3 $ 10.3 $ 9.84 $ 10.7 $ 11.0 $ 10.1 $ 9.74 $ 9.3 $ 9.59 $ 9.20
50 30 0 40 30 00 0 70 0 0
end of period

22.Total returnB 5.49 10.46 (1.30) 4.59 14.48 10.14 10.67 4.15 11.20 5.97
% % % % % % % % % %

23.Net assets, end $ 206 $ 222 $ 217 $ 292 $ 275 $ 178 $ 114 $ 87 $ 69 $ 43
of period (In
millions)

24.Ratio of .60% .60% .59% .48% .63% .66% .72% .75% .83% .65%
expenses to G A G
average net assets

25.Ratio of net 5.00 5.31 5.71% 5.31 5.72 6.06 6.30 6.38 6.54 6.70
interest income to % % % % A % % % % %
average net assets

26.Portfolio 16% 49% 32% 60% 27% 19% 14% 10% 32% 76%
turnover rate A

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THE
TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED
DURING THE PERIODS SHOWN.
C YEARS ENDED APRIL 30
D MAY 1, 1992 TO FEBRUARY 28, 1993
E YEAR ENDED FEBRUARY 29
F EFFECTIVE MARCH 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
G FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
CALIFORNIA MUNICIPAL INCOME FUND

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

28.Years ended 1997 1996E 1995 1994F 1993D 1992C 1991C 1990C 1989C 1988C
February 28

29.Net asset value, $ 11.7 $ 11.1 $ 12.1 $ 12.4 $ 11.5 $ 11.3 $ 10.9 $ 11.0 $ 10.6 $ 10.9
beginning of period 20 20 00 30 40 00 40 80 20 50

30.Income from .599 .625 .685 .719 .611 .744 .752 .756 .758 .760
Investment
Operations
Net interest
income

31. Net realized .096 .597 (.830) (.060) .890 .240 .360 (.140) .460 (.270)
and unrealized gain
(loss)

32. Total from .695 1.222 (.145) .659 1.501 .984 1.112 .616 1.218 .490
investment
operations

33.Less (.602) (.622) (.685) (.719) (.611) (.744) (.752) (.756) (.758) (.760)
Distributions
From net interest
income

34. From net (.003) -- (.150) (.270) -- -- -- -- -- (.060)
realized
gain

35. Total (.605) (.622) (.835) (.989) (.611) (.744) (.752) (.756) (.758) (.820)
distributions

36.Net asset value, $ 11.8 $ 11.7 $ 11.1 $ 12.1 $ 12.4 $ 11.5 $ 11.3 $ 10.9 $ 11.0 $ 10.6
end of period 10 20 20 00 30 40 00 40 80 20

37.Total returnB 6.16 11.25 (.91) 5.41 13.40 8.94 10.44 5.61 11.85 4.72
% % % % % % % % % %

38.Net assets, end $ 486 $ 498 $ 477 $ 575 $ 587 $ 529 $ 524 $ 514 $ 494 $ 399
of period (In
millions)

39.Ratio of .57% .58% .56% .57% .60% .59% .58% .60% .61% .73%
expenses to A
average net assets

40.Ratio of net 5.19 5.44 6.16 5.78 6.17 6.52 6.71 6.73 7.05 7.15
interest income to % % % % % A % % % % %
average net assets

41.Portfolio turnover 17% 37% 29% 44% 32% 23% 15% 34% 21% 52%
rate A

</TABLE>

California Money Market 2.90% 2.62% 3.68%

Consumer Price Index 3.03% 2.86% 3.64%

California Insured 5.49% 6.85% 6.48%

Lehman Bros. CA Ins. 1-26 Yr. Muni. 5.24% n/a n/a
Bond Index

Lipper CA Ins. Muni. Funds Avg. 4.36% 7.34% 6.80%

California Income 6.16% 7.10% 6.68%

Lehman Bros. CA Muni Bond Index 5.49% n/a n/a

Lipper CA Muni Debt Funds Avg. 4.81% 6.94% 6.67%

CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
February 28, 1997 year years years

California Money Market 2.90% 13.80% 43.53%

Consumer Price Index 3.03% 15.15% 43.01%

California Insured 5.49% 39.24% 87.28%

Lehman Bros. CA Ins. 1-26 Yr. Muni. 5.24% n/a n/a
Bond Index

Lipper CA Ins. Muni Funds Avg. 4.36% 42.55% 93.12%

California Income 6.16% 40.91% 90.87%

Lehman Bros. CA Muni Bond Index 5.49% n/a n/a

Lipper CA Muni Debt Funds Avg. 4.81% 39.94% 91.06%

EXPLANATION OF TERMS
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
CALIFORNIA
INSURED -4.48% 11.61% 8.76% 7.02% 10.96% 9.15% 13.82-% -10.24% 19.50% 3.84%

Lipper CA Ins.
Muni. Funds Avg.-4.25% 11.45% 9.84% 6.90% 10.91% 9.36% 12.83% -8.52% 19.21% 3.34%

Consumer Price
Index 4.43% 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: -4.48
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: 11.61
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: 8.76
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: 7.02
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: 10.96
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: 9.15
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: 13.82
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: -10.24
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: 19.5
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: 3.84
Row: 10, Col: 2, Value: nil
(LARGE SOLID BOX) California
Insured

YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
CALIFORNIA INCOME -3.67% 11.78% 9.67% 6.96% 10.16% 8.71% 13.43% -8.88% 19.17% 4.76%

Lipper CA Muni.
Debt Funds Avg. 1.96% 10.99% 9.78% 6.50% 11.11% 8.39% 12.62% -7.59% 18.32% 3.65%

Consumer Price
Index 4.43% 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: -3.67
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: 11.78
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: 9.67
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: 6.96
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: 10.16
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: 8.709999999999999
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: 13.43
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: -8.880000000000001
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: 19.17
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: 4.76
Row: 10, Col: 2, Value: nil
(LARGE SOLID BOX) California
Income

TOTAL RETURN is the change in value of an investment over a given period,
assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time. An
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as
actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond funds
are calculated according to a standard that is required for all stock and
bond funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders.
LEHMAN BROTHERS CALIFORNIA INSURED 1-26 YEAR MUNICIPAL BOND INDEX is a
total return performance benchmark for insured California investment-grade
municipal bonds with maturities between one and 26 years.
LEHMAN BROTHERS CALIFORNIA MUNICIPAL BOND INDEX is a total return
performance benchmark for California investment-grade municipal bonds with
maturities of at least one year.
Unlike each fund's returns, the total returns of each comparative index do
not include the effect of any brokerage commissions, transaction fees, or
other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper California Insured Municipal
Funds Average for California Insured and the Lipper California Municipal
Debt Funds Average for California Income, which currently reflect the
performance of over 28 and 98 mutual funds with similar investment
objectives, respectively. These averages, published by Lipper Analytical
Services, Inc., exclude the effect of sales charges.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL

CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. Fidelity California Municipal Money
Market Fund is a non-diversified fund of Fidelity California Municipal
Trust II, and Fidelity California Insured Municipal Income Fund and
Fidelity California Municipal Income Fund are 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 the funds' performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 230
(solid bullet) Assets in Fidelity mutual
funds: over $437 billion
(solid bullet) Number of shareholder
accounts: over 30 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 270
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FMR Texas, located in Irving, Texas, has primary
responsibility for providing investment management services for California
Money Market.
Jonathan D. Short is manager of California Insured and California Income,
both of which he has managed since March 1995. He also manages other
Fidelity funds. Since joining Fidelity in 1990, Mr. Short has worked as an
analyst and manager.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Company, Inc. (FSC) performs transfer
agent servicing functions for each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members of
the Edward C. Johnson 3d family are the predominant owners of a class of
shares of common stock representing approximately 49% of the voting power
of FMR Corp. Under the Investment Company Act of 1940 (the 1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
UMB Bank, n.a. (UMB), is each fund's transfer agent, although it employs
FSC to perform these functions for each fund. UMB is located at 1010 Grand
Avenue, Kansas City, Missouri.
FMR may use its broker-dealer affiliates and other firms that sell fund
shares to carry out a fund's transactions, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
EACH FUND'S INVESTMENT
APPROACH
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will change
daily based on changes in interest rates and market conditions. Money
market funds follow industry-standard guidelines on the quality, maturity,
and diversification of their investments, which are designed to help
maintain a stable $1.00 share price. Of course, there is no guarantee that
a money market fund will be able to maintain a stable $1.00 share price. It
is possible that a major change in interest rates or a default on the
fund's investments could cause its share price (and the value of your
investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn income
at current money market rates. In managing money market funds, FMR stresses
preservation of capital, liquidity, and income. The fund will purchase only
high-quality securities that FMR believes present minimal credit risks and
will observe maturity restrictions on securities it buys.
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 money market securities of all types.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types and
maturities of the securities a bond fund purchases and the credit quality
of their issuers will impact a bond fund's reaction to these events.
INTEREST RATE RISK. In general, bond prices rise when interest rates fall
and fall when interest rates rise. Longer-term bonds are usually more
sensitive to interest rate changes. In other words, the longer the maturity
of a bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or in
the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to changes in
long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of its
issuer. Changes in the financial condition of an issuer, changes in general
economic conditions and changes in specific economic conditions that affect
a particular type of issuer can impact the credit quality of an issuer.
Lower quality bonds generally tend to be more sensitive to these changes
than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity that
issued them and/or other revenue streams. Municipal security values may be
significantly affected by political changes, as well as uncertainties in
the municipal market related to taxation of municipal securities or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond includes
both income and price gains or losses. In selecting investments for a bond
fund, FMR considers a bond's expected income together with its potential
for price gains or losses. While income is the most important component of
bond returns over time, a bond fund's emphasis on income does not mean the
fund invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
FMR focuses on assembling a portfolio of income-producing bonds that it
believes will provide the best balance between risk and return within the
ranges of eligible investments for the fund. FMR's evaluation of a
potential investment includes an analysis of the credit quality of the
issuer, its structural features, its current price compared to FMR's
estimate of its long-term value, and any short-term trading opportunities
resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different market
sectors (for example, general obligation bonds of a state or bonds
financing a specific project) and different maturities based on its view of
the relative value of each sector or maturity. The performance of the fund
will depend on how successful FMR is in pursuing this approach.
CALIFORNIA INSURED MUNICIPAL INCOME seeks high current income that is free
from federal income tax and California personal income tax by investing
primarily in municipal securities that are covered by insurance
guaranteeing the timely payment of interest and principal.
The insurance coverage for the fund's investments is obtained either by the
bond's issuer or underwriter, or purchased by the fund. The fund pays
premiums for the insurance either directly or indirectly, which increases
the credit safety of the fund's invesments, but decreases its yield. It is
important to note that the insurance does not guarantee the market value of
a security or the fund's shares. As a result of the fund's emphasis on
insured securities, the fund's performance will be affected by conditions
affecting the insurance industry.
Although the fund does not maintain an average maturity within a specified
range, FMR seeks to manage the fund so that it generally reacts to changes
in interest rates similarly to municipal bonds with maturities between
eight and 18 years.
CALIFORNIA MUNICIPAL INCOME seeks high current income that is free from
federal income tax and California personal income tax by investing in
investment-grade municipal securities under normal conditions.
Although the fund does not maintain an average maturity within a specified
range, FMR seeks to manage the fund so that it generally reacts to changes
in interest rates similarly to municipal bonds with maturities between
eight and 18 years.
EACH FUND normally invests in municipal securities. FMR normally invests at
least 65% of the money market fund's total assets in state municipal
securities and so that at least 80% of the fund's income distributions are
free from federal income tax. FMR normally invests at least 65% of the
insured fund's total assets in municipal securities that are covered by
insurance guaranteeing the timely payment of interest and principal. The
balance, however, may be invested in other municipal securities, including
uninsured municipal bonds. FMR will invest so that at least 80% of the
fund's income distributions are free from both federal and California
personal income taxes. FMR normally invests the income fund's assets so
that at least 80% of the fund's income distributions are free from both
federal and California personal income taxes. In addition, FMR may invest
all of each fund's assets in municipal securities issued to finance private
activities. The interest from these securities is a tax-preference item for
purposes of the federal alternative minimum tax.
Each fund's performance is affected by the economic and political
conditions within the state of California. California suffered a severe
economic recession between 1990-93, which resulted in broad-based revenue
shortfalls for the State and many local governments. California's fiscal
condition has improved as its economy has been in a sustained recovery
since 1994. During the recession, the State substantially reduced local
assistance, and further reductions could adversely affect the financial
condition of cities, counties, and other government agencies facing
constraints in their own revenue collections. California's long-term credit
rating stabilized after having been reduced in the past several years.
California voters in the past have passed amendments to the California
Constitution and other measures that limit the taxing and spending
authority of California governmental entities and future voter initiatives
could result in adverse consequences affecting California municipal bonds.
The funds differ primarily with respect to the quality or maturity of their
investments and therefore their sensitivity to changes in economic and
other financial conditions and interest rates. The money market fund seeks
to provide income while maintaining a stable share price. The bond funds
seek to provide a higher level of income by investing in a broader range of
securities. As a result, the bond funds do not seek to maintain a stable
share price. Although both bond funds normally invest in investment-grade
securities, California Insured generally invests in higher quality
securities as a result of its focus on insured securities. As of February
28, 1997, the dollar-weighted average maturity for California Insured and
California Income was approximately 15.5 and 14.6 years, respectively. In
addition, since the money market fund concentrates its investment in
California municipal securities, an investment in the money market fund may
be riskier than an investment in other types of money market funds.
FMR may use various investment techniques to hedge a portion of the bond
funds' risks, but there is no guarantee that these strategies will work as
intended. When you sell your shares of the bond funds, they may be worth
more or less than what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations and the bond funds do not expect to invest in state taxable
obligations. Each fund also reserves the right to invest without limitation
in short-term instruments, to hold a substantial amount of uninvested cash,
or to invest more than normally permitted in federally taxable obligations
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each fund's investments are contained in a fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Fund holdings and recent investment strategies are detailed in each fund's
financial reports, which are sent to shareholders twice a year. For a free
SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer generally pays the investor a
fixed, variable or floating rate of interest, and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face
values.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of credit quality. In general, bond prices rise
when interest rates fall, and fall when interest rates rise. Longer-term
bonds and zero coupon bonds are generally more sensitive to interest rate
changes.
In addition, bond prices are also affected by the credit quality of the
issuer. Investment-grade debt securities are medium- and high-quality
securities. Some, however, may possess speculative characteristics, and may
be more sensitive to economic changes in the financial condition of
issuers.
RESTRICTIONS: California Insured invests only in investment-grade
securities. A security is considered to be investment-grade if it is judged
by FMR to be of equivalent quality to securities rated Baa or BBB or higher
by Moody's Investors Service or Standard & Poor's, respectively. California
Income normally invests in investment-grade securities, but reserves the
right to invest up to 5% of its assets in below investment-grade securities
(sometimes called "junk bonds"). A security is considered to be
investment-grade if it is rated investment-grade by Moody's, S&P, Duff &
Phelps Credit Rating Co., or Fitch Investor Services, L.P., or is unrated
but judged by FMR to be of equivalent quality. California Income may not
invest in securities judged by FMR to be of equivalent quality to those
rated lower than B by Moody's or S&P.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
municipalities, local and state governments, and other entities. These
obligations may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets so that
they are eligible investments for money market funds. If the structure does
not perform as intended, adverse tax or investment consequences may result.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be fully or partially backed by the local government, or by the credit
of a private issuer or the current or anticipated revenues from specific
projects or assets. Because many municipal securities are issued to finance
similar types of projects, especially those relating to education, health
care, housing, transportation, and utilities, the municipal markets can be
affected by conditions in those sectors. In addition, all municipal
securities may be affected by uncertainties regarding their tax status,
legislative changes, or rights of municipal securities holders. A municipal
security may be owned directly or through a participation interest.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of credit
and liquidity enhancement, including letters of credit, guarantees, puts
and demand features, and insurance, provided by foreign or domestic
entities such as banks and other financial institutions. These arrangements
expose a fund to the credit risk of the entity providing the credit or
liquidity support. Changes in the credit quality of the provider could
affect the value of the security and a fund's share price. In addition, in
the case of foreign providers of credit or liquidity support, extensive
public information about the provider may not be available, and unfavorable
political, economic, or governmental developments could affect its ability
to honor its commitment.
STATE MUNICIPAL 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will be affected
by the strength of the U.S. dollar, interest rates, the price stability of
oil imports, and the continued existence of favorable tax incentives.
ASSET-BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by a municipal issuer.
The value of these securities depends on many factors, including changes in
market interest rates, the availability of information concerning the pool
and its structure, prepayment expectations, the credit quality of the
underlying assets, and the market's perception of the servicer of the loan
pool, and any credit enhancement provided.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
MUNICIPAL LEASE OBLIGATIONS are used by municipal issuers to acquire land,
equipment, or facilities. If the issuer stops making payments or transfers
its obligations to a private entity, the obligation could lose value or
become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. In exchange for this benefit, a fund may accept a lower
interest rate. Demand features and standby commitments are types of put
features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The economic viability
of a project or changes in tax incentives could affect the price of these
securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security prices. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, swap agreements, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with a
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of a fund and may involve a small investment of
cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading practices
in which payment and delivery for the security take place at a later date
than is customary for that type of security. The price of the security
could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR or
its affiliates, whose goal is to seek a high level of current income exempt
from federal income tax while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
RESTRICTIONS: California Insured and California Income do not currently
intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
changes in the market value of a single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, each fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any issuer. These limitations do not apply to U.S. Government
securities or to securities of other investment companies. Each fund may
invest more than 25% of its total assets in tax-free securities that
finance similar types of projects. California 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 fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
CALIFORNIA MUNICIPAL 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 INSURED MUNICIPAL INCOME 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
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 MUNICIPAL INCOME 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 standard
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 purpose, but not in an
amount exceeding 33 % of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to an affiliate who provides
assistance with these services for California 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 0.37%, and it drops as
total assets under management increase.
For February 1997, the group fee rate was 0.14%. Each fund's individual
fund fee rate is 0.25%. Each fund's total management fee rate for fiscal
1997 was 0.39%.
FMR Texas is California Money Market Fund's sub-adviser and has primary
responsibility for managing its investments. FMR is responsible for
providing other management services. FMR pays FMR Texas 50% of its
management fee (before expense reimbursements) for FMR Texas' services. FMR
paid FMR Texas a fee equal to 0.20% of California Money Market Fund's
average net assets for the fiscal year ended February 28, 1997.
OTHER EXPENSES
While the management fee is a significant component of the funds' annual
operating costs, the funds have other expenses as well.
FSC performs many transaction and accounting functions. These services
include processing shareholder transactions, valuing each fund's
investments, and handling securities loans. In the fiscal year ended
February 1997, FSC received fees equal to 0.21%, 0.17% and 0.16%,
respectively, of California Money Market's, California Insured's and
California Income'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 the fiscal year ended February 1997, the portfolio turnover rates for
California Insured and California Income were 16% and 17%, respectively.
These rates vary from year to year.
YOUR ACCOUNT

DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in a fund through a brokerage account. You can
choose California Money Market as your core account for your Fidelity Ultra
Service Account(registered trademark) or FidelityPlusSM brokerage account.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee for
this service. If you invest through FBSI, another financial institution, or
an investment professional, read their program materials for any special
provisions, additional service features or fees that may apply to your
investment in a fund. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
EACH FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. California 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. Shares of California Insured are offered to current
shareholders only.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
FOR THE MONEY MARKET FUND
TO OPEN AN ACCOUNT $5,000
TO ADD TO AN ACCOUNT $250
Through regular investment plans* $100
MINIMUM BALANCE $2,000
MINIMUM INVESTMENTS**
FOR THE BOND FUNDS
TO OPEN AN ACCOUNT
(California Income only) $10,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans* $500
MINIMUM BALANCE $5,000
*FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE .
**THESE MINIMUMS DO NOT APPLY TO SHAREHOLDERS WITH EXISTING ACCOUNTS ON
RECORD MARCH 31, 1997.
These minimums may vary for investments through Fidelity Portfolio Advisory
Services. Refer to the program materials for details.

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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT

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

</TABLE>

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

</TABLE>

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

</TABLE>

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

</TABLE>

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

</TABLE>

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

</TABLE>

HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
TO SELL SHARES THROUGH YOUR FIDELITY ULTRA SERVICE OR FIDELITYPLUS 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 $5,000
($2,000 for the money market fund) worth of shares in the account to keep
it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS

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

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

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

</TABLE>

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Check (check_graphic) All account types (small solid bullet) Minimum check: $1,000
($500 for the money market
fund).
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.

</TABLE>

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

</TABLE>

INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more than
one account in the fund. Call 1-800-544-6666 if you need copies of
financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing.
Note that exchanges out of a fund are limited to four per calendar year
(except for California Insured Municipal Income), and that they may have
tax consequences for you. For details on policies and restrictions
governing exchanges, including circumstances under which a shareholder's
exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE enables you to transfer money by phone between your
bank account and your fund account. Most transfers are complete within
three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND

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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (small solid bullet) For a new account, complete the
($100 for the quarterly appropriate section on the fund
money market application.
fund) (small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.

</TABLE>

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

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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (small solid bullet) Check the appropriate box on the fund
($100 for the period application, or call 1-800-544-6666 for an
money market authorization form.
fund) (small solid bullet) Changes require a new authorization
form.

</TABLE>

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

<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (small solid bullet) To establish, call 1-800-544-6666 after
($100 for the bimonthly, both accounts are opened.
money market quarterly, or (small solid bullet) To change the amount or frequency of
fund) annually your investment, call 1-800-544-6666.

</TABLE>

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

DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains, if any, to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains earned by the bond funds are
normally distributed in 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 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 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. 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 interest on state
tax-free investments, they will be free from California state personal
income tax.
During the fiscal year ended February 1997, 100% of each fund's income
dividends was free from federal income and California taxes. 27.44% of
California Money Market's, 0.23% of California Insured's and 0.20% of
California Income's dividends were subject to the federal alternative
minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to
other Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but not yet
distributed income or capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The money market fund's assets are valued 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 on the basis of information furnished by a pricing service
or by another method that the Board of Trustees believes accurately
reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) is its NAV. Each funds
REDEMPTION PRICE (price to sell one share) is its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Remember to keep shares in your account in order to be
eligible to purchase additional shares of California Insured.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
(small solid bullet) If your account is not an Ultra Service Account, there
is a $1.00 charge for each check written under $1,000 ($500 for the money
market fund).
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $24.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. This fee will not be
deducted from Fidelity Brokerage Accounts, retirement accounts (except
non-prototype retirement accounts), accounts using regular investment
plans, or if total assets with Fidelity exceed $30,000. Eligibility for the
$30,000 waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number or
which list the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, ($2,000 FOR THE MONEY MARKET
FUND), you will be given 30 days' notice to reestablish the minimum
balance. If you do not increase your balance, Fidelity reserves the right
to close your account and send the proceeds to you. Your shares will be
redeemed at the NAV on the day your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the funds without
reimbursement from the funds. Qualified recipients are securities dealers
who have sold fund shares or others, including banks and other financial
institutions, under special arrangements in connection with FDC's sales
activities. In some instances, these incentives may be offered only to
certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be available for
sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each fund reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.

This prospectus is printed on recycled paper using soy-based inks.
Spartan California Municipal Income Fund
Spartan California Intermediate Municipal Income Fund
Fidelity California Insured Municipal Income Fund
(Funds of Fidelity California Municipal Trust)
Fidelity California Municipal Income Fund
(A Fund of Fidelity California Municipal Trust)
FORM N-14
STATEMENT OF ADDITIONAL INFORMATION
June 9, 1997

This Statement of Additional Information, relates to the proposed
reorganization whereby Fidelity California Municipal Income Fund (Fidelity
CA Income), a series of Fidelity California Municipal Trust, would acquire
all of the assets of Spartan California Municipal Income Fund (Spartan CA
Income), Spartan California Intermediate Municipal Income Fund (Spartan CA
Intermediate), and Fidelity California Insured Municipal Income Fund
(Fidelity CA Insured), other series of Fidelity California Municipal Trust,
and assume all of Spartan CA Income's, Spartan CA Intermediate's, and
Fidelity CA Insured's liabilities in exchange solely for shares of
beneficial interest in Fidelity CA Income.
This Statement of Additional Information consists of this cover page and
the following described documents, each of which is attached hereto and
incorporated herein by reference:
1. The Statement of Additional Information of Fidelity California
Municipal Income Fund dated April 19, 1997.
2. The Prospectuses and Statements of Additional Information of Spartan
California Municipal Income Fund, Spartan California Intermediate Municipal
Income Fund, and Fidelity California Insured Municipal Income Fund dated
April 19, 1997.
3. The Annual Report of Fidelity California Municipal Income Fund for the
fiscal year ended February 28, 1997.
4. The Annual Reports of Spartan California Municipal Income Fund, Spartan
California Intermediate Municipal Income Fund, and Fidelity California
Insured Municipal Income Fund for the fiscal year ended February 28, 1997.
5. The Pro Forma Financial Statements for Spartan California Municipal
Income Fund, Spartan California Intermediate Municipal Income Fund,
Fidelity California Insured Municipal Income Fund, and Fidelity California
Municipal Income Fund for the period ended February 28, 1997.
This Statement of Additional Information is not a prospectus. A Proxy
Statement and Prospectus dated June 9, 1997, relating to the
above-referenced matter may be obtained from Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, Massachusetts, 02109. This
Statement of Additional Information relates to, and should be read in
conjunction with, such Proxy Statement and Prospectus.

FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY CALIFORNIA MUNICIPAL TRUST II
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND,
FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
FUNDS OF FIDELITY CALIFORNIA MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 19, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus (dated
April 19, 1997). Please retain this document for future reference. The
funds' Annual Report is a separate document supplied with this SAI. To
obtain a free additional copy of a Prospectus or an Annual Report, please
call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE

Investment Policies and Limitations

Special Considerations Affecting California

Special Considerations Affecting Puerto Rico

Portfolio Transactions

Valuation

Performance

Additional Purchase and Redemption Information

Distributions and Taxes

FMR

Trustees and Officers

Management Contracts

Distribution and Service Plans

Contracts with FMR Affiliates

Description of the Trusts

Financial Statements

Appendix

INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas, Inc. (FMR Texas) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
CFR-ptb-0497
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 by a "majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940) of the fund. However, except
for the fundamental investment limitations listed below the investment
policies and limitations described in this Statement of Additional
Information are not fundamental and may be changed without shareholder
approval.
INVESTMENT LIMITATIONS OF FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) 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
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 business days (not including
Sundays and holidays) to the extent necessary to comply with the 33 1/3%
limitation;
(5) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies 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.
(11) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company managed by Fidelity Management &
Research Company or an affiliate or successor with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund 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 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.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company managed by
Fidelity Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies and
limitations as the fund.
For the fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page .
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than 5% of
the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of other
investment companies. These tax requirements are generally applied at the
end of each quarter of the fund's taxable year.
INVESTMENT LIMITATIONS OF FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND
(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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to 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 invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than 5% of
the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of other
investment companies. These tax requirements are generally applied at the
end of each quarter of the fund's taxable year.
For the insured fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
beginning on page .
INVESTMENT LIMITATIONS OF FIDELITY CALIFORNIA MUNICIPAL INCOME FUND
(INCOME FUND)
THE FOLLOWING ARE THE INCOME FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business;
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); 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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to 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 invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its total assets so that no more than 5% of
the fund's total assets are invested in securities of any one issuer.
However, Subchapter M allows unlimited investments in cash, cash items,
government securities (as defined in Subchapter M) and securities of other
investment companies. These tax requirements are generally applied at the
end of each quarter of the fund's taxable year.
For the income fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
beginning on page .
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that doing so will help the fund achieve its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The bond
funds may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that, in FMR's judgment, are of high quality. These obligations
would include those issued or guaranteed by the U.S. government or its
agencies or instrumentalities and repurchase agreements backed by such
obligations.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond funds' standards for high-quality, taxable obligations
are essentially the same as those described by Moody's Investors Service,
Inc. (Moody's) in rating corporate obligations within its two highest
ratings of Prime-1 and Prime-2, and those described by Standard & Poor's
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2. The money market fund will purchase taxable obligations only if
they meet its quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before 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.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, OTC Options, Purchasing Put and Call Options, and
Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
1.LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond fund has filed
a notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and option premiums.
In addition, each bond fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of the
fund's total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this SAI, are not fundamental policies and may be
changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
For the money market fund, FMR may determine some restricted securities and
municipal lease obligations to be illiquid.
For the bond funds, investments currently considered to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments for the money
market fund[s] are valued for purposes of monitoring amortized cost
valuation, and for the bond funds are priced at fair value as determined in
good faith by a committee appointed by the Board of Trustees. If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
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 March 1, 1996 to February 28, 1997, the fund did not purchase any
portfolio insurance. 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", 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 $5.69 billion
(unaudited) and statutory capital of approximately $1.384 billion
(unaudited) as of June 30, 1996. Statutory 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.
Financial Security Assurance (FSA) is a "Aaa/AAA" rated monoline stock
insurance company incorporated in the State of Maryland. FSA is a publicly
owned company whose shares are traded on the New York Stock Exchange.
FSA is authorized to provide insurance in 49 states, the District of
Columbia and three U.S. territories. FSA focuses on insuring municipal
securities. Their policies guarantee the timely payment of principal and
interest when due for payment on new issue and secondary market issue
municipal bond transactions. FSA's claims-paying ability is rated
"Triple-A" by both Moody's and Standard & Poor's. Therefore, if FSA insures
and issue with a stand alone rating of less than "Triple-A", such issue
would be "upgraded" to "Aaa/AAA" by virtue of FSA's insurance.
As of June 30, 1996, FSA had $53.3 billion in net exposure outstanding. The
total statutory policyholders' surplus and contingency reserve of FSA was
$1.516 billion (unaudited) and the total admitted assets were $270,021,126
(unaudited) as reported to the Insurance Department of the State of
Maryland as of June 30, 1996.
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 June 30, 1996 totalled
$1.485 billion, comprised of capital and surplus of $1.069 billion and a
contingency reserve of $4.5 million.
Municipal Bond Investors Assurance Corporation (MBIA) is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed
company. MBIA Inc. is not obligated to pay debts of, or claims against
MBIA. MBIA is a limited liability corporation rather than a several
liability association. MBIA is domiciled in the state of New York and
licensed to do business in all 50 states, the District of Columbia, and the
Commonwealth of Puerto Rico. Moody's rates all bond issues insured by MBIA
"Aaa" and short-term loans "MIG-1," both designated to be of the highest
quality; S&P rates all new issues insured by MBIA "AAA" Prime Grade. As of
June 30, 1996, MBIA had total assets of $7.869 billion (unaudited), and
total capital and surplus of $2.189 billion (unaudited) determined in
accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, each fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates, but each
fund currently intends to participate in this program only as a borrower.
Interfund borrowings normally extend overnight, but can have a maximum
duration of seven days. A fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and a fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. The income fund may invest a portion of
its assets in lower-quality 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 a fund to value its portfolio
securities, and the fund's ability to dispose of lower-quality bonds. The
outside pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be affected
by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the funds.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. The electric utilities industry has been experiencing,
and will continue to experience, increased competitive pressures. Federal
legislation in the last two years will open transmission access to any
electricity supplier, although it is not presently known to what extent
competition will evolve. Other risks include: (a) the availability and cost
of fuel, (b) the availability and cost of capital, (c) the effects of
conservation on energy demand, (d) the effects of rapidly changing
environmental, safety, and licensing requirements, and other federal,
state, and local regulations, (e) timely and sufficient rate increases, and
(f) opposition to nuclear power.
HEALTH CARE. The health care industry is subject to regulatory action by a
number of private and governmental agencies, including federal, state, and
local governmental agencies. A major source of revenues for the health care
industry is payments from the Medicare and Medicaid programs. As a result,
the industry is sensitive to legislative changes and reductions in
governmental spending for such programs. Numerous other factors may affect
the industry, such as general and local economic conditions; demand for
services; expenses (including malpractice insurance premiums); and
competition among health care providers. In the future, the following
elements may adversely affect health care facility operations: adoption of
legislation proposing a national health insurance program; other state or
local health care reform measures; medical and technological advances which
dramatically alter the need for health services or the way in which such
services are delivered; changes in medical coverage which alter the
traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance
and health care services.
HOUSING. Housing revenue bonds are generally issued by a state, county,
city, local housing authority, or other public agency. They generally are
secured by the revenues derived from mortgages purchased with the proceeds
of the bond issue. It is extremely difficult to predict the supply of
available mortgages to be purchased with the proceeds of an issue or the
future cash flow from the underlying mortgages. Consequently, there are
risks that proceeds will exceed supply, resulting in early retirement of
bonds, or that homeowner repayments will create an irregular cash flow.
Many factors may affect the financing of multi-family housing projects,
including acceptable completion of construction, proper management,
occupancy and rent levels, economic conditions, and changes to current laws
and regulations.
WATER AND SEWER. Water and sewer revenue bonds are often considered to have
relatively secure credit as a result of their issuer's importance, monopoly
status, and generally unimpeded ability to raise rates. Despite this, lack
of water supply due to insufficient rain, run-off, or snow pack is a
concern that has led to past defaults. Further, public resistance to rate
increases, costly environmental litigation, and Federal environmental
mandates are challenges faced by issuers of water and sewer bonds.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the funds will not
hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
PUT FEATURES entitle the holder to sell a security back to the issuer or a
third party at any time or at specified intervals. They are subject to the
risk that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other
entities. Demand features, standby commitments, and tender options are
types of put features.
2.QUALITY AND MATURITY (MONEY MARKET FUND ONLY). Pursuant to procedures
adopted by the Board of Trustees, the fund may purchase only high-quality
securities that FMR believes present minimal credit risks. To be considered
high-quality, a security must be rated in accordance with applicable rules
in one of the two highest categories for short-term securities by at least
two nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of equivalent
quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1 or SP-1), and second tier
securities are those deemed to be in the second highest rating category
(e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued basis
in connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts require the issuer to sell and the fund to buy refunded
municipal obligations at a stated price and yield on a settlement date that
may be several months or several years in the future. A fund generally will
not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). A fund may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract. When required by
SEC guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or other entity in determining whether to purchase a
security supported by a letter of credit guarantee, put or demand feature,
insurance or other source of credit or liquidity. In evaluating the credit
of a foreign bank or other foreign entities, FMR will consider whether
adequate public information about the entity is available and whether the
entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
SPECIAL CONSIDERATIONS AFFECTING 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 fund. Obligations of the state or local governments
may also be affected by budgetary pressures affecting the State of
California (the State) and economic conditions in the State. Interest
income to the fund could also be adversely affected. The following
discussion 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, its
agencies, or instrumentalities, as available as of the date of this SAI.
FMR has not independently verified any of the information contained in such
official statements and other publicly available documents, but is not
aware of any fact which would render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND APPROPRIATIONS
LIMITATIONS ON PROPERTY TAXES. Certain obligations held by the fund 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 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, Proposition 13 limits to 1% of full
cash value the rate of AD VALOREM property taxes on real property and
generally restricts the increase in taxes upon 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 levies of "general taxes" which
were not dedicated to a specific use.
LIMITATIONS ON OTHER TAXES, FEES AND CHARGES. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on
Taxes Act." Proposition 218 added Article XIIIC and XIIID to the State
Constitution, which contain a number of provisions affecting the ability of
local agencies to levy and collect both existing and future taxes,
assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted
to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific
purposes require a two-thirds vote. Further, any general purpose tax which
was imposed, extended or increased without voter approval after December
31, 1994 must be approved by a majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for
municipal services and programs. Article XIIID also contains several new
provisions affecting "fees" and "charges," defined for purposes of Article
XIIID to mean "any levy other than an AD VALOREM tax, a special tax, or an
assessment, imposed by a [local government] upon a parcel or upon a person
as an incident of property ownership, including a user fee or charge for a
property related service." All new and existing property related fees and
charges must conform to requirements prohibiting, among other things, fees
and charges which generate revenues exceeding the funds required to provide
the property related service or are used for unrelated purposes. There are
new notice, hearing and protest procedures for levying or increasing
property related fees and charges, and, except for fees or charges for
sewer, water and refuse collection services (or fees for electrical and gas
service, which are not treated as "property related" for purposes of
Article XIIID), no property related fee or charge may be imposed or
increased without majority approval by the property owners subject to the
fee or charge or, at the option of the local agency, two-thirds voter
approval by the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments,
fees and charges. Consequently, local voters could, by future initiative,
repeal, reduce or prohibit the future imposition or increase of any local
tax assessment, fee or charge. It is unclear how this right of local
initiative may be used in cases where taxes or charges have been or will be
specifically pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the
fiscal flexibility of local governments, and for this reason, some ratings
of California cities and counties have been, and others may be, reduced.
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 consist 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 exclude
most State subventions. No limit is imposed on appropriations of funds
which are not "proceeds of taxes," such as reasonable user charges of 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 follow more closely
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 an 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, many entities were at or approaching their limit, and
several successfully obtained voter approval for four-year waivers of the
limit. Since Proposition 111, the appropriations limit has again ceased to
be a practical limit on California governments, but this condition may
change in the future. 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 1996-97 Budget provides for
State appropriations more than $7.0 billion under the limit for FY 1996-97.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of October 1, 1996, the State had approximately $17.8 billion of general
obligation bonds outstanding (including $272 million of commercial paper
notes which are intended to be refinanced by future bond sales), and $7.6
billion remained authorized but unissued. In addition, at June 30, 1996,
the State had lease-purchase obligations, payable from the State's General
Fund, of approximately $5.8 billion. State voters approved an additional
$2.1 billion of new bonds on the November 5, 1996 ballot. Of the State's
outstanding general obligation debt, approximately 21% is presently
self-liquidating (for which program revenues are anticipated to be
sufficient to reimburse the General Fund for debt service payments). In FY
1995-96, debt service on general obligation bonds and lease-purchase debt
was approximately 5.2% 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
The State'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 32 million, it now represents over 12% of the total U.S.
population. Total personal come in the State, at an estimated $748 billion
in 1995, accounts for more than 12% of all personal income in the nation.
Total employment in 1995 was over 14 million, the majority of which is in
the service, trade, and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others,
were all severely affected, particularly in Southern California. Job losses
were the worst of any post-war recession. Employment levels stabilized by
late 1993 and steady growth has occurred since the start of 1994;
pre-recession job levels were reached early in 1996. Unemployment, while
higher than the national average, came down significantly from the January
1994 peak of 10%. Economic indicators show a steady recovery underway in
California since the start of 1994, particularly in export-related
industries, services, electronics, entertainment and tourism, although the
residential housing sector has been weaker than in previous recoveries. Any
delay or reversal of the economic recovery may cause a recurrence of
revenue shortfalls for the State.
RECENT STATE FINANCIAL RESULTS
The principal sources of State General Fund revenues in 1994-95 were the
California personal income tax (43% of total revenues), the sales tax
(34%), bank and corporation taxes (13%), 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 (but not in the past four years, as the
recession cut revenues and created a deficit), the State has budgeted to
maintain the SFEU 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 35%).
Since the start of FY 1990-91 until FY 1995-96, the State 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. These structural concerns will continue in
future years; in particular, it is anticipated that there will be a need to
increase capital and operating costs of the correctional system in response
to a "Three Strikes" law enacted in 1994 which mandates life imprisonment
for certain felony offenders.
RECENT BUDGETS. As a result of these factors, among others, from the late
1980s until 1992-93 the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years,
and the State accumulated and sustained a budget deficit in the SFEU
approaching $2.8 billion at its peak at June 30, 1993. Starting in FY
1990-91 and for each year thereafter, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance
and to close large "budget gaps" which were identified. The Legislature and
Governor eventually agreed on a number of different steps to produce Budget
Acts in the years 1991-92 to 1995-96, including:
(medium solid bullet) significant cuts in health and welfare program
expenditures;
(medium solid bullet) transfers of program responsibilities and some
funding sources from the State to local governments, coupled with some
reduction in mandates on local government;
(medium solid bullet) transfer of about $3.6 billion in annual local
property tax revenues from cities, counties, redevelopment agencies and
some other districts to local school districts, thereby reducing state
funding for schools;
(medium solid bullet) reduction in growth of support for higher education
programs, coupled with increases in student fees;
(medium solid bullet) revenue increase (particularly in the FY 1991-92
budget), most of which were for a short duration;
(medium solid bullet) increased reliance on aid from the federal government
to offset the costs of incarcerating, educating and providing health and
welfare services to undocumented aliens (although these efforts have
produced much less federal aid than the State Administration had
requested); and
(medium solid bullet) various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive
balances. By the start of FY 1993-94, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit past the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final
retirement of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures and
the turnaround of the economy starting in late 1993 finally led to the
restoration of positive financial results. While General Fund revenues and
expenditures were essentially equal in FY 1992-93 (following two years of
excess expenditures over revenues), the General Fund had positive operating
results in FY 1993-94, FY 1994-95 and FY 1995-96, which reduced the
accumulated budget deficit to less than $100 million as of June 30, 1996.
The State Department of Finance estimated that the General Fund received
revenues of about $46.3 billion in FY 1995-96, more than $2 billion higher
than was originally expected, as a result of the strengthening economy.
Expenditures totaled about $45.4 billion, also about $2 billion higher than
budgeted, because, among other factors, the State Constitution requires
disbursement of a percentage of revenues to local school districts and
federal actions to reduce welfare costs and to pay for costs of illegal
immigrants were not forthcoming to the extent expected.
A consequence of the accumulated budget deficits in the early 1990s,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the
annual budget, was to significantly reduce the State's cash resources
available to pay its ongoing obligations. When the Legislature and the
Governor failed to adopt a budget for FY 1992-93 by July 1, 1992, which
would have allowed the state to carry out its normal annual cash flow
borrowing to replenish its cash reserves, the State Controller was forced
to issue approximately $3.8 billion of registered warrants (IOUs) over a
2-month period to pay a variety of obligations representing prior years'
(or continuing) appropriations and mandates from court orders. Available
funds were used to make constitutionally-mandated payments, such as debt
service on bonds and warrants.
The State's cash condition became so serious that from late spring 1992
until 1995, the State had to rely on issuance of short-term notes which
matured in a subsequent fiscal year to finance its ongoing deficit and pay
current obligations. With the repayment of the last of these deficit notes
in April, 1996, the State does not plan to rely further on external
borrowings across fiscal years, but will continue its normal cash flow
borrowings during a fiscal year.
CURRENT BUDGET. The 1996-97 Budget Act was signed by the Governor on July
15, 1996, along with various implementing bills. The Legislature rejected
the Governor's proposed 15% cut in personal income taxes (to be phased over
three years), but did approve a 5% cut in bank and corporation taxes, to be
effective for income years starting on January 1, 1997. As a result,
revenues for the Fiscal Year are estimated to total $47.643 billion, a 3.3
percent increase over the final estimated 1995-96 revenues. The Budget Act
contains General Fund appropriations totaling $47.251 billion, a 4.0
percent increase over the final estimated 1995-96 expenditures.
The following are principal features of the 1996-97 Budget Act:
1. Funding for schools and community college districts increased by $1.65
billion total above revised 1995-96 levels. Almost half of this money was
budgeted to fund class-size reductions in kindergarten and grades 1-3.
Also, for the second year in a row, the full cost of living allowance (3.2
percent) was funded. The funding increases have brought K-12 expenditures
to almost $4,800 per pupil, an almost 15% increase over the level
prevailing during the recession years.
2. Proposed cuts in health and welfare totaling $660 million. All of these
cuts require federal law changes (including welfare reform, which was
enacted), federal waivers, or federal budget appropriations in order to be
achieved. Ultimate federal actions after enactment of the Budget Act will
allow the State to save only about $360 million of this amount.
3. A 4.9 percent increase in funding for the University of California and
the California State University system, with no increases in student fees
for the second consecutive year.
4. The Budget Act assumed the federal government will provide approximately
$700 million in new aid for incarceration and health care costs of illegal
immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund.
With signing of the Budget Act, the State implemented its regular cash flow
borrowing program with the issuance of $3.0 billion of Revenue Anticipation
Notes to mature on June 30, 1997. The Budget Act appropriated a modest
budget reserve in the SFEU of $305 million, as of June 30, 1997. The
General Fund fund balance, however, still reflects $1.6 billion of "loans"
which the General Fund made to local schools in the recession years,
representing cash outlays above the mandatory minimum funding level.
Settlement of litigation over these transactions in July 1996 calls for
repayment of these loans over the period ending in 2001-02, about equally
split between outlays from the General Fund and from schools' entitlements.
The 1996-97 Budget Act contained a $150 million appropriation from the
General Fund toward this settlement.
The Department of Finance projected, when the Budget Act was passed, that,
on June 30, 1997, the State's available internal borrowable (cash)
resources will be $2.9 billion, after payment of all obligations due by
that date, so that no external cross-fiscal year borrowing will be needed.
The State will continue to rely on internal borrowing and intra-year
external note borrowing to meet its cash flow requirements.
The Department of Finance has reported that, based on stronger than
expected revenues during the first six months of the 1996-97 fiscal year,
reflecting the continued strength of the State's economic recovery, General
Fund revenues for the full 1996-97 fiscal year will be almost $1 billion
above projections, at about $48.4 billion. This is expected to be offset by
required increased payments to schools, and lower than expected savings
resulting from federal welfare reform actions and federal aid for illegal
immigrants. As a result, the expected balance of the SFEU at June 30, 1997
has been slightly reduced to about $197 million, still the first positive
balance in the decade of the 90's. The State has not yet given any
prediction of how the federal welfare reform law will impact the State's
finances, or those of its local agencies; the State is in the midst of
making many decisions concerning implementation of the new welfare law.
PROPOSED 1997-98 BUDGET. On January 9, 1997, the Governor released his
proposed budget for FY 1997-98. Assuming continuing strength in the
economy, the Governor projects General Fund revenues of $50.7 billion, and
proposes expenditures of $50.3 billion, to leave a budget reserve in the
SFEU of $550 million at June 30, 1998. The Governor proposed further
programs to reduce class size in lower primary grades, using excess
revenues from FY 1996-97. He also proposed a further cut in corporate
taxes, and sweeping changes in public assistance programs to respond to the
new federal welfare reform law.
The State's financial difficulties for the past budget years and other
factors noted above will result in continued pressure upon almost all local
governments, especially those which depend on State aid, such as school
districts and counties. While recent budgets included both permanent tax
increases and actions to reduce costs of state government over the longer
term, the Governor and other analysts have noted that structural imbalances
still exist, and there can be no assurance that the State will not face
budget gaps in the future.
The ratings of California's long-term general obligation bonds were reduced
in the early 1990's from "AAA" levels which had existed prior to the
recession. In 1996, Fitch and Standard & Poor's raised their ratings of
California's general obligation bonds, which are currently assigned ratings
of "A+" from Standard & Poor's, "A1" from Moody's and "A+" from Fitch.
OBLIGATIONS OF OTHER CALIFORNIA ISSUERS
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently,
the State's 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 $33.4 billion in FY 1995-96 (over 70% of General Fund
expenditures) and has been budgeted at $35.0 billion for FY 1996-97,
including the effect of implementing reductions in certain aid programs. To
reduce State General Fund support for school districts, the 1992-93 and
1993-94 Budget Acts caused local governments to transfer $3l8 billion of
property tax revenues to school districts, representing reversal of the
post-Proposition 13 "bailout" aid.
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. A
number of counties, both rural and urban, have indicated that their
budgetary condition is extremely serious. At the start of FY 1995-96, Los
Angeles County (L.A. County), the largest county in the State, was forced
to impose significant cuts in services and personnel, particularly in the
health care system, in order to balance its budget. L.A. County's debt was
downgraded by Moody's and S&P in the summer of 1995. Orange County, which
recently emerged from federal bankruptcy protection, has substantially
reduced services and personnel in order to live within much reduced means.
A school district (Richmond Unified) filed for protection under bankruptcy
laws several years ago, 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 State 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. One of the defenses raised in answer
to this lawsuit was the invalidity of the original lease transaction. The
trial court upheld the validity of the District's lease, and the case has
been settled. However, any future judgment in a similar case against the
position taken by the Trustee may have implications for lease transactions
of a similar nature by other State entities.
OTHER CONSIDERATIONS. The repayment of Industrial Development Securities
secured by real property may be affected by State 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 State 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 a 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 State tax allocation
bonds after the enactment of Article XIIIA and XIIIB, and only resumed such
ratings on a selective basis.
Proposition 87, approved by State 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 the State is within an active geologic region subject
to major seismic activity. Any California municipal obligation held by the
fund could be affected by an interruption of revenue 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.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID 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 these provisions or the
outcome of any pending litigation with respect to those provisions on State
obligations held by the fund 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 State 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 CONSIDERATIONS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the "Commonwealth"
or "Puerto Rico"), and is based on information drawn from official
statements and prospectuses relating to the securities offerings of Puerto
Rico, its agencies and instrumentalities, as available on the date of this
Statement of Additional Information. FMR has not independently verified any
of the information contained in such official statements, prospectuses and
other publicly available documents, but is not aware of any fact which
would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1995 trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of its
imports. In this regard, in fiscal 1995 Puerto Rico experienced a $4.6
billion positive adjusted merchandise trade balance.
Since fiscal 1985 personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1995 aggregate personal
income was $27.0 billion ($26.2 billion in 1992 prices) and personal per
capita income was $7,296 ($7,074 in 1992 prices). Gross domestic product in
fiscal 1992 was $23.7 billion and gross product in fiscal 1996 was $30.2
billion; ($26.7 billion in 1992 prices). This represents an increase in
gross product of 27.5% from fiscal 1992 to 1996 (12.7% in 1992 prices). For
fiscal year ended February 1997, an increase in gross domestic product of
2.7% over fiscal 1996 is forecasted. However, actual growth in the Puerto
Rico economy will depend on several factors including the condition of the
U.S. economy, the exchange value of the U.S. dollar, the price stability of
oil imports, increase in the number of visitors to the island, the level of
exports, the level of federal transfers, and the cost of borrowing.
Puerto Rico's economy continued to expand throughout the five-year period
from fiscal 1992 through fiscal 1996. Almost every sector of the economy
participated and record levels of employment were achieved. Factors behind
the continued expansion included government sponsored economic development
programs, periodic declines in the exchange value of the U.S. dollar, the
level of federal transfers and the relatively low cost of borrowing funds
during the period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the United States average and has been
increasing in recent years. Despite long term improvements, the
unemployment rate rose from 16.5% to 16.8% from fiscal 1992 to fiscal 1993.
However, by the end of fiscal 1994, the unemployment rate dropped to 15.9%
and as of the end of fiscal 1996, stands at 13.8%. Despite this downturn,
there is a possibility that the unemployment rate will increase.
Manufacturing is the largest sector in the economy accounting for $17.7
billion or 41.8% of gross domestic product in fiscal 1995. Manufacturing
has experienced a basic change over the years as a result of the influx of
higher wage, high technology industries such as the pharmaceutical
industry, electronics, computers, microprocessors, scientific instruments
and high technology machinery. The service sector, which includes finance,
insurance, real estate, wholesale and retail trade, hotels and related
services and other services, ranks second in its contribution to gross
domestic product and is the sector that employs the greatest number of
people. In fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector grew from
449,000 in fiscal 1992 to 527,000 in fiscal 1996, a cumulative increase of
17.6%, which increase was greater than the 11.8% cumulative growths in
employment over the same period, providing 46.7% of total employment. The
government sector of the Commonwealth plays an important role in the
economy of the island. In fiscal year 1995 the government accounted for
$4.5 billion or 10.6% of Puerto Rico's gross domestic product and provided
21.7% of the total employment. Tourism also contributes significantly to
the island economy, accounting for $1.8 billion of gross domestic product
in fiscal 1995.
The present administration has developed and is implementing a new economic
development program which is based on the premise that the private sector
should provide the primary impetus for economic development and growth.
This new program, which is referred to as the New Economic Model, promotes
changing the role of the government from one of being a provider of most
basic services to that of a facilitator for private sector initiatives and
encourages private sector investment by reducing government-imposed
regulatory restraints.
The New Economic Model contemplates the development of initiatives that
will foster private investment in, and private management of, sectors that
are served more efficiently and effectively by the private enterprise. One
of these initiatives has been the adoption of a new tax code intended to
expand the tax base, reduce top personal and corporate tax rates, and
simplify the tax system.
The New Economic Model also seeks to identify and promote areas in which
Puerto Rico can compete more effectively in the global markets. Tourism has
been identified as one such area because of its potential for job creation
and contribution to the gross product. In 1993, a new Tourism Incentives
Act and a Tourism Development Fund were implemented in order to provide
special tax incentives and financing for the development of new hotel
projects and the tourism industry. As a result of these initiatives, new
hotels have been constructed or are under construction which have increased
the number of hotel rooms on the island from 8,415 in fiscal 1992 to 10,345
in fiscal 1996 and to 12,250 by the end of fiscal year ended February 1997.
The New Economic Model also seeks to reduce the size of the government's
direct contribution to gross domestic product. As part of this goal the
government has transferred certain governmental operations and sold a
number of its assets to private parties. Among these are: (i) the sale of
the assets of the Puerto Rico Maritime Authority; (ii) the execution of a
five-year management agreement for the operation and management of the
Aqueducts and Sewer Authority by a private company; (iii) the execution by
the Aqueducts and Sewer Authority of a construction and operating agreement
with a private consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts with
private power producers under which two cogeneration plants (with a total
capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of private
health services, in 1994 a new health insurance program was started in the
Fajardo region to provide qualifying Puerto Rico residents with
comprehensive health insurance coverage. In conjunction with this program
certain public health facilities are being privatized. The administration's
goal is to provide universal health insurance for such qualifying
residents. The total cost of this program will depend on the number of
municipalities included and the total number of participants. As of June
30, 1996, over 760,000 persons were participating in the program at an
annual cost to the General Fund of approximately $296 million.
One of the factors assisting the development of the manufacturing sector in
Puerto Rico has been the federal and Commonwealth tax incentives available,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program. The
Industrial Incentives Program, through the 1987 Industrial Incentives Act,
grants corporations engaged in certain qualified activities a fixed 90%
exemption from Commonwealth income and property taxes and a 60% exemption
from municipal license taxes during a 10, 15, 20, or 25 year period
depending on location.
For many years, United States companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax exemption for
operating and qualifying investment income from Puerto Rico sources.
Amendments to Section 936 made in 1993 (the "1993 Amendments") instituted
two alternative methods for calculating the tax credit and limited the
amount of the credit that a qualifying company could claim. These
limitations are based on a percentage of qualifying income (the "percentage
of income limitation") and on qualifying expenditures on wages and other
wage related benefits (the "economic activity limitation", also known as
the "wage credit limitation"). As a result of amendments incorporated in
the Small Business Job Protection Act of 1996 enacted by the United States
Congress and signed into law by President Clinton on August 20, 1996 (the
"1996 Amendments"), as described below the tax credit is now being phased
out over a ten-year period for existing claimants and is no longer
available for corporations that establish operations in Puerto Rico after
October 13, 1995 (including existing Section 936 Corporations (as defined
below) to the extent substantially new operations are established in Puerto
Rico). The 1996 Amendments also moved the credit based on the economic
activity limitation to Section 30A of the Code and phased it out over 10
years. In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in Puerto
Rico. The Section 30A Credit and the remaining Section 936 credit are
discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" ("QDC") that meets
certain gross income tests (which are similar to the 80% and 75% gross
income tests of Section 936 of the Code discussed below) to claim a credit
(the "Section 30A Credit") against the federal income tax imposed on
taxable income derived from sources outside the United States from the
active conduct of a trade or business in Puerto Rico or from the sale of
substantially all the assets used in such business ("possession income").
A QDC is a United States corporation which (i) was actively conducting a
trade or business in Puerto Rico on October 13, 1995, (ii) had a Section
936 election in effect for its taxable year that included October 13, 1995,
(iii) does not have in effect an election to use the percentage limitation
of Section 936(a)(4)(B) of the Code, and (iv) does not add a "substantial
new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to 85% of
the maximum earnings subject to the OASDI portion of Social Security taxes
plus an allowance for fringe benefits of 15% of qualified possession wages,
(ii) a specified percentage of depreciation deductions ranging between 15%
and 65%, based on the class life of tangible property, and (iii) a portion
of Puerto Rico income taxes paid by the QDC, up to a 9% effective tax rate
(but only if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the code may compute the amount of its active
business income, eligible for the Section 30A Credit, by using either the
cost sharing formula, the profit-split formula, or the cost-plus formula,
under the same rules and guidelines prescribed for such formulas as
provided under Section 936 (see discussion below). To be eligible for the
first two formulas, the QDC must have a significant presence in Puerto
Rico.
In the case of taxable years beginning after December 31, 2001, the amount
of possession income that would qualify for the Section 30A Credit would be
subject to a cap based on the QDC's possession income for an average
adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31, 1995
and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, United States
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their United
States corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto Rico
("active business income") and from the sale or exchange of substantially
all assets used in the active conduct of such trade or business. To qualify
under Section 936 in any given taxable year, a corporation must derive for
the three-year period immediately preceding the end of such taxable year,
(i) 80% or more of its gross income from sources within Puerto Rico, and
(ii) 75% or more of its gross income from the active conduct of a trade or
business in Puerto Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one of
three formulas: (A) a cost-sharing formula, whereby it is allowed to claim
all profits attributable to manufacturing intangibles, and other functions
carried out in Puerto Rico, provided it contributes to the research and
development expenses of its affiliated group or pays certain royalties; (B)
a profit-split formula, whereby it is allowed to claim 50% of the net
income of its affiliated group from the sale of products manufactured in
Puerto Rico; or (C) a cost-plus formula, whereby it is allowed to claim a
reasonable profit on the manufacturing costs incurred in Puerto Rico. To be
eligible for the first two formulas, the Section 936 Corporation must have
a significant business presence in Puerto Rico for purposes of the Section
936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the Section 936
credit is only available to companies that elect the percentage of income
limitation and is limited in amount to 40% of the credit allowable prior to
the 1993 Amendments, subject to a five-year phase-in period from 1994 to
1998 during which period the percentage of the allowable credit is reduced
from 60% to 40%.
In the case of taxable years beginning on or after 1998, the possession
income subject to the 936 credit will be subject to a cap based on the
Section 936 Corporation's possession income for an average adjusted base
period ending on October 14, 1995. The 936 credit is eliminated for taxable
years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the long-term effect
on the Puerto Rico economy of the enactment of the 936 Amendments. The
Government of Puerto Rico does not believe there will be short-term or
medium-term material adverse effects on Puerto Rico's economy as a result
of the enactment of the 1996 Amendments. The Government of Puerto Rico
further believes that during the phase-out period sufficient time exists to
implement additional incentive programs to safeguard Puerto Rico's
competitive position. Additionally, the Governor intends to propose a new
federal incentive program similar to what is now provided under Section
30A. Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe benefits,
depreciation expenses for certain tangible assets, and research and
development expenses, and would restore the credit granted to passive
income under Section 936 prior to its repeal by the 1996 Amendments. Under
the Governor's proposal, the credit granted to qualifying companies would
continue in effect until Puerto Rico shows, among other things, substantial
economic improvements in terms of certain economic parameters.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
management contract. In the case of the money market, FMR has granted
investment management authority to the sub-adviser (see the section
entitled "Management Contracts"), and the sub-adviser is authorized to
place orders for the purchase and sale of portfolio securities, and will do
so in accordance with the policies described below. FMR is also responsible
for the placement of transaction orders for other investment companies and
accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by the money market fund generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
fund are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For the fiscal periods ended February 28, 1997 and February 29, 1996, the
portfolio turnover rates were 16% and 49%, respectively for California
Insured and 17% and 37%, respectively for California Income.
For the fiscal years ended February 1997, 1996, and 1995, the funds paid no
brokerage commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION
For the money market fund, Fidelity Service Company, Inc. (FSC) normally
determines the fund's net asset value per share (NAV) as of the close of
the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern time). For
the bond funds, FSC normally determines each fund's NAV as of the close of
the NYSE (normally 4:00 p.m. Eastern time). The valuation of portfolio
securities is determined as of this time for the purpose of computing each
fund's NAV.
TAX-FREE BOND FUNDS. Portfolio securities are valued by various methods. If
quotations are not available, fixed-income securities are usually valued on
the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Use of pricing services has been
approved by the Board of Trustees. A number of pricing services are
available, and the funds may use various pricing services or discontinue
the use of any pricing service.
Futures contracts and options are valued on the basis of market quotations,
if available.
Securities and other assets for which there is no readily available market
value are valued in good faith by a committee appointed by the Board of
Trustees. The procedures set forth above need not be used to determine the
value of the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more accurately
reflect the fair market value of such securities.
MONEY MARKET FUND. Portfolio securities and other assets are valued on the
basis of amortized cost. This technique involves initially valuing an
instrument at its cost as adjusted for amortization of premium or accretion
of discount rather than its current market value. The amortized cost value
of an instrument may be higher or lower than the price the fund would
receive if it sold the instrument.
Securities of other open-end investment companies are valued at their
respective NAVs.
During periods of declining interest rates, a fund's yield based on
amortized cost valuation may be higher than would result if the fund used
market valuations to determine its NAV. The converse would apply during
periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use of
the term "money market fund" are permitted pursuant to Rule 2a-7 under the
1940 Act. The fund must adhere to certain conditions under Rule 2a-7, as
summarized in the section entitled "Quality and Maturity" on page .
The Board of Trustees oversees FMR's adherence to the provisions of Rule
2a-7 and has established procedures designed to stabilize 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
correction action could include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; establishing NAV
by using available market quotations; and such other measures as the
Trustees may deem appropriate.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. A bond fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of a bond fund's shares when redeemed may
be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market fund
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond funds, yields are computed by dividing a fund's interest
income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive dividends during the period,
dividing this figure by the fund's net asset value per share (NAV) at the
end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of a bond fund's yield quotations in accordance
with standardized methods applicable to all stock and bond funds. In
general, interest income is reduced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds trading at
a discount by adding a portion of the discount to daily income. Capital
gains and losses generally are excluded from the calculation.
Income calculated for the purposes of determining the bond fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the bond fund's yield may not equal
its distribution rate, the income paid to your account, or the income
reported in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a fund's yield by
the result of one minus a stated combined federal and state income tax
rate. If only a portion of a fund's yield is tax-exempt, only that portion
is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
effective yield under federal and state income tax laws for 1997. The
second table shows the approximate yield a taxable security must provide at
various income brackets to produce after-tax yields equivalent to those of
hypothetical tax-exempt obligations yielding from 2% to 11%. Of course, no
assurance can be given that a fund will achieve any specific tax-exempt
yield. While the funds invest principally in obligations whose interest is
exempt from federal and state income tax, other income received by the
funds may be taxable. The tables do not take into account local taxes, if
any, payable on fund distributions.
Use the first table to find your approximate effective tax bracket taking
into account federal and state taxes for 1997.
1997 TAX RATES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal Marginal California State Combined Federal
and State Effective
Single Return Joint Return Rate Marginal Rate Rate**

$ 0 - $ 4,908 $ 0 - $ 9,816 15.0% 1.0% 15.85%

$ 4,909 - $ 11,632 $ 9,817 - $ 23,264 15.0% 2.0% 16.70%

$ 11,633 - $ 18,357 $ 23,265 - $ 36,714 15.0% 4.0% 18.40%

$ 18,358 - $ 24,650 $ 36,715 - $ 41,200 15.0% 6.0% 20.10%

$ 24,651 - $ 25,484 $ 41,201 - $ 50,968 28.0% 6.0% 32.32%

$ 25,485 - $ 32,207 $ 50,969 - $ 64,414 28.0% 8.0% 33.76%

$ 32,208 - $ 59,750 $ 64,415 - $ 99,600 28.0% 9.3% 34.70%

$ 59,751 - $ 124,650 $ 99,601 - $ 151,750 31.0% 9.3% 37.42%

$ 124,651 - $ 271,050 $ 151,751 - $ 271,050 36.0% 9.3% 41.95%

over $ 271,050 over $ 271,050 39.6% 9.3% 45.22%

</TABLE>

* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following table to
determine the tax-equivalent yield for a given tax-free yield.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If your combined federal and state effective tax rate in 1997 is:

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15.85% 16.70% 18.40% 20.10% 32.32% 33.76% 34.70% 37.42% 41.95% 45.22%

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
To match these Your taxable investment would have to earn the following yield:
tax-free yields:

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2% 2.38% 2.40% 2.45% 2.50% 2.96% 3.02% 3.06% 3.20% 3.45% 3.65%

3% 3.57% 3.60% 3.68% 3.75% 4.43% 4.53% 4.59% 4.79% 5.17% 5.48%

4% 4.75% 4.80% 4.90% 5.01% 5.91% 6.04% 6.13% 6.39% 6.89% 7.30%

5% 5.94% 6.00% 6.13% 6.26% 7.39% 7.55% 7.66% 7.99% 8.61% 9.13%

6% 7.13% 7.20% 7.35% 7.51% 8.87% 9.06% 9.19% 9.59% 10.34% 10.95%

7% 8.32% 8.40% 8.58% 8.76% 10.34% 10.57% 10.72% 11.19% 12.06% 12.78%

8% 9.51% 9.60% 9.80% 10.01% 11.82% 12.08% 12.25% 12.78% 13.78% 14.60%

9% 10.70% 10.80% 11.03% 11.26% 13.30% 13.59% 13.78% 14.38% 15.50% 16.43%

10% 11.88% 12.00% 12.25% 12.52% 14.78% 15.10% 15.31% 15.98% 17.23% 18.25%

11% 13.07% 13.21% 13.48% 13.77% 16.25% 16.61% 16.84% 17.58% 18.95% 20.08%

</TABLE>

Each 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.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's net asset
value (NAV) over a stated period. Average annual total returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then calculating
the annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady annual
rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that a fund's
performance is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as opposed to
the actual year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show the money market fund's
7-day yields, the bond fund's 30-day yields, each fund's tax-equivalent
yields, and total returns for periods ended February 28, 1997.
The tax-equivalent yield is based on a combined effective federal and state
income tax rate of 41.95% and reflects that, as of February 28, 1997, none
of the fund's income was subject to state taxes. Note that each fund may
invest in securities whose income is subject to the federal alternative
minimum tax.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty-/Se Tax- One Five Ten One Five Ten
ven-Day Equivalent Year Years Years Year Years Years
Yield Yield

California Money 2.76% 4.75% 2.90% 2.62% 3.68% 2.90% 13.80% 43.53%
Market

California Insured 4.65% 8.01% 5.49% 6.85% 6.48% 5.49% 39.24% 87.28%

California Income 4.67% 8.05% 6.16% 7.10% 6.68% 6.16% 40.91% 90.87%

</TABLE>

Note: If FMR had not reimbursed certain fund expenses during these periods,
the fund's total returns would have been lower.
The following table shows the income and capital elements of each fund's
cumulative total return. The table compares each fund's return to the
record of the Standard & Poors' 500 Index (S&P 500), the Dow Jones
Industrial Average (DJIA), and the cost of living, as measured by the
Consumer Price Index (CPI), over the same period. The CPI information is as
of the month end closest to the initial investment date for each fund. The
S&P 500 and DJIA comparisons are provided to show how each fund's total
return compared to the record of a broad unmanaged index of common stocks
and a narrower set of stocks of major industrial companies, respectively,
over the same period. Because each fund each invests in fixed-income
securities, common stocks represent a different type of investment from the
funds. Common stocks generally offer greater growth potential than the
funds, but generally experience greater price volatility, which means
greater potential for loss. In addition, common stocks generally provide
lower income than a fixed-income investment such as the funds. The S&P 500
and DJIA returns are based on the prices of unmanaged groups of stocks and,
unlike the fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical $10,000
investment in each fund during the 10-year period ended February 28, 1997
assuming all distributions were reinvested. The figures below reflect the
fluctuating interest rates and bond prices of the specified periods and
should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in a fund today. Tax
consequences of different investments have not been factored into the
figures below.
During the 10-year period ended February 28, 1997, a hypothetical $10,000
investment in California Money Market would have grown to $14,353.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND INDICES

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions

1997 $ 10,000 $ 4,353 $ 0 $ 14,353 $ 37,674 $ 41,930 $ 14,301

1996 $ 10,000 $ 3,949 $ 0 $ 13,949 $ 29,862 $ 32,749 $ 13,880

1995 $ 10,000 $ 3,515 $ 0 $ 13,515 $ 22,169 $ 23,391 $ 13,522

1994 $ 10,000 $ 3,172 $ 0 $ 13,172 $ 20,650 $ 21,749 $ 13,145

1993 $ 10,000 $ 2,917 $ 0 $ 12,917 $ 19,060 $ 18,604 $ 12,823

1992 $ 10,000 $ 2,612 $ 0 $ 12,612 $ 17,223 $ 17,508 $ 12,419

1991 $ 10,000 $ 2,154 $ 0 $ 12,154 $ 14,846 $ 14,958 $ 12,079

1990 $ 10,000 $ 1,570 $ 0 $ 11,570 $ 12,949 $ 13,122 $ 11,470

1989 $ 10,000 $ 943 $ 0 $ 10,943 $ 10,890 $ 10,864 $ 10,896

1988 $ 10,000 $ 422 $ 0 $ 10,422 $ 9,733 $ 9,614 $ 10,394

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in California
Money Market on March 1, 1987 the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with the
aggregate cost of reinvested dividends and capital gain distributions for
the period covered (their cash value at the time they were reinvested)
amounted to $14,353. If distributions had not been reinvested, the amount
of distributions earned from the fund over time would have been smaller,
and cash payments for the period would have amounted to $3,620 for
dividends. The fund did not distribute any capital gains during the period.
During the 10-year period ended February 28, 1997, a hypothetical $10,000
investment in California Insured would have grown to $18,728.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY CALIFORNIA INSURED MUNICIPAL INCOME FUND INDICES

</TABLE>

1997 $ 10,029 $ 8,147 $ 552 $ 18,728 $ 37,674 $ 41,930 $ 14,301

1996 $ 10,010 $ 7,194 $ 549 $ 17,753 $ 29,862 $ 32,749 $ 13,880

1995 $ 9,535 $ 6,013 $ 523 $ 16,071 $ 22,169 $ 23,391 $ 13,522

1994 $ 10,407 $ 5,586 $ 290 $ 16,283 $ 20,650 $ 21,749 $ 13,145

1993 $ 10,688 $ 4,881 $ 0 $ 15,569 $ 19,060 $ 18,604 $ 12,823

1992 $ 9,777 $ 3,673 $ 0 $ 13,450 $ 17,223 $ 17,508 $ 12,419

1991 $ 9,409 $ 2,775 $ 0 $ 12,184 $ 14,846 $ 14,958 $ 12,079

1990 $ 9,341 $ 2,013 $ 0 $ 11,354 $ 12,949 $ 13,122 $ 11,470

1989 $ 9,147 $ 1,283 $ 0 $ 10,430 $ 10,890 $ 10,864 $ 10,896

1988 $ 9,341 $ 641 $ 0 $ 9,982 $ 9,733 $ 9,614 $ 10,394

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in California
Insured on March 1, 1987 the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with the
aggregate cost of reinvested dividends and capital gain distributions for
the period covered (their cash value at the time they were reinvested)
amounted to $18,372. If distributions had not been reinvested, the amount
of distributions earned from the fund over time would have been smaller,
and cash payments for the period would have amounted to $5,651 for
dividends and $360 for capital gain distributions.
During the 10-year period ended February 28, 1997, a hypothetical $10,000
investment in California Income would have grown to $19,087.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY CALIFORNIA MUNICIPAL INCOME FUND INDICES

</TABLE>

1997 $ 9,776 $ 8,699 $ 612 $ 19,087 $ 37,674 $ 41,930 $ 14,301

1996 $ 9,702 $ 7,676 $ 602 $ 17,980 $ 29,862 $ 32,749 $ 13,880

1995 $ 9,205 $ 6,384 $ 572 $ 16,161 $ 22,169 $ 23,391 $ 13,522

1994 $ 10,017 $ 5,890 $ 403 $ 16,310 $ 20,650 $ 21,749 $ 13,145

1993 $ 10,290 $ 5,125 $ 58 $ 15,473 $ 19,060 $ 18,604 $ 12,823

1992 $ 9,586 $ 3,905 $ 54 $ 13,545 $ 17,223 $ 17,508 $ 12,419

1991 $ 9,338 $ 2,976 $ 52 $ 12,366 $ 14,846 $ 14,958 $ 12,079

1990 $ 9,272 $ 2,156 $ 52 $ 11,480 $ 12,949 $ 13,122 $ 11,470

1989 $ 9,031 $ 1,369 $ 51 $ 10,451 $ 10,890 $ 10,864 $ 10,896

1988 $ 9,156 $ 675 $ 51 $ 9,882 $ 9,733 $ 9,614 $ 10,394

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in California
Income on March 1, 1987 the net amount invested in fund shares was $10,000.
The cost of the initial investment ($10,000) together with the aggregate
cost of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested) amounted to
$18,994. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $5,910 for dividends
and $400 for capital gain distributions.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on total
return, assume reinvestment of distributions, do not take sales charges or
redemption fees into consideration, and are prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to the
mutual fund rankings, a fund's performance may be compared to stock, bond,
and money market mutual fund performance indices prepared by Lipper or
other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest. The
total return of a benchmark index reflects reinvestment of all dividends
and capital gains paid by securities included in the index. Unlike a fund's
returns, however, the index returns do not reflect brokerage commissions,
transaction fees, or other costs of investing directly in the securities
included in the index.
The bond funds may compare to the Lehman Brothers Municipal Bond Index, a
total return performance benchmark for investment-grade municipal bonds
with maturities of at least one year. In addition, California Insured
Municipal Income may compare its performance to that of the Lehman Brothers
California Insured 1-26 Year Municipal Bond Index, a total return
performance benchmark for insured California investment-grade municipal
bonds with maturities between one and 26 years. California Municipal Income
may compare its performance to that of the Lehman Brothers California
Municipal Bond Index, a total return performance benchmark for California
investment-grade municipal bonds with maturities of at least one year.
Issues included in each index have been issued after December 31, 1990 and
have an outstanding par value of at least $50 million. Subsequent to
December 31, 1995, zero coupon bonds and issues subject to the alternative
minimum tax are included in each index.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The money market fund may compare its performance or the performance of
securities in which it may invest to averages published by IBC Financial
Data, Inc. of Ashland, Massachusetts. These averages assume reinvestment of
distributions. IBC's MONEY MARKET FUND REPORT AVERAGES(trademark) / All
Tax-Free, which is reported in IBC's MONEY FUND REPORT(trademark), covers
over 424 tax-free money market funds.
A fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Fidelity services and products. Fidelity may also reprint,
and use as advertising and sales literature, articles from Fidelity Focus,
a quarterly magazine provided free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of February 28, 1997, FMR advised over $28 billion in tax-free fund
assets, $96 billion in money market fund assets, $317 billion in equity
fund assets, $65 billion in international fund assets, and $25 billion in
Spartan fund assets. The funds may reference the growth and variety of
money market mutual funds and the adviser's innovation and participation in
the industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock) fund manager. FMR, its subsidiaries, and affiliates maintain
a worldwide information and communications network for the purpose of
researching and managing investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1997: New Year's
Day, Presidents' Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Although
FMR expects the same holiday schedule to be observed in the future, the
NYSE may modify its holiday schedule at any time. In addition, the funds
will not process wire purchases and redemptions on days when the Federal
Reserve Wire System is closed.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
A fund purchases municipal securities whose interest FMR believes is free
from federal income tax. Generally, issuers or other parties have entered
into covenants requiring continuing compliance with federal tax
requirements to preserve the tax-free status of interest payments over the
life of the security. If at any time the covenants are not complied with,
or if the IRS otherwise determines that the issuer did not comply with
relevant tax requirements, interest payments from a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, the tax status of the pass-through
of tax-free income may also be based on the federal and state tax treatment
of the structure.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of each fund's policies of investing so
that at least 80% of its income is free from federal income tax. Interest
from private activity securities is a tax preference item for the purposes
of determining whether a taxpayer is subject to the AMT and the amount of
AMT to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by each fund are taxable
to shareholders as dividends, not as capital gains. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased with market discount after April 30, 1993 are not considered
income for purposes of each fund's policy of investing so that at least 80%
of its INCOME DISTRIBUTION is free from federal income tax. The money
market fund may distribute any net realized short-term capital gains and
taxable market discount once a year or more often, as necessary, to
maintain its net asset value at $1.00 per share.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
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 that 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 purpose 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 purpose.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of a fund, and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
each fund are taxable to shareholders as dividends, not as capital gains.
The money market fund does not anticipate distributing long-term capital
gains.
As of February 28, 1997, California Money Market had capital loss
carryforwards aggregating approximately $457,000 of which $446,000 and
$11,000 will expire on February 28, 2003 and 2005, respectively.
As of February 28, 1997, California Insured had capital loss carryforwards
aggregating approximately $7,171,000 of which $647,000 will expire on
February 28, 2003 and $6,524,000 will expire on February 29, 2004.
As of February 28, 1997, California Income had a capital loss carryforward
aggregating approximately, $4,627,000 which will expire on February 29,
2004.
For the above mentioned funds, these amounts are available to offset any
future capital gains.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
each fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. Each fund intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some futures contracts and options are included in this 30%
calculation, which may limit a fund's investments in such instruments.
The money market fund is treated as a separate entity from the other funds
of Fidelity California Municipal Trust II for tax purposes. Each bond fund
is treated as a separate entity from the other funds of Fidelity California
Municipal Trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' 1940 Act voting agreement
under which all Class B shares will be voted in accordance with the
majority vote of Class B shares. Under the, control of a company is
presumed where one individual or group of individuals owns more than 25% of
the voting stock of that company. Therefore, through their ownership of
voting common stock and the execution of the shareholders' voting
agreement, members of the Johnson family may be deemed, under the 1940 Act,
to form a controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. The
business address of each Trustee and officer who is an "interested person"
(as defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees is Fidelity Investments, P.O. Box 9235,
Boston, Massachusetts 02205-9235. Those Trustees who are "interested
persons" by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (66), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas, Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (55), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas, Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (64), Trustee (1991), is a management consultant (1994). Prior
to February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). Until March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Sanifill Corporation
(non-hazardous waste, 1993), CH2M Hill Companies (engineering), Rio Grande,
Inc. (oil and gas production), and Daniel Industries (petroleum measurement
equipment manufacturer). In addition, he is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (65), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores), and previously served as a
Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
ROBERT M. GATES (53), Trustee (1997), is a consultant, author, and lecturer
(1993). Mr. Gates was Director of the Central Intelligence Agency (CIA)
from 1991-1993. From 1989 to 1991, Mr. Gates served as Assistant to the
President of the United States and Deputy National Security Advisor. Mr.
Gates is currently a Trustee for the Forum For International Policy, a
Board Member for the Virginia Neurological Institute., and a Senior Advisor
of the Harvard Journal of World Affairs. In addition, Mr. Gates also serves
as a member of the corporate board for Lucas Varity PLC (automotive
components and diesel engines), Charles Stark Draper Laboratory
(non-profit), NACCO Industries, Inc. (mining and manufacturing), and TRW
Inc. (original and replacement products).
E. BRADLEY JONES (69), Trustee. Prior to his retirement in 1984, Mr. Jones
was Chairman and Chief Executive Officer of LTV Steel Company. He is a
Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products), and
he previously served as a Director of NACCO Industries, Inc. (mining and
marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc. (1985-1995).
In addition, he serves as a Trustee of First Union Real Estate Investments,
a Trustee and member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK (64), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Chairman of the Board of Trustees of the Greenwich
Hospital Association, a Member of the Public Oversight Board of the
American Institute of Certified Public Accountants' SEC Practice Section
(1995), and as a Public Governor of the National Association of Securities
Dealers, Inc. (1996).
*PETER S. LYNCH (54), Trustee, is Vice Chairman and Director of FMR (1992).
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston.
GERALD C. McDONOUGH (67), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Prior to his retirement in July 1988, he was Chairman and Chief
Executive Officer of Leaseway Transportation Corp. (physical distribution
services). Mr. McDonough is a Director of Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration),
Commercial Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products, 1996), and
Associated Estates Realty Corporation (a real estate investment trust,
1993). Mr. McDonough served as a Director of ACME-Cleveland Corp. (metal
working, telecommunications, and electronic products) from 1987-1996.
MARVIN L. MANN (63), Trustee (1993) is Chairman of the Board, President,
and Chief Executive Officer of Lexmark International, Inc. (office
machines, 1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet.
WILLIAM O. McCOY (63), Trustee (1997), is the Vice President of Finance for
the University of North Carolina (16-school system, 1995). Prior to his
retirement in December 1994, Mr. McCoy was Vice Chairman of the Board of
BellSouth Corporation (telecommunications, 1984) and President of BellSouth
Enterprises. He is currently a Director of Liberty Corporation (holding
company, 1984), Weeks Corporation of Atlanta (real estate, 1994), (1986)
Carolina Power and Light Company (electric utility, 1996), and the Kenan
Transport Co. (1996). Previously, he was a Director of First American
Corporation (bank holding company, 1979-1996). In addition, Mr. McCoy
serves as a member of the Board of Visitors for the University of North
Carolina at Chapel Hill (1994) and for the Kenan Flager Business School
(University of North Carolina at Chapel Hill, 1988).
THOMAS R. WILLIAMS (68), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (57), Vice President, is Vice President of Fidelity's
fixed-income funds (1995) and Senior Vice President of FMR (1995).
SARAH H. ZENOBLE (47), Vice President, is Vice President of Fidelity's
money market funds (1996) and Vice President of FMR Texas, Inc.
ARTHUR S. LORING (49), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (49), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice President
of Fidelity's money market funds and municipal bond funds (1997) and Vice
President and Associate General Counsel of FMR Texas, Inc.
JOHN H. COSTELLO (50), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (51), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994) and Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993).
THOMAS J. SIMPSON (38), Assistant Treasurer (1996), is Assistant Treasurer
of Fidelity's money market funds (1996) and municipal bond funds (1997) and
an employee of FMR (1996). Prior to joining FMR, Mr. Simpson was Vice
President and Fund Controller of Liberty Investment Services (1987-1995).
The following table sets forth information describing the compensation of
each Trustee of each fund for his or her services for the fiscal year ended
February 28, 1997, or calendar year ended December 31, 1996, as applicable.
COMPENSATION TABLE

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate Aggregate Aggregate Total
Compensation Compensation Compensation Compensation
from from from from the
California Money California California Fund Complex*A
Market A,B Insured A,C Income A,D

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

Ralph F. Cox $ 265 $ 76 $ 173 137,700

Phyllis Burke Davis $ 259 $ 74 $ 169 134,700

Richard J. Flynn*** $ 252 $ 74 $ 167 168,000

Edward C. Johnson 3d ** $ 0 $ 0 $ 0 0

E. Bradley Jones $ 259 $ 74 $ 169 134,700

Donald J. Kirk $ 262 $ 75 $ 171 136,200

Peter S. Lynch ** $ 0 $ 0 $ 0 0

William O. McCoy**** $ 149 $ 60 $ 137 85,333

Gerald C. McDonough $ 278 $ 80 $ 181 136,200

Edward H. Malone*** $ 201 $ 59 $ 133 136,200

Marvin L. Mann $ 260 $ 75 $ 170 134,700

Thomas R. Williams $ 264 $ 76 $ 173 136,200

</TABLE>

* Information is as of December 31, 1996 for 235 funds in the complex.
** Interested Trustees of the fund are compensated by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of Trustees
through December 31, 1996.
**** During the period from May 1, 1996 through December 31, 1996, William
O. McCoy served as a Member of the Advisory Board of each trust. Mr. McCoy
was appointed to the Board of Trustees of Fidelity California Municipal
Trust effective January 1, 1997. Mr. McCoy was elected to the Board of
Trustees of Fidelity California Municipal Trust II on March 19, 1997.
A Compensation figures include cash, a pro rata portion of benefits accrued
under the retirement program for the period ended December 30, 1996 and
required to be deferred, and may include amounts deferred at the election
of Trustees.
B The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $9, Phyllis
Burke Davis, $9, Richard J. Flynn, $0, E. Bradley Jones, $9, Donald J.
Kirk, $9, Gerald C. McDonough, $9, Edward H. Malone, $9, Marvin L. Mann,
$9, and Thomas R. Williams, $9.
C The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $3, Phyllis
Burke Davis, $3, Richard J. Flynn, $0, E. Bradley Jones, $3, Donald J.
Kirk, $3, William O. McCoy, $0, Gerald C. McDonough, $3, Edward H. Malone,
$3, Marvin L. Mann, $3, and Thomas R. Williams, $3.
D The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $6, Phyllis
Burke Davis, $6, Richard J. Flynn, $0, E. Bradley Jones, $6, Donald J.
Kirk, $6, William O. McCoy, $0, Gerald C. McDonough, $6, Edward H. Malone,
$6, Marvin L. Mann, $6, and Thomas R. Williams, $6.
Under a retirement program adopted in July 1988 and modified in November
1995 and November 1996, each non-interested Trustee who retired before
December 30, 1996 may receive payments from a Fidelity fund during his or
her lifetime based on his or her basic trustee fees and length of service.
The obligation of a fund to make such payments is neither secured nor
funded. A Trustee became eligible to participate in the program at the end
of the calendar year in which he or she reached age 72, provided that, at
the time of retirement, he or she had served as a Fidelity fund Trustee for
at least five years.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the Plan). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee (designated securities). The amount paid to the
Trustee under the Plan will be determined based upon the performance of
such investments. Deferral of fees in accordance with the Plan will have a
negligible effect on the fund's assets, liabilities, and net income per
share, and will not obligate the funds to retain the services of any
Trustee or to pay any particular level of compensation to the Trustee. The
funds may invest in such designated securities under the Plan without
shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In connection
with the termination of the retirement program, each existing
non-interested Trustee received a credit to his or her Plan account equal
to the present value of the estimated benefits that would have been payable
under the retirement program. The amounts credited to the non-interested
Trustees' Plan accounts are subject to vesting. The termination of the
retirement program and related crediting of estimated benefits to the
Trustees' Plan accounts did not result in a material cost to the funds.
As of February 28, 1997, the Trustees and officers of each fund owned, in
the aggregate, less than 1% of each fund's total outstanding shares.
As of February 28, 1997, the following owned of record 5% or more of the
outstanding shares of the funds: National Financial Services Corporation,
Boston, MA (California Municipal Income) (8.19%); National Financial
Services Corporation, Boston, MA, (California Insured Municipal Income)
(10.38%).
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
In addition to the management fee payable to FMR and the fees payable to
UMB, each fund pays all of its expenses, without limitation, that are not
assumed by those parties. Each fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although each
fund's current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders, the trust, on behalf of
each fund has entered into a revised transfer agent agreement with UMB,
pursuant to which UMB bears the costs of providing these services to
existing shareholders. Other expenses paid by each fund include interest,
taxes, brokerage commissions, and each fund's proportionate share of
insurance premiums and Investment Company Institute dues. Each fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which each fund may be a party, and any obligation it may
have to indemnify its officers and Trustees with respect to litigation.
FMR is each fund's manager pursuant to management contracts dated April 1,
1997 for the money market fund and March 1, 1994 for the bond funds, which
were approved by shareholders on March 19, 1997 and February 16, 1994,
respectively.
For the services of FMR under the contract, each fund pays FMR a monthly
management fee composed of the sum of two elements: a group fee rate and an
individual fund fee rate.
BOND FUNDS. The group fee rate is based on the monthly average net assets
of all of the registered investment companies with which FMR has management
contracts and is calculated on a cumulative basis pursuant to the graduated
fee rate schedule shown below on the left. The schedule below on the right
shows the effective annual group fee rate at various asset levels, which is
the result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $472 billion of group net assets
- - the approximate level for February 1997 - was .1414%, which is the
weighted average of the respective fee rates for each level of group net
assets up to $472 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

0 - $3 billion .3700% $ 0.5 billion .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1695

24 - 30 .1800 200 .1658

30 - 36 .1750 225 .1629

36 - 42 .1700 250 .1604

42 - 48 .1650 275 .1583

48 - 66 .1600 300 .1565

66 - 84 .1550 325 .1548

84 - 120 .1500 350 .1533

120 - 174 .1450 400 .1507

174 - 228 .1400

228 - 282 .1375

282 - 336 .1350

Over 336 .1325

Prior to March 1, 1994, the group fee rate is based on a schedule with
breakpoints ending at .1500% for average group assets in excess of $84
billion. The group fee rate breakpoints shown above for average group
assets in excess of $120 billion and under $228 billion were voluntarily
adopted by FMR on January 1, 1992. The additional breakpoints shown above
for average group assets in excess of $228 billion were voluntarily adopted
by FMR on November 1, 1993. Each fund's current management contract
reflects these extensions of the group fee rate schedule.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints for average group assets
in excess of $156 billion and under $372 billion as shown in the schedule
below. The revised group fee rate schedule was identical to the above
schedule for average group assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $156
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

120 - $156 billion .1450% $ 150 billion .1736%

156 - 192 .1400 175 .1690

192 - 228 .1350 200 .1652

228 - 264 .1300 225 .1618

264 - 300 .1275 250 .1587

300 - 336 .1250 275 .1560

336 - 372 .1225 300 .1536

372 - 408 .1200 325 .1514

408 - 444 .1175 350 .1494

444 - 480 .1150 375 .1476

480 - 516 .1125 400 .1459

Over 516 .1100 425 .1443

450 .1427

475 .1413

500 .1399

525 .1385

550 .1372

MONEY MARKET FUND The group fee rate is based on the monthly average net
assets of all of the registered investment companies with which FMR has
management contracts and is calculated on a cumulative basis pursuant to
the graduated fee rate schedule shown below on the left. The schedule below
on the right shows the effective annual group fee rate at various asset
levels, which is the result of cumulatively applying the annualized rates
on the left. For example, the effective annual fee rate at $472 billion of
group net assets -- the approximate level for February 1997 -- was .1414%,
which is the weighted average of the respective fee rates for each level of
group net assets up to $472 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

0 - $3 billion .3700% $ 0.5 billion .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1695

24 - 30 .1800 200 .1658

30 - 36 .1750 225 .1629

36 - 42 .1700 250 .1604

42 - 48 .1650 275 .1583

48 - 66 .1600 300 .1565

66 - 84 .1550 325 .1548

84 - 120 .1500 350 .1533

120 - 174 .1450 400 .1507

174 - 228 .1400

228 - 282 .1375

282 - 336 .1350

Over 336 .1325

Prior to March 19, 1997, the group fee rate is based on a schedule with
breakpoints ending at .1500% for average group assets in excess of $84
billion. The group fee rate breakpoints shown above for average group
assets in excess of $120 billion and under $228 billion were voluntarily
adopted by FMR on January 1, 1992. The additional breakpoints shown above
for average group assets in excess of $228 billion were voluntarily adopted
by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints for average group assets
in excess of $156 billion and under $372 billion as shown in the schedule
below. The revised group fee rate schedule was identical to the above
schedule for average group assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion. The revised
group fee rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. The money market fund's
current management contract reflects the group fee rate schedule above for
average group assets under $156 billion and the group fee rate schedule
below for average group assets in excess of $156 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate

120 - $156 billion .1450% $ 150 billion .1736%

156 - 192 .1400 175 .1690

192 - 228 .1350 200 .1652

228 - 264 .1300 225 .1618

264 - 300 .1275 250 .1587

300 - 336 .1250 275 .1560

336 - 372 .1225 300 .1536

372 - 408 .1200 325 .1514

408 - 444 .1175 350 .1494

444 - 480 .1150 375 .1476

480 - 516 .1125 400 .1459

Over 516 .1100 425 .1443

450 .1427

475 .1413

500 .1399

525 .1385

550 .1372

The individual fund fee rate is .25%. Based on the average group net assets
of the funds advised by FMR for February 1997, the annual management fee
rate would be calculated as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management Fee Rate

.1414% + .25% = .3914%

</TABLE>

One-twelfth of this annual management fee rate is applied to each fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
The table below shows the management fees paid to FMR by each fund for the
last three fiscal years:
CA Money Market Management Fees as a
Years Ended February 28 Management Fees % of Average Net Assets

1997 $2,929,149 .39%

1996 $2,925,181 .40%

1995 $2,723,476 .41%

CA Insured Management Fees as a
Years Ended February 28 Management Fees % of Average Net Assets

1997 $827,688 .39%

1996 $867,946 .40%

1995 $940,793 .41%

CA Income Management Fees as a
Years Ended February 28 Management Fees % of Average Net Assets

1997 $1,897,759 .39%

1996 $1,959,028 .40%

1995 $2,030,213 .41%

FMR may, from time to time, voluntarily reimburse all or a portion of each
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase each fund's total returns and repayment of the
reimbursement by each fund will lower its total returns and yield.
SUB-ADVISER. On behalf of the money market 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, dated December 30, 1991, which was
approved by shareholders on October 23, 1991, FMR pays FMR Texas fees equal
to 50% of the management fee payable to FMR under its 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. On behalf of California Money Market, for the fiscal years ended
February 1997, 1996, and 1995, FMR paid FMR Texas fees of $1,464,575,
$1,462,591 and $1,361,738, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of the
funds (the Plans) pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plans. Each Plan also
specifically recognizes that FMR, either directly or through FDC, may use
its management fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection
with the offer and sale of shares of each fund. In addition, each Plan
provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that assist in selling shares
of each fund, or to third parties, including banks, that render shareholder
support services.
Currently, the Board of Trustees has not authorized such payments.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the fund and its shareholders. In particular, the Trustees noted that the
Plans do not authorize payments by a fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders have
other relationships.
California Insured's and California Income's Plans were approved by
shareholders on November 18, 1987. California Money Market's Plan was
approved by shareholders, in connection with a reorganization transaction
on December 30, 1991, pursuant to an Agreement and Plan of Conversion.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent. UMB has
entered into sub-contracts with FSC, an affiliate of FMR, under the terms
of which FSC performs the processing activities associated with providing
transfer agent and shareholder servicing functions for each fund. Under the
sub-contracts, FSC bears the expense of typesetting, printing, and mailing
prospectuses, statements of additional information, and all other reports,
notices, and statements to shareholders, with the exception of proxy
statements. FSC also pays all out-of-pocket expenses associated with
transfer agent services.
Under this arrangement, FSC receives an annual account fee and an
asset-based fee each based on account size and fund type for each retail
account and certain institutional accounts. With respect to certain
institutional retirement accounts, FSC receives an annual account fee and
an asset-based fee based on account type or fund type. These annual account
fees are subject to increase based on postal rate changes. FSC also
collects small account fees from certain accounts with balances of less
than $2,500.
UMB has an additional sub-contract with FSC, pursuant to which FSC performs
the calculations necessary to determine each fund's NAV and dividends and
maintains each fund's accounting records. The annual fee rates for these
pricing and bookkeeping services are based on each fund's average net
assets, and are presented in the table below.
Pricing and Bookkeeping Annual Fee Rates

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
First $0 - $500 Greater Than Minimum Maximum
Million $500 Million Per Year Per Year

California Money Market Fund .0175% .0075% $ 40,000 $ 800,000

California Insured .0400% .0200% 60,000 800,000

California Income .0400% .0200% 60,000 800,000

</TABLE>

Pricing and bookkeeping fees, including reimbursement for out-of-pocket
expenses, paid to FSC for the fiscal years ended February 1997, 1996, and
1995 are indicated in the table below.
Pricing and Bookkeeping Fees

1997 1996 1995

California Money Market $ 127,726 $ 128,347 $ 117,152

California Insured $ 92,472 $ 92,930 $ 101,423

California Income $ 205,336 $ 210,213 $ 214,470

The pricing and bookkeeping fees described above are paid to FSC by UMB,
which is entitled to reimbursement from the funds 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 a monthly administrative fee to each Ultra Service
Account client who chooses certain additional features. This fee is in
addition to the transfer agency fee received by FSC. Administrative fees
paid to FBSI by money market fund shareholders participating in the
Fidelity Ultra Service Account program amounted to $118,761 for the fiscal
year ended February 28, 1997.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Fidelity California Municipal Income Fund and
Fidelity California Insured Municipal Income Fund are funds (series) of
Fidelity California Municipal Trust (the Massachusetts trust), 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 four funds of the
Massachusetts trust: Fidelity California Insured Municipal Income Fund,
Fidelity California Municipal Income Fund, Spartan California Intermediate
Municipal Income Fund, and Spartan California Municipal Income Fund. The
Massachusetts trust's Declaration of Trust permits the Trustees to create
additional funds.
Fidelity California Municipal Money Market Fund is a fund (series) of
Fidelity California Municipal Trust II (the Delaware trust), an open-end
management investment company organized as a Delaware business trust on
June 20, 1991. Currently, there are two funds of the Delaware trust:
Fidelity California Municipal Money Market Fund and Spartan California
Municipal Money Market Fund. Fidelity California Municipal Money Market
Fund and Spartan California Municipal Money Market Fund entered into an
agreement to acquire all of the assets of Fidelity California Municipal
Money Market Fund and Spartan California Municipal Money Market Fund,
respectively, 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" may be withdrawn. There is a remote possibility that one fund
might become liable for ant misstatement in its prospectus or statement of
additional information about another fund.
The assets of each trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general expenses of their respective trusts. Expenses with respect to
the trusts are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of the trusts, subject to the general
supervision of the Boards of Trustees, have the power to determine which
expenses are allocable to a given fund, or which are general or allocable
to all of the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund available
for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The Massachusetts
trust is an entity of the type commonly known as "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable for the obligations of the
trust. The Declaration of Trust provides that the Massachusetts trust shall
not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the Massachusetts trust or its
Trustees shall include a provision limiting the obligations created thereby
to the Massachusetts trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust is a
business trust organized under Delaware law. Delaware law provides that
shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
courts of some states, however, may decline to apply Delaware law on this
point. The Trust Instrument contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
Delaware trust and requires that a disclaimer be given in each contract
entered into or executed by the Delaware trust or its Trustees. The Trust
Instrument provides for indemnification out of each fund's property of any
shareholder or former shareholder held personally liable for the
obligations of the fund. The Trust Instrument also provides that each fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the fund is unable to meet its obligations. FMR believes that,
in view of the above, the risk of personal liability to shareholders is
extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any conduct
whatsoever, provided that Trustees are not protected against any liability
to which they would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. As a shareholder, you receive one vote for each dollar
value of net asset value you own. The shares have no preemptive or
conversion rights; voting and dividend rights, the right of redemption, and
the privilege of exchange are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the respective
"Shareholder and Trustee Liability" headings above. Shareholders
representing 10% or more of a trust or one of its funds may, as set forth
in the Declaration of Trust or Trust Instrument, call meetings of the trust
or fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of an entire trust, the purpose on
voting on removal of one or more Trustees.
A trust or any fund may be terminated upon the sale of its assets to (or,
in the case of the Delaware trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations
must be approved by vote of the holders of a majority of the trust or the
fund, as determined by the current value of each shareholder's investment
in the fund or trust; however, the Trustees of the Delaware trust may,
without prior shareholder approval, change the form of the organization of
the Delaware trust by merger, consolidation, or incorporation. If not so
terminated or reorganized, the trusts and their funds will continue
indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the Delaware trust to merge or consolidate into one or more trusts,
partnerships, or corporations, so long as the surviving entity is an
open-end management investment company that will succeed to or assume the
Delaware trust registration statement, or cause the Delaware trust to be
incorporated under Delaware law. Each fund of the Massachusetts trust may
also invest all of its assets in another investment company.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is
custodian of the assets of the funds. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of any subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR. Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts
serves as the trusts' independent accountant. The auditor examines
financial statements for the funds and provides other audit, tax, and
related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the fiscal
year ended February 28, 1997 and reports of the auditors are included in
the funds' Annual Report, which is a separate report supplied with this
SAI. The funds' financial statements, including the financial highlights
and reports of the auditors are incorporated herein by reference. For a
free additional copy of the funds' Annual Report, contact Fidelity at
1-800-544-8888.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL OBLIGATIONS:
Moody's ratings for short-term municipal obligations will be designated
Moody's Investment Grade ("MIG"). A two-component rating is assigned to
variable rate demand obligations. The first component represents an
evaluation of the degree of risk associated with scheduled principal
repayment and interest payments and is designated by a long-term rating,
e.g., "Aaa" or "A." The second component represents an evaluation of the
degree of risk associated with the demand feature and is designated "VMIG."
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest quality).
Those bonds within the Aa through B categories that Moody's believes
possess the strongest credit attributes within those categories are
designated by the symbol "1."
AAA - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds that are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES:
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature are
assigned a dual rating. The first rating addresses the likelihood of
repayment of principal and payment of interest due and for short-term
obligations is designated by a note rating symbol. The second rating
addresses only the demand feature, and is designated by a commercial paper
rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB" through
"D"). While speculative grade debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Ratings from AA through CCC may be
modified by the addition of a plus sign (+) or minus sign (-) to show
relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
each fund's most recent financial report and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated April 19, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
available along with other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated herein by reference (legally
forms a part of the prospectus). For a free copy of either document, call
Fidelity at 1-800-544-8888.
Investments in the money market fund are neither insured nor guaranteed by
the U.S. Government, and there can be no assurance that the fund will
maintain a stable $1.00 share price.
THE MONEY MARKET FUND MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN
THE SECURITIES OF A SINGLE ISSUER AND THEREFORE MAY BE RISKIER THAN OTHER
TYPES OF MONEY MARKET FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, Federal
Reserve Board, or any other agency, and are subject to investment risks,
including possible loss of principal amount invested.

LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SCR-pro-0497
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 and yield
potential.
SPARTAN CALIFORNIA
MUNICIPAL MONEY
MARKET FUND
(fund number 457, trading symbol FSPXX)
SPARTAN CALIFORNIA
INTERMEDIATE MUNICIPAL INCOME FUND
(fund number 432, trading symbol FSCMX)
SPARTAN CALIFORNIA
MUNICIPAL INCOME FUND
(fund number 456, trading symbol FSCAX)

SPARTAN(registered trademark)
CALIFORNIA
MUNICIPAL
FUNDS
PROSPECTUS
APRIL 19, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

KEY FACTS THE FUNDS AT A GLANCE

WHO MAY WANT TO INVEST

EXPENSES Each fund's yearly
operating expenses.

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

PERFORMANCE How each fund has
done over time.

THE FUNDS IN DETAIL CHARTER How each fund is
organized.

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

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

YOUR ACCOUNT DOING BUSINESS WITH FIDELITY

TYPES OF ACCOUNTS Different
ways to set up your account.

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

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

INVESTOR SERVICES Services to
help you manage your account.

SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES

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

EXCHANGE RESTRICTIONS

KEY FACTS

THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas, Inc. (FMR Texas), a
subsidiary of FMR, chooses investments for Spartan California Money Market.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
SPARTAN CA MONEY MARKET
GOAL: High current tax-free income for California residents while
maintaining a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and California
personal income tax.
SIZE: As of February 28, 1997, the fund had over $1.3 billion in assets.
SPARTAN CA INTERMEDIATE
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in investment-grade municipal securities whose
interest is free from federal income tax and California personal income
tax, while maintaining an average maturity of three to 10 years.
SIZE: As of February 28, 1997, the fund had over $74 million in assets.
SPARTAN CA INCOME
GOAL: High current tax-free income for California residents.
STRATEGY: Invests mainly in long-term, investment-grade municipal
securities whose interest is free from federal income tax and California
personal income tax.
SIZE: As of February 28, 1997, the fund had over $401 million in assets.
WHO MAY WANT TO INVEST
The Board of Trustees of Fidelity California Municipal Trust has
unanimously approved an Agreement and Plan of Reorganization ("Agreement")
between Spartan California Intermediate Municipal Income Fund, Spartan
California Municipal Income Fund and Fidelity California Municipal Income
Fund, a fund of Fidelity California Municipal Trust. The Agreement will be
presented to Spartan California Intermediate Municipal Income Fund and
Spartan California Municipal Income Fund shareholders for their vote of
approval or disapproval at a special meeting to be held on August 4, 1997.
If the proposal is approved by a majority of the funds' shareholders and
certain conditions required by the Agreement are satisfied, the
reorganization is expected to become effective on or about August 14, 1997
for Spartan California Municipal Income Fund and on or about August 21,
1997 for Spartan California Intermediate Municipal Income Fund.
Effective the close of business on February 28, 1997, Spartan California
Intermediate and Spartan California Income were closed to new accounts
pending the Reorganizations. Only shareholders of the funds on or prior to
that date, including participants in an employee benefit plan which offered
the funds on or prior to that date (except participants in an employee
benefit plan for which an affiliate of FMR maintains the accounts at the
participant level other than pursuant to a recordkeeping agreement), can
continue to purchase shares of the funds.
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. Spartan California
Money Market is managed to keep its share price stable at $1.00. Spartan
California Intermediate and Spartan California Income with their broader
range of investments, have the potential for higher yields, but also carry
a higher degree of risk. You should consider your investment objective and
tolerance for risk when making an investment decision.
The value of the funds' investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other federal and state political and economic news. When you sell your
shares of Spartan California Intermediate or Spartan California Income,
they may be worth more or less than what you paid for them. By themselves,
these funds do not constitute a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets in
securities of individual issuers than diversified funds. As a result,
changes in the market value of a single issuer could cause greater
fluctuations in share value than would occur in a more diversified fund.

THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The
funds in this prospectus are
in the INCOME category,
except for Spartan California
Money Market, which is in the
MONEY MARKET category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy,
sell, or exchange shares of a fund. In addition, you may be charged an
annual account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page , for an explanation of how and when these
charges apply.
Maximum sales charge on purchases None
and reinvested distributions

Deferred sales charge on redemptions None

Redemption fee (as a % of amount redeemed
on shares held less than 180 days days)

for Spartan CA Money Market None

for Spartan CA Intermediate None

for Spartan CA Income 0.50
%

Exchange and wire transaction fees $5.00
(for Spartan CA Money Market only)

Checkwriting fee, per check written $2.00
(for Spartan CA Money Market only)

Account closeout fee $5.00
(for Spartan CA Money Market only)

Annual account maintenance fee $12.0
(for accounts under $2,500) 0

THESE FEES ARE WAIVED (except for the redemption fee) if your Spartan
California Money Market account balance at the time of the transaction is
$50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. Expenses are factored into each fund's
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The following figures are based on historical expenses, adjusted to reflect
current fees, and are calculated as a percentage of average net assets. FMR
has entered into arrangements on behalf of each fund with the fund's
custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce fund expenses. Including these reductions, the
total operating expenses presented in the table would have been 0.34% for
Spartan California Money Market, 0.54% for Spartan California Intermediate
and 0.54% for Spartan California Income.
SPARTAN CA MONEY MARKET
Management fee (after reimbursement) 0.35
%

12b-1 fee None

Other expenses 0.00
%

Total fund operating expenses 0.35
%

SPARTAN CA INTERMEDIATE
Management fee 0.55
%

12b-1 fee None

Other expenses 0.00
%

Total fund operating expenses 0.55
%

SPARTAN CA INCOME
Management fee 0.55
%

12b-1 fee None

Other expenses 0.00
%

Total fund operating expenses 0.55
%

EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses after
the number of years indicated. For Spartan California Money Market assume
that you leave your account open, and then close your account at the end of
the period.
SPARTAN CA MONEY MARKET
Account Account
open closed

After 1 year $ 4 $ 9

After 3 years $ 11 $ 16

After 5 years $ 20 $ 25

After 10 years $ 44 $ 49

SPARTAN CA INTERMEDIATE

After 1 year $ 6

After 3 years $ 18

After 5 years $ 31

After 10 years $ 69

SPARTAN CA INCOME

After 1 year $ 6

After 3 years $ 18

After 5 years $ 31

After 10 years $ 69

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 reimburse Spartan California Money Market to
the extent that total operating expenses exceed 0.35% of its average net
assets. If this agreement were not in effect, the management fee, other
expenses, and total operating expenses would have been 0.50%, 0.00%, and
0.50%, respectively. Expenses eligible for reimbursement do not include
interest, taxes, brokerage commissions, or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by Price
Waterhouse LLP, independent accountants. The funds' financial highlights,
financial statements, and reports of the auditor are included in the funds'
Annual Report, and are incorporated by reference into (are legally a part
of) the funds' SAI. Contact Fidelity for a free copy of the Annual Report
or the SAI.
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET FUND

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

Years ended 1997 1996F 1995 1994 1993E 1992D 1991D 1990C
February 28

Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
beginning
of period

Income from .031 .035 .030 .024 .022 .041 .054 .025
Investment
Operations
Net interest
income

Less Distributions (.031) .035 (.030) (.024) (.022) (.041) (.054) (.025)
From net interest
income

Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
end of period

Total returnB 3.18% 3.60% 3.00% 2.45% 2.24% 4.15% 5.52% 2.54%

Net assets, end of $ 1,344 $ 1,307 $ 1,163 $ 1,065 $ 856 $ 918 $ 764 $ 397
period
(In millions)

Ratio of expenses .35%G .31%G 28%G .21%G .30%A, .10%G .07%G .00%G
to G
average net
assets

Ratio of expenses .34%H .31% .28% .21% .30%A .10% .07% .00%
to average net
assets after
expense
reductions

Ratio of net 3.14% 3.55% 2.96% 2.42% 2.67%A 4.05% 5.33% 5.99%A
interest income to
average net
assets

</TABLE>

A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL RETURNS WOULD HAVE BEEN LOWER
HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C NOVEMBER 27, 1989 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1990.
D YEARS ENDED APRIL 30
E MAY 1, 1992 TO FEBRUARY 28, 1993
F YEAR ENDED FEBRUARY 29
G FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL INCOME FUND
Selected Per-Share Data and
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Ratios

Years ended February 28 1997 1996D 1995 1994C

Net asset value, beginning of $ 9.930 $ 9.430 $ 9.760 $ 10.000
period

Income from Investment .453 .478 .477 .070
Operations
Net interest income

Net realized and unrealized gain .024 .499 (.330) (.240)
(loss)

Total from investment operations .477 .977 .147 (.170)

Less Distributions (.454) (.477) (.477) (.070)
From net interest income

From net realized gain (.003) -- -- --

Total distributions (.457) (.477) (.477) (.070)

Net asset value, end of period $ 9.950 $ 9.930 $ 9.430 $ 9.760

Total returnB 4.96% 10.58% 1.67% (1.71)%

Net assets, end of period (000 $ 74,736 $ 71,810 $ 45,771 $ 22,713
omitted)

Ratio of expenses to average net .54%E .24%E .05%E .00%E
assets

Ratio of expenses to average net .53%,F .24% .05% .00%
assets after expense reductions

Ratio of net interest income to 4.60% 4.93% 5.16% 4.66%A
average net assets

Portfolio turnover rate 22% 35% 55% 0%E
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING
THE PERIODS SHOWN.
C FROM DECEMBER 30, 1993 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1994
D YEAR ENDED FEBRUARY 29
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
SPARTAN CALIFORNIA MUNICIPAL INCOME FUND

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

Years ended 1997 1996F 1995 1994G 1993E 1992D 1991D 1990C
February 28

Net asset value, $ 10.52 $ 10.02 $ 10.93 $ 11.33 $ 10.54 $ 10.24 $ 9.760 $ 10.00
beginning 0 0 0 0 0 0 0
of period

Income from .548 .571 .603 .631 .543 .663 .706 .301
Investment
Operations
Net interest
income

Net realized and .082 .498 (.732) (.012) .858 .297 .472 (.249)
unrealized gain
(loss)

Total from .630 1.069 (.129) .619 1.401 .960 1.178 .052
investment
operations

Less Distributions (.549) (.570) (.603) (.631) (.543) (.663) (.706) (.301)
From net interest
income

From net (.002) -- (.180) (.330) (.070) -- -- --
realized gain

In excess of net -- -- -- (.060) -- -- -- --
realized gain

Total distributions (.551) (.570) (.783) (1.021) (.613) (.663) (.706) (.301)

Redemption fees .001 .001 .002 .002 .002 .003 .008 .009
added
to paid in capital

Net asset value, $ 10.60 $ 10.52 $ 10.02 $ 10.93 $ 11.33 $ 10.54 $ 10.24 $ 9.760
end of period 0 0 0 0 0 0 0

Total returnB 6.23% 10.94% (.85)% 5.63% 13.76% 9.66% 12.52% .59%

Net assets, end of $ 401,5 $ 409,2 $ 395,7 $ 566,6 $ 573,8 $ 479,1 $ 281,7 $ 107,4
period (000 03 01 60 13 71 37 25 09
omitted)

Ratio of expenses .55% .54%H .55% .52%H .40%A, .36%H .19%H .00%H
to average net H
assets

Ratio of expenses .54%I .54% .55% .52% .40%A .36% .19% .00%
to average net
assets after
expense
reductions

Ratio of net 5.25% 5.57% 6.04% 5.58% 6.07%A 6.36% 7.02% 7.42%A
interest income to
average net
assets

Portfolio turnover 23% 38% 30% 54% 26%A 13% 15% 5%A
rate

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING
THE PERIODS SHOWN.
C FROM NOVEMBER 27, 1989 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1990
D YEARS ENDED APRIL 30
E MAY 1, 1992 TO FEBRUARY 28, 1993
F YEAR ENDED FEBRUARY 29
G EFFECTIVE MARCH 1,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
H FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
I FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results, and for Spartan
California Money Market, do not reflect the effect of any transaction fees
you may have paid. The figures for Spartan California Money Market 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
different measures, including a comparative index and a competitive funds
average for the bond funds and a measure of inflation for the money market
fund. Data for the comparative indices is available only from June 30, 1993
to the present. The charts on page present calendar year performance for
each bond fund.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Life of
February 28, 1997 year yearsA fundA

Spartan CA Money Market 3.18% 3.01% 3.68%

Consumer Price Index 3.03% 2.86% n/a

Spartan CA Intermediate 4.96% n/a 4.79%

Lehman Bros. CA 1 - 17 Yr. Municipal 5.05% n/a n/a
Bond Index

Lipper CA Intermediate Municipal 4.29% n/a n/a
Debt Funds Average

Spartan CA Income 6.23% 7.26% 7.95%

Lehman Bros. CA Municipal Bond 5.49% n/a n/a
Index

Lipper CA Municipal Debt Funds 4.81% 6.94% n/a
Average

CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Life of
February 28, 1997 year yearsA fundA

Spartan CA Money Market 3.18% 15.99% 29.98%

Consumer Price Index 3.03% 15.15% n/a

Spartan CA Intermediate 4.96% n/a 15.99%

Lehman Bros. CA 1 - 17 Yr. Municipal 5.05% n/a n/a
Bond Index

Lipper CA Intermediate Municipal 4.29% n/a n/a
Debt Funds Average

Spartan CA Income 6.23% 42.00% 74.26%

Lehman Bros. CA Municipal Bond 5.49% n/a n/a
Index

Lipper CA Municipal Debt Funds 4.81% 39.94% n/a
Average

A FROM COMMENCEMENT OF OPERATIONS: November 27, 1989 (Spartan CA Money
Market and Spartan CA Income); December 30, 1993 (Spartan CA Intermediate)
EXPLANATION OF TERMS
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1994 1995 1996
SPARTAN CA INTERMEDIATE -4.68% 15.13% 4.68%

Lehman Bros. CA 1 -17 yr. Muni.
Bond Index -3.87% 15.77% 4.71%

Lipper Interm. Muni. Debt
Funds Avg. -3.87% 13.27% 4.05%

Consumer Price Index 2.67% 2.54% 3.32%

Percentage (%)
(large solid box) Spartan CA
Interm.
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: -4.68
Row: 9, Col: 1, Value: 15.13
Row: 10, Col: 1, Value: 4.68

YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1990 1991 1992 1993 1994 1995 1996
SPARTAN CA INCOME 8.16% 11.54% 8.82% 14.01% -8.97% 18.97% 4.77%

Lehman Bros. CA
Muni. Bond Index n/a n/a n/a n/a -6.37% 19.30% 4.43%

Lipper CA Muni Debt
Funds Avg. 6.50% 11.11% 8.39% 12.62% -7.59% 18.32% 3.65%

Consumer Price
Index 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32%

Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 8.16
Row: 5, Col: 1, Value: 11.54
Row: 6, Col: 1, Value: 8.82
Row: 7, Col: 1, Value: 14.01
Row: 8, Col: 1, Value: -8.970000000000001
Row: 9, Col: 1, Value: 18.97
Row: 10, Col: 1, Value: 4.7
(large solid box) Spartan CA
Income

TOTAL RETURN is the change in value of an investment over a given period,
assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time. An
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as
actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond funds
are calculated according to a standard that is required for all stock and
bond funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders.
LEHMAN BROTHERS CALIFORNIA 1-17 YEAR MUNICIPAL BOND INDEX is a total return
performance benchmark for California investment-grade municipal bonds with
maturities between one and 17 years.
LEHMAN BROTHERS CALIFORNIA MUNICIPAL BOND INDEX is a total return
performance benchmark for California investment-grade municipal bonds with
maturities of at least one year.
Unlike each fund's returns, the total returns of each comparative index do
not include the effect of any brokerage commissions, transaction fees, or
other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper California Intermediate
Municipal Debt Funds Average for Spartan California Intermediate and the
Lipper California Municipal Debt Funds Average for Spartan California
Income, which currently reflect the performance of over 29 and 98 mutual
funds with similar investment objectives, respectively. These averages,
published by Lipper Analytical Services, Inc., exclude the effect of sales
charges.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. Seven-day
yields are the most common
illustration of money market
performance. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions, and
any change in a fund's share
price.
(checkmark)
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL

CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. Spartan California Municipal Money
Market Fund is a non-diversified fund of Fidelity California Municipal
Trust II, and Spartan California Intermediate Municipal Income Fund and
Spartan California Municipal Income Fund are 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 the funds' performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FMR Texas, Inc. (FMR Texas) located in Irving,
Texas, has primary responsibility for providing investment management
services for Spartan California Municipal Money Market.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 230
(solid bullet) Assets in Fidelity mutual
funds: over $437 billion
(solid bullet) Number of shareholder
accounts: over 30 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 270
(checkmark)
Jonathan Short is manager of Spartan California Intermediate Municipal
Income and Spartan California Municipal Income, both of which he has
managed since March 1995. He also manages other Fidelity funds. Since
joining Fidelity in 1990, Mr. Short has worked as an analyst and manager.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Company, Inc. (FSC) performs transfer
agent servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members of
the Edward C. Johnson 3d family are the predominant owners of a class of
shares of common stock representing approximately 49% of the voting power
of FMR Corp. Under the Investment Company Act of 1940 (the 1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for the funds. UMB is located at 1010 Grand Avenue,
Kansas City, Missouri.
A broker-dealer may use a portion of the commissions paid by the funds to
reduce custodian or transfer agent fees for these funds. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to carry out
a fund's transactions, provided that the fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
EACH FUND'S INVESTMENT APPROACH
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will change
daily based on changes in interest rates and market conditions. Money
market funds follow industry-standard guidelines on the quality, maturity,
and diversification of their investments, which are designed to help
maintain a stable $1.00 share price. Of course, there is no guarantee that
a money market fund will be able to maintain a stable $1.00 share price. It
is possible that a major change in interest rates or a default on the
fund's invesments could cause its share price (and the value of your
investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn income
at current money market rates. In managing money market funds, FMR stresses
preservation of capital, liquidity, and income. The fund will purchase only
high-quality securities that FMR believes present minimal credit risks and
will observe maturity restrictions on securities it buys.
SPARTAN 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 money market securities of all types.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types and
maturities of the securities a bond fund purchases and the credit quality
of their issuers will impact a bond fund's reaction to these events.
INTEREST RATE RISK: In general, bond prices rise when interest rates fall
and fall when interest rates rise. Longer-term bonds are usually more
sensitive to interest rate changes. In other words, the longer the maturity
of a bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or in
the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to changes in
long-term interest rates.
ISSUER RISK: The price of a bond is affected by the credit quality of its
issuer. Changes in the financial condition of an issuer, changes in general
economic conditions and changes in specific economic conditions that affect
a particular type of issuer can impact the credit quality of an issuer.
Lower quality bonds generally tend to be more sensitive to these changes
than higher quality bonds.
MUNICIPAL MARKET RISK: Municipal securities are backed by the entity that
issued them and/or other revenue streams. Municipal security values may be
significantly affected by political changes, as well as uncertainties in
the municipal market related to taxation of municipal securities or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond includes
both income and price gains or losses. In selecting investments for a bond
fund, FMR considers a bond's expected income together with its potential
for price gains or losses. While income is the most important component of
bond returns over time, a bond fund's emphasis on income does not mean the
fund invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
FMR focuses on assembling a portfolio of income-producing bonds that it
believes will provide the best balance between risk and return within the
range of eligible investments for the fund. FMR's evaluation of a potential
investment includes an analysis of the credit quality of the issuer, its
structural features, its current price compared to FMR's estimate of its
long-term value, and any short-term trading opportunities resulting from
market inefficiencies.
In structuring a bond fund, FMR allocates assets among different market
sectors (for example, general obligation bonds of a state or bonds
financing a specific project) and different maturities based on its view of
the relative value of each sector or maturity. The performance of the fund
will depend on how successful FMR is in pursuing this approach.
SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL INCOME seeks high current income
that is free from federal income tax and California personal income tax by
investing in investment-grade municipal securities under normal conditions.
The fund normally maintains a dollar-weighted average maturity between
three and 10 years. FMR seeks to manage the fund so that it generally
reacts to changes in interest rates similarly to municipal bonds with
maturities of between seven and 10 years.
SPARTAN CALIFORNIA MUNICIPAL INCOME seeks high current income that is free
from federal income tax and the California personal income tax by investing
in investment-grade municipal securities under normal conditions.
Although the fund does not maintain an average maturity within a specified
range, FMR seeks to manage the fund so that it generally reacts to changes
in interest rates similarly to municipal bonds with maturities between
eight and 18 years.
EACH FUND normally invests in municipal securities. FMR normally invests at
least 65% of the money market fund's total assets in state municipal
securities and so that at least 80% of the fund's income distributions are
free from federal income tax. FMR normally invests at least 65% of the
intermediate fund's total assets in state municipal securities and at least
80% of the fund's assets in municipal securities whose interest is free
from federal income tax. FMR normally invests the income fund's assets so
that at least 80% of the fund's income distributions are free from both
federal and California personal income taxes. In addition, FMR may invest
all of each fund's assets in municipal securities issued to finance private
activities. The interest from these securities is a tax-preference item for
purposes of the federal alternative minimum tax.
Each fund's performance is affected by the economic and political
conditions within the state of California. California suffered severe
economic recession between 1990-1993, which resulted in broad-based revenue
shortfalls for the State and many local governments. California's fiscal
condition has improved as its economy has been in a sustained recovery
since 1994. During the recession, the State substantially reduced local
assistance, and further reductions could adversely affect the financial
condition of cities, counties and other government agencies facing
constraints in their own revenue collections. California's long-term credit
rating stabilized after having been reduced in the past several years.
California voters in the past have passed amendments to the California
Constitution and other measures that limit the taxing and spending
authority of California governmental entities, and future voter initiatives
could result in adverse consequences affecting California's municipal
bonds.
The funds differ primarily with respect to the quality or maturity of their
invesments and therefore their sensitivity to changes in economic and other
financial conditions and interest rates. The money market fund seeks to
provide income while maintaining a stable share price. The bond funds seek
to provide a higher level of income by investing in a broader range of
securities. As a result, the bond funds do not seek to maintain a stable
share price. Although both bond funds can invest in securities of any
maturity, Spartan California Income generally maintains a longer maturity.
As a result, Spartan California Income will tend to have greater share
price fluctuation. As of February 28, 1997, the dollar-weighted average
maturity for Spartan California Intermediate and Spartan California Income
was 8.8 and 15.7 years, respectively. In addition, since the money market
fund concentrates its investments in California municipal securities, an
investment in the money market fund may be riskier than an investment in
other types of money market funds.
FMR may use various techniques to hedge a portion of the bond fund's risks,
but there is no guarantee that these strategies will work as intended. When
you sell your shares of a bond fund, they may be worth more or less than
what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations, and the bond funds do not expect to invest in state taxable
obligations. Each fund also reserves the right to invest without limitation
in short-term instruments, to hold a substantial amount of uninvested cash,
or to invest more than normally permitted in federally taxable obligations
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each fund's investments are contained in the funds' SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Fund holdings and recent investment strategies are detailed in each fund's
financial reports, which are sent to shareholders twice a year. For a free
SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer generally pays the investor a
fixed, variable, or floating rate of interest, and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do
not pay current interest, but are sold at a discount from their face
values.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of credit quality. In general, bond prices rise
when interest rates fall, and fall when interest rates rise. Longer-term
bonds and zero coupon bonds are generally more sensitive to interest rate
changes.
In addition, bond prices are also affected by the credit quality of the
issuer. Investment-grade debt securities are medium- and high-quality
securities. Some, however, may possess speculative characteristics and may
be more sensitive to economic changes and to changes in the financial
condition of issuers.
RESTRICTIONS: Spartan California Intermediate and Spartan California Income
normally invest in investment-grade securities, but reserve the right to
invest up to 5% of their assets in below investment-grade securities
(sometimes called "junk bonds"). A security is considered to be
investment-grade if it is rated investment-grade by Moody's Investors
Service, Standard & Poor's, Duff & Phelps Credit Rating Co., or Fitch
Investors Service, L.P., or is unrated but judged to be of equivalent
quality.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
municipalities, local and sate governments, and other entities. These
obligations may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets so that
they are eligible investments for money market funds. If the structure does
not perform as intended, adverse tax or investment consequences may result.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be fully or partially backed by the local government, or by the credit
of a private issuer or the current or anticipated revenues from specific
projects or assets. Because many municipal securities are issued to finance
similar types of projects, especially those relating to education, health
care, housing, transportation, and utilities, the municipal markets can be
affected by conditions in those sectors. In addition, all municipal
securities may be affected by uncertainties regarding their tax status,
legislative changes, or rights of municipal securities holders. A municipal
security may be owned directly or through a participation interest.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of credit
and liquidity enhancement, including letters of credit, guarantees, puts
and demand features, and insurance, provided by foreign or domestic
entities such as banks and other financial institutions. These arrangements
expose a fund to the credit risk of the entity providing the credit or
liquidity support. Changes in the credit quality of the provider could
affect the value of the security and a fund's share price. In addition, in
the case of foreign providers of credit or liquidity support, extensive
public information about the provider may not be available, and unfavorable
political, economic, or governmental developments could affect its ability
to honor its commitment.
STATE MUNICIPAL 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will be affected
by the strength of the U.S. dollar, interest rates, the price stability of
oil imports, and the continued existence of favorable tax incentives.
ASSET-BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by a municipal issuer.
The value of these securities depends on many factors, including changes in
market interest rates, the availability of information concerning the pool
and its structure, prepayment expectations, the credit quality of the
underlying assets, and the market's perception of the servicer of the loan
pool and any credit enhancement provided.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, often making the security's market
value more volatile.
MUNICIPAL LEASE OBLIGATIONS are used by municipal issuers to acquire land,
equipment, or facilities. If the issuer stops making payments or transfers
its obligations to a private entity, the obligation could lose value or
become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. The credit quality of the investment may be affected by
the credit worthiness of the put provider. Demand features and standby
commitments are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The economic viability
of a project or changes in tax incentives could affect the price of these
securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security prices. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, entering into swap agreements, and purchasing indexed
securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with a
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of a fund and may involve a small investment of
cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading practices
in which payment and delivery for the security take place at a later date
than is customary for that type of security. The price of a security could
change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR or
its affiliates, whose goal is to seek a high level of current income exempt
from federal income tax while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
RESTRICTIONS: Spartan California Intermediate and Spartan California Income
do not currently intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
changes in the market value of a single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, each fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any issuer. These limitations do not apply to U.S. Government
securities or to securities of other investment companies. Each fund may
invest more than 25% of its total assets in tax-free securities that
finance similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
SPARTAN 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 INCOME 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 INCOME 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.
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 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:
0.50% for Spartan California Money Market and 0.55% for Spartan California
Intermediate and Spartan California Income. The total management fee rate
for Spartan California Money Market for the fiscal year ended February 28,
1997, after reimbursement, was 0.35%.
FMR Texas is Spartan California Money Market's sub-adviser and has primary
responsibility for managing its investments. FMR is responsible for
providing other management services. FMR pays FMR Texas 50% of its
management fee (before expense reimbursements) for FMR Texas's services.
FMR paid FMR Texas fees equal to 0.25% of Spartan California Money Market's
average net assets for the fiscal year ended February 28, 1997.
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
Spartan California Money Market's $5.00 exchange fee, $5.00 account
closeout fee, $5.00 fee for wire purchases and redemptions, and the $2.00
checkwriting charge.
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 (checkwriting not available).
For the fiscal year ended February 28, 1997, the portfolio turnover rates
for Spartan California Intermediate and Spartan California Income were 22%
and 23%, respectively. These rates vary from year to year.
YOUR ACCOUNT

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

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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT

</TABLE>

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

</TABLE>

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

</TABLE>

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

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ACCOUNT TYPE SPECIAL REQUIREMENTS

IF YOU SELL SHARES OF SPARTAN CALIFORNIA INCOME AFTER HOLDING THEM LESS THAN LESS THAN
180 DAYS, THE FUND WILL DEDUCT A REDEMPTION FEE EQUAL TO 0.50% OF THE VALUE OF THOSE
SHARES. IF YOUR SPARTAN CALIFORNIA MONEY MARKET 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>
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Check (check_graphic) All account types (small solid bullet) Minimum check: $1,000.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.

</TABLE>

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

</TABLE>

INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more than
one account in the fund. Call 1-800-544-6666 if you need copies of
financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of Spartan California Money Market, unless you place your
transaction on Fidelity's automated exchange services.
Note that exchanges out of a fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND

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

</TABLE>

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

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

</TABLE>

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

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

</TABLE>

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

DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains, if any, to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains earned by the bond funds are
normally distributed in 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 Spartan California 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 Spartan California 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. 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.
During the fiscal year ended February 1997, 100% of each fund's income
dividends was free from federal income tax, and 100%, 100% and 100% was
free from California taxes for Spartan California Money Market, Spartan
California Intermediate, and Spartan California Income, respectively.
41.13% of Spartan California Money Market's, 5.14% of Spartan California
Intermediate's, and 6.36% of Spartan California Income'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 when a fund has realized but not yet
distributed income or capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The money market fund's assets are valued 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 on the basis of information furnished by a pricing service
or by another method that the Board of Trustees believes accurately
reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share)is its NAV. Each fund's
REDEMPTION PRICE (price to sell one share) of each of Spartan California
Money Market and Spartan California Intermediate is its NAV. The redemption
price of Spartan California Income is its NAV minus the Fund's redemption
fee, if applicable.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Remember to keep share in your account in order to be
eligible to purchase additional shares of Spartan California Intermediate
or Spartan California Income.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
A REDEMPTION FEE for Spartan California Income, if applicable, of 0.50% for
shares held less than 180 days 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 you bought shares on different days, the shares you held longest will be
redeemed first for purposes of determining whether the fee applies.
THE FEES FOR INDIVIDUAL TRANSACTIONS for Spartan California Money Market
are waived if your account balance at the time of the transaction is
$50,000 or more. Otherwise, you should note the following:
(small solid bullet) The $2.00 checkwriting charge will be deducted from
your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the amount of
your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $24.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. This fee will not be
deducted from Fidelity Brokerage Accounts, retirement accounts (except
non-prototype retirement accounts), accounts using regular investment
plans, or if total assets with Fidelity exceed $30,000. Eligibility for the
$30,000 waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number or
which list the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($10,000 for Spartan California
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 for Spartan
California Money Market the $5.00 account closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be available for
sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each fund reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.

This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(registered trademark) CALIFORNIA MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY CALIFORNIA MUNICIPAL TRUST II
SPARTAN(registered trademark) CALIFORNIA INTERMEDIATE MUNICIPAL INCOME
FUND,
SPARTAN(registered trademark) CALIFORNIA MUNICIPAL INCOME FUND
FUNDS OF FIDELITY CALIFORNIA MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 19, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus (dated
April 19, 1997). Please retain this document for future reference. The
funds' Annual Report is a separate document supplied with this SAI. To
obtain a free additional copy of the Prospectus or an Annual Report, please
call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE

Investment Policies and Limitations

Special Considerations Affecting California

Special Considerations Affecting Puerto Rico

Portfolio Transactions

Valuation of Portfolio Securities

Performance

Additional Purchase and Redemption Information

Distributions and Taxes

FMR

Trustees and Officers

Management Contracts

Distribution and Service Plans

Contracts with FMR Affiliates

Description of the Trusts

Financial Statements

Appendix

INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas, Inc. (FMR Texas) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
SCR-ptb-0497
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The funds' fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations listed below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET FUND
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940
(2) 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) In order to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended, the fund currently
intends to comply with certain diversification limits imposed by Subchapter
M
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to 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 invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its assets so that no more than 5% of the
fund's total assets are invested in securities of any one issuer. However,
Subchapter M allows unlimited investments in cash, cash items, government
securities (as defined in Subchapter M) and securities of other investment
companies. These tax requirements are generally applied at the end of each
quarter of the fund's taxable year.
For purposes of limitation (4), FMR identifies the issuer of a security
depending on its terms and conditions. In identifying the issuer, FMR will
consider the entity or entities responsible for payment of interest and
repayment of principal and the source of such payments; the way in which
assets and revenues of an issuing political subdivision are separated from
those of other political entities; and whether a governmental body is
guaranteeing the security.
For the money market fund's policies on quality and maturity, see the
section entitled "Quality and Maturity" on page .
INVESTMENT LIMITATIONS OF SPARTAN CALIFORNIA INTERMEDIATE MUNICIPAL INCOME
FUND
(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) In order to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended, the fund currently
intends to comply with certain diversification limits imposed by Subchapter
M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to 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 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 limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its assets so that no more than 5% of the
fund's total assets are invested in securities of any one issuer. However,
Subchapter M allows unlimited investments in cash, cash items, government
securities (as defined in Subchapter M) and securities of other investment
companies. These tax requirements are generally applied at the end of each
quarter of the fund's taxable year.
For purposes of limitation (4), FMR identifies the issuer of a security
depending on its terms and conditions. In identifying the issuer, FMR will
consider the entity or entities responsible for payment of interest and
repayment of principal and the source of such payments; the way in which
assets and revenues of an issuing political subdivision are separated from
those of other political entities; and whether a governmental body is
guaranteeing the security.
For the intermediate fund's limitations on futures and options
transactions, see the section entitled "Limitations on Futures and Options
Transactions" beginning on page .
INVESTMENT LIMITATIONS OF SPARTAN CALIFORNIA MUNICIPAL INCOME FUND
(INCOME FUND)
THE FOLLOWING ARE THE INCOME 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) In order to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended, the fund currently
intends to comply with certain diversification limits imposed by Subchapter
M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or 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.
(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 invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the fund to
invest no more than 25% of its total assets in securities of any one issuer
and to invest at least 50% of its assets so that no more than 5% of the
fund's total assets are invested in securities of any one issuer. However,
Subchapter M allows unlimited investments in cash, cash items, government
securities (as defined in Subchapter M) and securities of other investment
companies. These tax requirements are generally applied at the end of each
quarter of the fund's taxable year.
For purposes of limitation (4), FMR identifies the issuer of a security
depending on its terms and conditions. In identifying the issuer, FMR will
consider the entity or entities responsible for payment of interest and
repayment of principal and the source of such payments; the way in which
assets and revenues of an issuing political subdivision are separated from
those of other political entities; and whether a governmental body is
guaranteeing the security.
For the income fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
beginning on page .
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that doing so will help the fund achieve its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The bond
funds may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond funds' standards for high-quality, taxable obligations
are essentially the same as those described by Moody's Investors Service,
Inc. (Moody's) in rating corporate obligations within its two highest
ratings of Prime-1 and Prime-2, and those described by Standard & Poor's
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2. The money market 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.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, OTC Options, Purchasing Put and Call Options, and
Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and option premiums.
In addition, each bond fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of the
fund's total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this SAI, may be changed as regulatory agencies
permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
For the money market fund, FMR may determine some restricted securities and
municipal lease obligations to be illiquid.
For the bond funds, investments currently considered to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments for the money
market funds are valued for purposes of monitoring amortized cost
valuation, and for the bond funds are priced at fair value as determined in
good faith by a committee appointed by the Board of Trustees. If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, each fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates, but each
fund currently intends to participate in this program only as a borrower.
Interfund borrowings normally extend overnight, but can have a maximum
duration of seven days. A fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and a fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. The bond funds may invest a portion of
their assets in lower-quality municipal securities as described in the
Prospectus.
While the market for California municipals is considered to be substantial,
adverse publicity and changing investor perceptions may affect the ability
of outside pricing services used by a fund to value its portfolio
securities, and the fund's ability to dispose of lower-quality bonds. The
outside pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be affected
by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the funds.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. The electric utilities industry has been experiencing,
and will continue to experience, increased competitive pressures. Federal
legislation in the last two years will open transmission access to any
electricity supplier, although it is not presently known to what extent
competition will evolve. Other risks include: (a) the availability and cost
of fuel, (b) the availability and cost of capital, (c) the effects of
conservation on energy demand, (d) the effects of rapidly changing
environmental, safety, and licensing requirements, and other federal,
state, and local regulations, (e) timely and sufficient rate increases, and
(f) opposition to nuclear power.
HEALTH CARE. The health care industry is subject to regulatory action by a
number of private and governmental agencies, including federal, state, and
local governmental agencies. A major source of revenues for the health care
industry is payments from the Medicare and Medicaid programs. As a result,
the industry is sensitive to legislative changes and reductions in
governmental spending for such programs. Numerous other factors may affect
the industry, such as general and local economic conditions; demand for
services; expenses (including malpractice insurance premiums); and
competition among health care providers. In the future, the following
elements may adversely affect health care facility operations: adoption of
legislation proposing a national health insurance program; other state or
local health care reform measures; medical and technological advances which
dramatically alter the need for health services or the way in which such
services are delivered; changes in medical coverage which alter the
traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance
and health care services.
HOUSING. Housing revenue bonds are generally issued by a state, county,
city, local housing authority, or other public agency. They generally are
secured by the revenues derived from mortgages purchased with the proceeds
of the bond issue. It is extremely difficult to predict the supply of
available mortgages to be purchased with the proceeds of an issue or the
future cash flow from the underlying mortgages. Consequently, there are
risks that proceeds will exceed supply, resulting in early retirement of
bonds, or that homeowner repayments will create an irregular cash flow.
Many factors may affect the financing of multi-family housing projects,
including acceptable completion of construction, proper management,
occupancy and rent levels, economic conditions, and changes to current laws
and regulations.
WATER AND SEWER. Water and sewer revenue bonds are often considered to have
relatively secure credit as a result of their issuer's importance, monopoly
status, and generally unimpeded ability to raise rates. Despite this, lack
of water supply due to insufficient rain, run-off, or snow pack is a
concern that has led to past defaults. Further, public resistance to rate
increases, costly environmental litigation, and Federal environmental
mandates are challenges faced by issuers of water and sewer bonds.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the funds will not
hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
PUT FEATURES entitle the holder to sell a security back to the issuer or a
third party at any time or at specified intervals. They are subject to the
risk that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other
entities. Demand features, standby commitments, and tender options are
types of put features.
QUALITY AND MATURITY (MONEY MARKET FUND ONLY). Pursuant to procedures
adopted by the Board of Trustees, the funds may purchase only high-quality
securities that FMR believes present minimal credit risks. To be considered
high-quality, a security must be rated in accordance with applicable rules
in one of the two highest categories for short-term securities by at least
two nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of equivalent
quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1 or SP-1), and second tier
securities are those deemed to be in the second highest rating category
(e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued basis
in connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts require the issuer to sell and the fund to buy refunded
municipal obligations at a stated price and yield on a settlement date that
may be several months or several years in the future. A fund generally will
not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). A fund may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract. When required by
SEC guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or other entity in determining whether to purchase a
security supported by a letter of credit guarantee, put or demand feature,
insurance or other source of credit or liquidity. In evaluating the credit
of a foreign bank or other foreign entities, FMR will consider whether
adequate public information about the entity is available and whether the
entity may be subject to unfavorable political or economic developments,
currency controls, or other government restrictions that might affect its
ability to honor its commitment.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
SPECIAL CONSIDERATIONS AFFECTING 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 fund. Obligations of the state or local governments
may also be affected by budgetary pressures affecting the State of
California (the State) and economic conditions in the State. Interest
income to the fund could also be adversely affected. The following
discussion 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, its
agencies, or instrumentalities, as available as of the date of this SAI.
FMR has not independently verified any of the information contained in such
official statements and other publicly available documents, but is not
aware of any fact which would render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND APPROPRIATIONS
LIMITATIONS ON PROPERTY TAXES. Certain obligations held by the fund 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 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, Proposition 13 limits to 1% of full
cash value the rate of AD VALOREM property taxes on real property and
generally restricts the increase in taxes upon 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 levies of "general taxes" which
were not dedicated to a specific use.
LIMITATIONS ON OTHER TAXES, FEES AND CHARGES. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on
Taxes Act." Proposition 218 added Article XIIIC and XIIID to the State
Constitution, which contain a number of provisions affecting the ability of
local agencies to levy and collect both existing and future taxes,
assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted
to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific
purposes require a two-thirds vote. Further, any general purpose tax which
was imposed, extended or increased without voter approval after December
31, 1994 must be approved by a majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for
municipal services and programs. Article XIIID also contains several new
provisions affecting "fees" and "charges," defined for purposes of Article
XIIID to mean "any levy other than an AD VALOREM tax, a special tax, or an
assessment, imposed by a [local government] upon a parcel or upon a person
as an incident of property ownership, including a user fee or charge for a
property related service." All new and existing property related fees and
charges must conform to requirements prohibiting, among other things, fees
and charges which generate revenues exceeding the funds required to provide
the property related service or are used for unrelated purposes. There are
new notice, hearing and protest procedures for levying or increasing
property related fees and charges, and, except for fees or charges for
sewer, water and refuse collection services (or fees for electrical and gas
service, which are not treated as "property related" for purposes of
Article XIIID), no property related fee or charge may be imposed or
increased without majority approval by the property owners subject to the
fee or charge or, at the option of the local agency, two-thirds voter
approval by the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments,
fees and charges. Consequently, local voters could, by future initiative,
repeal, reduce or prohibit the future imposition or increase of any local
tax assessment, fee or charge. It is unclear how this right of local
initiative may be used in cases where taxes or charges have been or will be
specifically pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the
fiscal flexibility of local governments, and for this reason, some ratings
of California cities and counties have been, and others may be, reduced.
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 consist 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 exclude
most State subventions. No limit is imposed on appropriations of funds
which are not "proceeds of taxes," such as reasonable user charges of 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 follow more closely
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 an 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, many entities were at or approaching their limit, and
several successfully obtained voter approval for four-year waivers of the
limit. Since Proposition 111, the appropriations limit has again ceased to
be a practical limit on California governments, but this condition may
change in the future. 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 1996-97 Budget provides for
State appropriations more than $7.0 billion under the limit for FY 1996-97.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of October 1, 1996, the State had approximately $17.8 billion of general
obligation bonds outstanding (including $272 million of commercial paper
notes which are intended to be refinanced by future bond sales), and $7.6
billion remained authorized but unissued. In addition, at June 30, 1996,
the State had lease-purchase obligations, payable from the State's General
Fund, of approximately $5.8 billion. State voters approved an additional
$2.1 billion of new bonds on the November 5, 1996 ballot. Of the State's
outstanding general obligation debt, approximately 21% is presently
self-liquidating (for which program revenues are anticipated to be
sufficient to reimburse the General Fund for debt service payments). In FY
1995-96, debt service on general obligation bonds and lease-purchase debt
was approximately 5.2% 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
The State'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 32 million, it now represents over 12% of the total U.S.
population. Total personal income in the State, at an estimated $748
billion in 1995, accounts for more than 12% of all personal income in the
nation. Total employment in 1995 was over 14 million, the majority of which
is in the service, trade, and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others,
were all severely affected, particularly in Southern California. Job losses
were the worst of any post-war recession. Employment levels stabilized by
late 1993 and steady growth has occurred since the start of 1994;
pre-recession job levels were reached early in 1996. Unemployment, while
higher than the national average, came down significantly from the January
1994 peak of 10%. Economic indicators show a steady recovery underway in
California since the start of 1994, particularly in export-related
industries, services, electronics, entertainment and tourism, although the
residential housing sector has been weaker than in previous recoveries. Any
delay or reversal of the economic recovery may cause a recurrence of
revenue shortfalls for the State.
RECENT STATE FINANCIAL RESULTS
The principal sources of State General Fund revenues in 1994-95 were the
California personal income tax (43% of total revenues), the sales tax
(34%), bank and corporation taxes (13%), 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 (but not in the past four years, as the
recession cut revenues and created a deficit), the State has budgeted to
maintain the SFEU 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 35%).
Since the start of FY 1990-91 until FY 1995-96, the State 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. These structural concerns will continue in
future years; in particular, it is anticipated that there will be a need to
increase capital and operating costs of the correctional system in response
to a "Three Strikes" law enacted in 1994 which mandates life imprisonment
for certain felony offenders.
RECENT BUDGETS. As a result of these factors, among others, from the late
1980s until 1992-93 the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years,
and the State accumulated and sustained a budget deficit in the SFEU
approaching $2.8 billion at its peak at June 30, 1993. Starting in FY
1990-91 and for each year thereafter, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance
and to close large "budget gaps" which were identified. The Legislature and
Governor eventually agreed on a number of different steps to produce Budget
Acts in the years 1991-92 to 1995-96, including:
(medium solid bullet) significant cuts in health and welfare program
expenditures;
(medium solid bullet) transfers of program responsibilities and some
funding sources from the State to local governments, coupled with some
reduction in mandates on local government;
(medium solid bullet) transfer of about $3.6 billion in annual local
property tax revenues from cities, counties, redevelopment agencies and
some other districts to local school districts, thereby reducing state
funding for schools;
(medium solid bullet) reduction in growth of support for higher education
programs, coupled with increases in student fees;
(medium solid bullet) revenue increase (particularly in the FY 1991-92
budget), most of which were for a short duration;
(medium solid bullet) increased reliance on aid from the federal government
to offset the costs of incarcerating, educating and providing health and
welfare services to undocumented aliens (although these efforts have
produced much less federal aid than the State Administration had
requested); and
(medium solid bullet) various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive
balances. By the start of FY 1993-94, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit past the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final
retirement of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures and
the turnaround of the economy starting in late 1993 finally led to the
restoration of positive financial results. While General Fund revenues and
expenditures were essentially equal in FY 1992-93 (following two years of
excess expenditures over revenues), the General Fund had positive operating
results in FY 1993-94, FY 1994-95 and FY 1995-96, which reduced the
accumulated budget deficit to less than $100 million as of June 30, 1996.
The State Department of Finance estimated that the General Fund received
revenues of about $46.3 billion in FY 1995-96, more than $2 billion higher
than was originally expected, as a result of the strengthening economy.
Expenditures totaled about $45.4 billion, also about $2 billion higher than
budgeted, because, among other factors, the State Constitution requires
disbursement of a percentage of revenues to local school districts and
federal actions to reduce welfare costs and to pay for costs of illegal
immigrants were not forthcoming to the extent expected.
A consequence of the accumulated budget deficits in the early 1990s,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the
annual budget, was to significantly reduce the State's cash resources
available to pay its ongoing obligations. When the Legislature and the
Governor failed to adopt a budget for FY 1992-93 by July 1, 1992, which
would have allowed the state to carry out its normal annual cash flow
borrowing to replenish its cash reserves, the State Controller was forced
to issue approximately $3.8 billion of registered warrants (IOUs) over a
2-month period to pay a variety of obligations representing prior years'
(or continuing) appropriations and mandates from court orders. Available
funds were used to make constitutionally-mandated payments, such as debt
service on bonds and warrants.
The State's cash condition became so serious that from late spring 1992
until 1995, the State had to rely on issuance of short-term notes which
matured in a subsequent fiscal year to finance its ongoing deficit and pay
current obligations. With the repayment of the last of these deficit notes
in April, 1996, the State does not plan to rely further on external
borrowings across fiscal years, but will continue its normal cash flow
borrowings during a fiscal year.
CURRENT BUDGET. The 1996-97 Budget Act was signed by the Governor on July
15, 1996, along with various implementing bills. The Legislature rejected
the Governor's proposed 15% cut in personal income taxes (to be phased over
three years), but did approve a 5% cut in bank and corporation taxes, to be
effective for income years starting on January 1, 1997. As a result,
revenues for the Fiscal Year are estimated to total $47.643 billion, a 3.3
percent increase over the final estimated 1995-96 revenues. The Budget Act
contains General Fund appropriations totaling $47.251 billion, a 4.0
percent increase over the final estimated 1995-96 expenditures.
The following are principal features of the 1996-97 Budget Act:
1. Funding for schools and community college districts increased by $1.65
billion total above revised 1995-96 levels. Almost half of this money was
budgeted to fund class-size reductions in kindergarten and grades 1-3.
Also, for the second year in a row, the full cost of living allowance (3.2
percent) was funded. The funding increases have brought K-12 expenditures
to almost $4,800 per pupil, an almost 15% increase over the level
prevailing during the recession years.
2. Proposed cuts in health and welfare totaling $660 million. All of these
cuts require federal law changes (including welfare reform, which was
enacted), federal waivers, or federal budget appropriations in order to be
achieved. Ultimate federal actions after enactment of the Budget Act will
allow the State to save only about $360 million of this amount.
3. A 4.9 percent increase in funding for the University of California and
the California State University system, with no increases in student fees
for the second consecutive year.
4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care
costs of illegal immigrants. These funds reduce appropriations in these
categories that would otherwise have to be paid from the General Fund.
With signing of the Budget Act, the State implemented its regular cash flow
borrowing program with the issuance of $3.0 billion of Revenue Anticipation
Notes to mature on June 30, 1997. The Budget Act appropriated a modest
budget reserve in the SFEU of $305 million, as of June 30, 1997. The
General Fund fund balance, however, still reflects $1.6 billion of "loans"
which the General Fund made to local schools in the recession years,
representing cash outlays above the mandatory minimum funding level.
Settlement of litigation over these transactions in July 1996 calls for
repayment of these loans over the period ending in 2001-02, about equally
split between outlays from the General Fund and from schools' entitlements.
The 1996-97 Budget Act contained a $150 million appropriation from the
General Fund toward this settlement.
The Department of Finance projected, when the Budget Act was passed, that,
on June 30, 1997, the State's available internal borrowable (cash)
resources will be $2.9 billion, after payment of all obligations due by
that date, so that no external cross-fiscal year borrowing will be needed.
The State will continue to rely on internal borrowing and intra-year
external note borrowing to meet its cash flow requirements.
The Department of Finance has reported that, based on stronger than
expected revenues during the first six months of the 1996-97 fiscal year,
reflecting the continued strength of the State's economic recovery, General
Fund revenues for the full 1996-97 fiscal year will be almost $1 billion
above projections, at about $48.4 billion. This is expected to be offset by
required increased payments to schools, and lower than expected savings
resulting from federal welfare reform actions and federal aid for illegal
immigrants. As a result, the expected balance of the SFEU at June 30, 1997
has been slightly reduced to about $197 million, still the first positive
balance in the decade of the 90's. The State has not yet given any
prediction of how the federal welfare reform law will impact the State's
finances, or those of its local agencies; the State is in the midst of
making many decisions concerning implementation of the new welfare law.
PROPOSED 1997-98 BUDGET. On January 9, 1997, the Governor released his
proposed budget for FY 1997-98. Assuming continuing strength in the
economy, the Governor projects General Fund revenues of $50.7 billion, and
proposes expenditures of $50.3 billion, to leave a budget reserve in the
SFEU of $550 million at June 30, 1998. The Governor proposed further
programs to reduce class size in lower primary grades, using excess
revenues from FY 1996-97. He also proposed a further cut in corporate
taxes, and sweeping changes in public assistance programs to respond to the
new federal welfare reform law.
The State's financial difficulties for the past budget years and other
factors noted above will result in continued pressure upon almost all local
governments, especially those which depend on State aid, such as school
districts and counties. While recent budgets included both permanent tax
increases and actions to reduce costs of state government over the longer
term, the Governor and other analysts have noted that structural imbalances
still exist, and there can be no assurance that the State will not face
budget gaps in the future.
The ratings of California's long-term general obligation bonds were reduced
in the early 1990's from "AAA" levels which had existed prior to the
recession. In 1996, Fitch and Standard & Poor's raised their ratings of
California's general obligation bonds, which are currently assigned ratings
of "A+" from Standard & Poor's, "A1" from Moody's and "A+" from Fitch.
OBLIGATIONS OF OTHER CALIFORNIA ISSUERS
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently,
the State's 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 $33.4 billion in FY 1995-96 (over 70% of General Fund
expenditures) and has been budgeted at $35.0 billion for FY 1996-97,
including the effect of implementing reductions in certain aid programs. To
reduce State General Fund support for school districts, the 1992-93 and
1993-94 Budget Acts caused local governments to transfer $3l8 billion of
property tax revenues to school districts, representing reversal of the
post-Proposition 13 "bailout" aid.
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. A
number of counties, both rural and urban, have indicated that their
budgetary condition is extremely serious. At the start of FY 1995-96, Los
Angeles County (L.A. County), the largest county in the State, was forced
to impose significant cuts in services and personnel, particularly in the
health care system, in order to balance its budget. L.A. County's debt was
downgraded by Moody's and S&P in the summer of 1995. Orange County, which
recently emerged from federal bankruptcy protection, has substantially
reduced services and personnel in order to live within much reduced means.
A school district (Richmond Unified) filed for protection under bankruptcy
laws several years ago, 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 State 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. One of the defenses raised in answer
to this lawsuit was the invalidity of the original lease transaction. The
trial court upheld the validity of the District's lease, and the case has
been settled. However, any future judgment in a similar case against the
position taken by the Trustee may have implications for lease transactions
of a similar nature by other State entities.
OTHER CONSIDERATIONS. The repayment of Industrial Development Securities
secured by real property may be affected by State 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 State 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 a 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 State tax allocation
bonds after the enactment of Article XIIIA and XIIIB, and only resumed such
ratings on a selective basis.
Proposition 87, approved by State 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 the State is within an active geologic region subject
to major seismic activity. Any California municipal obligation held by the
fund could be affected by an interruption of revenue 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.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID 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 these provisions or the
outcome of any pending litigation with respect to those provisions on State
obligations held by the fund 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 State 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 CONSIDERATIONS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the "Commonwealth"
or "Puerto Rico"), and is based on information drawn from official
statements and prospectuses relating to the securities offerings of Puerto
Rico, its agencies and instrumentalities, as available on the date of this
Statement of Additional Information. FMR has not independently verified any
of the information contained in such official statements, prospectuses and
other publicly available documents, but is not aware of any fact which
would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1995 trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of its
imports. In this regard, in fiscal 1995 Puerto Rico experienced a $4.6
billion positive adjusted merchandise trade balance.
Since fiscal 1985 personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1995 aggregate personal
income was $27.0 billion ($26.2 billion in 1992 prices) and personal per
capita income was $7,296 ($7,074 in 1992 prices). Gross domestic product in
fiscal 1992 was $23.7 billion and gross product in fiscal 1996 was $30.2
billion; ($26.7 billion in 1992 prices). This represents an increase in
gross product of 27.5% from fiscal 1992 to 1996 (12.7% in 1992 prices). For
fiscal 1997, an increase in gross domestic product of 2.7% over fiscal 1996
is forecasted. However, actual growth in the Puerto Rico economy will
depend on several factors including the condition of the U.S. economy, the
exchange value of the U.S. dollar, the price stability of oil imports,
increase in the number of visitors to the island, the level of exports, the
level of federal transfers, and the cost of borrowing.
Puerto Rico's economy continued to expand throughout the five-year period
from fiscal 1992 through fiscal 1996. Almost every sector of the economy
participated and record levels of employment were achieved. Factors behind
the continued expansion included government sponsored economic development
programs, periodic declines in the exchange value of the U.S. dollar, the
level of federal transfers and the relatively low cost of borrowing funds
during the period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the United States average and has been
increasing in recent years. Despite long term improvements, the
unemployment rate rose from 16.5% to 16.8% from fiscal 1992 to fiscal 1993.
However, by the end of fiscal 1994, the unemployment rate dropped to 15.9%
and as of the end of fiscal 1996, stands at 13.8%. Despite this downturn,
there is a possibility that the unemployment rate will increase.
Manufacturing is the largest sector in the economy accounting for $17.7
billion or 41.8% of gross domestic product in fiscal 1995. Manufacturing
has experienced a basic change over the years as a result of the influx of
higher wage, high technology industries such as the pharmaceutical
industry, electronics, computers, microprocessors, scientific instruments
and high technology machinery. The service sector, which includes finance,
insurance, real estate, wholesale and retail trade, hotels and related
services and other services, ranks second in its contribution to gross
domestic product and is the sector that employs the greatest number of
people. In fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector grew from
449,000 in fiscal 1992 to 527,000 in fiscal 1996, a cumulative increase of
17.6%, which increase was greater than the 11.8% cumulative growths in
employment over the same period, providing 46.7% of total employment. The
government sector of the Commonwealth plays an important role in the
economy of the island. In fiscal year 1995 the government accounted for
$4.5 billion or 10.6% of Puerto Rico's gross domestic product and provided
21.7% of the total employment. Tourism also contributes significantly to
the island economy, accounting for $1.8 billion of gross domestic product
in fiscal 1995.
The present administration has developed and is implementing a new economic
development program which is based on the premise that the private sector
should provide the primary impetus for economic development and growth.
This new program, which is referred to as the New Economic Model, promotes
changing the role of the government from one of being a provider of most
basic services to that of a facilitator for private sector initiatives and
encourages private sector investment by reducing government-imposed
regulatory restraints.
The New Economic Model contemplates the development of initiatives that
will foster private investment in, and private management of, sectors that
are served more efficiently and effectively by the private enterprise. One
of these initiatives has been the adoption of a new tax code intended to
expand the tax base, reduce top personal and corporate tax rates, and
simplify the tax system.
The New Economic Model also seeks to identify and promote areas in which
Puerto Rico can compete more effectively in the global markets. Tourism has
been identified as one such area because of its potential for job creation
and contribution to the gross product. In 1993, a new Tourism Incentives
Act and a Tourism Development Fund were implemented in order to provide
special tax incentives and financing for the development of new hotel
projects and the tourism industry. As a result of these initiatives, new
hotels have been constructed or are under construction which have increased
the number of hotel rooms on the island from 8,415 in fiscal 1992 to 10,345
in fiscal 1996 and to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the government's
direct contribution to gross domestic product. As part of this goal the
government has transferred certain governmental operations and sold a
number of its assets to private parties. Among these are: (i) the sale of
the assets of the Puerto Rico Maritime Authority; (ii) the execution of a
five-year management agreement for the operation and management of the
Aqueducts and Sewer Authority by a private company; (iii) the execution by
the Aqueducts and Sewer Authority of a construction and operating agreement
with a private consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts with
private power producers under which two cogeneration plants (with a total
capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of private
health services, in 1994 a new health insurance program was started in the
Fajardo region to provide qualifying Puerto Rico residents with
comprehensive health insurance coverage. In conjunction with this program
certain public health facilities are being privatized. The administration's
goal is to provide universal health insurance for such qualifying
residents. The total cost of this program will depend on the number of
municipalities included and the total number of participants. As of June
30, 1996, over 760,000 persons were participating in the program at an
annual cost to the General Fund of approximately $296 million.
One of the factors assisting the development of the manufacturing sector in
Puerto Rico has been the federal and Commonwealth tax incentives available,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program. The
Industrial Incentives Program, through the 1987 Industrial Incentives Act,
grants corporations engaged in certain qualified activities a fixed 90%
exemption from Commonwealth income and property taxes and a 60% exemption
from municipal license taxes during a 10, 15, 20, or 25 year period
depending on location.
For many years, United States companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax exemption for
operating and qualifying investment income from Puerto Rico sources.
Amendments to Section 936 made in 1993 (the "1993 Amendments") instituted
two alternative methods for calculating the tax credit and limited the
amount of the credit that a qualifying company could claim. These
limitations are based on a percentage of qualifying income (the "percentage
of income limitation") and on qualifying expenditures on wages and other
wage related benefits (the "economic activity limitation", also known as
the "wage credit limitation"). As a result of amendments incorporated in
the Small Business Job Protection Act of 1996 enacted by the United States
Congress and signed into law by President Clinton on August 20, 1996 (the
"1996 Amendments"), as described below the tax credit is now being phased
out over a ten-year period for existing claimants and is no longer
available for corporations that establish operations in Puerto Rico after
October 13, 1995 (including existing Section 936 Corporations (as defined
below) to the extent substantially new operations are established in Puerto
Rico). The 1996 Amendments also moved the credit based on the economic
activity limitation to Section 30A of the Code and phased it out over 10
years. In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in Puerto
Rico. The Section 30A Credit and the remaining Section 936 credit are
discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" ("QDC") that meets
certain gross income tests (which are similar to the 80% and 75% gross
income tests of Section 936 of the Code discussed below) to claim a credit
(the "Section 30A Credit") against the federal income tax imposed on
taxable income derived from sources outside the United States from the
active conduct of a trade or business in Puerto Rico or from the sale of
substantially all the assets used in such business ("possession income").
A QDC is a United States corporation which (i) was actively conducting a
trade or business in Puerto Rico on October 13, 1995, (ii) had a Section
936 election in effect for its taxable year that included October 13, 1995,
(iii) does not have in effect an election to use the percentage limitation
of Section 936(a)(4)(B) of the Code, and (iv) does not add a "substantial
new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to 85% of
the maximum earnings subject to the OASDI portion of Social Security taxes
plus an allowance for fringe benefits of 15% of qualified possession wages,
(ii) a specified percentage of depreciation deductions ranging between 15%
and 65%, based on the class life of tangible property, and (iii) a portion
of Puerto Rico income taxes paid by the QDC, up to a 9% effective tax rate
(but only if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the code may compute the amount of its active
business income, eligible for the Section 30A Credit, by using either the
cost sharing formula, the profit-split formula, or the cost-plus formula,
under the same rules and guidelines prescribed for such formulas as
provided under Section 936 (see discussion below). To be eligible for the
first two formulas, the QDC must have a significant presence in Puerto
Rico.
In the case of taxable years beginning after December 31, 2001, the amount
of possession income that would qualify for the Section 30A Credit would be
subject to a cap based on the QDC's possession income for an average
adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31, 1995
and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, United States
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their United
States corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto Rico
("active business income") and from the sale or exchange of substantially
all assets used in the active conduct of such trade or business. To qualify
under Section 936 in any given taxable year, a corporation must derive for
the three-year period immediately preceding the end of such taxable year,
(i) 80% or more of its gross income from sources within Puerto Rico, and
(ii) 75% or more of its gross income from the active conduct of a trade or
business in Puerto Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one of
three formulas: (A) a cost-sharing formula, whereby it is allowed to claim
all profits attributable to manufacturing intangibles, and other functions
carried out in Puerto Rico, provided it contributes to the research and
development expenses of its affiliated group or pays certain royalties; (B)
a profit-split formula, whereby it is allowed to claim 50% of the net
income of its affiliated group from the sale of products manufactured in
Puerto Rico; or (C) a cost-plus formula, whereby it is allowed to claim a
reasonable profit on the manufacturing costs incurred in Puerto Rico. To be
eligible for the first two formulas, the Section 936 Corporation must have
a significant business presence in Puerto Rico for purposes of the Section
936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the Section 936
credit is only available to companies that elect the percentage of income
limitation and is limited in amount to 40% of the credit allowable prior to
the 1993 Amendments, subject to a five-year phase-in period from 1994 to
1998 during which period the percentage of the allowable credit is reduced
from 60% to 40%.
In the case of taxable years beginning on or after 1998, the possession
income subject to the 936 credit will be subject to a cap based on the
Section 936 Corporation's possession income for an average adjusted base
period ending on October 14, 1995. The 936 credit is eliminated for taxable
years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the long-term effect
on the Puerto Rico economy of the enactment of the 936 Amendments. The
Government of Puerto Rico does not believe there will be short-term or
medium-term material adverse effects on Puerto Rico's economy as a result
of the enactment of the 1996 Amendments. The Government of Puerto Rico
further believes that during the phase-out period sufficient time exists to
implement additional incentive programs to safeguard Puerto Rico's
competitive position. Additionally, the Governor intends to propose a new
federal incentive program similar to what is now provided under Section
30A. Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe benefits,
depreciation expenses for certain tangible assets, and research and
development expenses, and would restore the credit granted to passive
income under Section 936 prior to its repeal by the 1996 Amendments. Under
the Governor's proposal, the credit granted to qualifying companies would
continue in effect until Puerto Rico shows, among other things, substantial
economic improvements in terms of certain economic parameters.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
management contract. In the case of the money market fund, FMR has granted
investment management authority to the sub-adviser (see the section
entitled "Management Contracts"), and the sub-adviser is authorized to
place orders for the purchase and sale of portfolio securities, and will do
so in accordance with the policies described below. FMR is also responsible
for the placement of transaction orders for other investment companies and
accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by the money market fund generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
fund are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by, and to place
portfolio transactions with, brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by, and place agency transactions with, Fidelity Brokerage
Services, Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are
fair, reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For the fiscal periods ended February 1997 and 1996, the portfolio turnover
rates were 22% and 35%, respectively for Spartan California Intermediate
and 23% and 38%, respectively for Spartan California Income.
For the fiscal years ended February 1997, 1996, and 1995, the funds paid no
brokerage commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION
For the Money Market Fund, Fidelity Service Company, Inc. (FSC) normally
determines the fund's net asset value per share (NAV) as of the close of
the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern time). For
the bond funds, FSC normally determines each fund's NAV as of the close of
the NYSE (normally 4:00 p.m. Eastern time). The valuation of portfolio
securities is determined as of this time for the purpose of computing each
fund's NAV.
TAX-FREE BOND FUNDS. Portfolio securities are valued by various methods, if
quotations are not available. Fixed-income securities are usually valued on
the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Use of pricing services has been
approved by the Board of Trustees. A number of pricing services are
available, and the funds may use various pricing services or discontinue
the use of any pricing service.
Futures contracts and options are valued on the basis of market quotations,
if available. Securities of other open-end investment companies are valued
at their respective NAVs.
Securities and other assets for which there is no readily available market
value are valued in good faith by a committee appointed by the Board of
Trustees. The procedures set forth above need not be used to determine the
value of the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more accurately
reflect the fair market value of such securities.
MONEY MARKET FUND. Portfolio securities and other assets are valued on the
basis of amortized cost. This technique involves initially valuing an
instrument at its cost as adjusted for amortization of premium or accretion
of discount rather than its current market value. The amortized cost value
of an instrument may be higher or lower than the price the fund would
receive if it sold the instrument. Securities of other open-end investment
companies are valued at their respective NAVs.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund used
market valuations to determine its NAV. The converse would apply during
periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use of
the term "money market fund" are permitted pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (1940 Act). The fund must adhere to certain
conditions under Rule 2a-7, as summarized in the section entitled "Quality
and Maturity" on page .
The Board of Trustees oversees FMR's adherence to the provisions of Rule
2a-7 and has established procedures designed to stabilize 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.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. A bond fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of a bond fund's shares when redeemed may
be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market fund
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields are computed by dividing the fund's interest
income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive dividends during the period,
dividing this figure by the fund's net asset value per share (NAV) at the
end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Yields do not
reflect Spartan California Income's 0.50% redemption fee, which applies to
shares held less than 180 days. Income is calculated for purposes of the
bond fund's yield quotations in accordance with standardized methods
applicable to all stock and bond funds. In general, interest income is
reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are
excluded from the calculation.
Income calculated for the purposes of determining the bond fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the bond fund's yield may not equal
its distribution rate, the income paid to your account, or the income
reported in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a fund's yield by
the result of one minus a stated combined federal and state income tax
rate. If only a portion of a fund's yield is tax-exempt, only that portion
is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
effective yield under federal and state income tax laws for 1997. The
second table shows the approximate yield a taxable security must provide at
various income brackets to produce after-tax yields equivalent to those of
hypothetical tax-exempt obligations yielding from 2% to 11%. Of course, no
assurance can be given that a fund will achieve any specific tax-exempt
yield. While the funds invest principally in obligations whose interest is
exempt from federal and state income tax, other income received by the
funds may be taxable. The tables do not take into account local taxes, if
any, payable on fund distributions.
Use the first table to find your approximate effective tax bracket taking
into account federal and state taxes for 1997.
1997 TAX RATES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Taxable Income* Federal California State Combined
Marginal Rate Marginal Rate Federal and State
Effective Rate**

Single Return Joint Return

</TABLE>

$ 0 -$ 4,908 $0 - $ 9,816 15.0% 1.0% 15.85%

4,909 -11,632 9,817 -23,264 15.0% 2.0% 16.70%

11,633-18,357 23,265-36,714 15.0% 4.0% 18.40%

18,358-24,650 36,715-41,200 15.0% 6.0% 20.10%

24,651-25,484 41,201-50,968 28.0% 6.0% 32.32%

25,485-32,207 50,969-64,414 28.0% 8.0% 33.76%

32,208-59,750 64,415-99,600 28.0% 9.3% 34.70%

59,571-124,650 99,601-151,750 31.0% 9.3% 37.42%

124,651-271,050 151,751-271,050 36.0% 9.3% 41.95%

over 271,050 over 271,050 39.6% 9.3% 45.22%

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15.85% 16.70% 18.40% 20.10% 32.32% 33.76% 34.70% 37.42% 41.95% 45.22%

</TABLE>

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