SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 33-42890)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 15 [X]
and
REGISTRATION STATEMENT (No. 811-6397)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 15 [X]
Fidelity California Municipal Trust II
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-570-7000
Arthur S. Loring, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
(x) on April 19, 1997 pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) on ( ) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed
post-effective amendment.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file the Notice required by
such Rule on or before April 29, 1997.
SPARTAN CALIFORNIA MUNICIPAL FUNDS
FIDELITY CALIFORNIA MUNICIPAL TRUST
FIDELITY CALIFORNIA MUNICIPAL TRUST II
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. *
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment Principles and
Risks;
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment Principles
and Risks
5 a .............................. Charter
b i............................. Cover Page; The Funds at a Glance; Doing
Business with Fidelity; Charter
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. Charter
d .............................. Charter; Breakdown of Expenses
e .............................. Cover Page; Charter
f .............................. Expenses
g .............................. *
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Exchange Restrictions; Transaction Details
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. Expenses; How to Buy Shares; Transaction
Details
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trusts
13 a - c ............................ Investment Policies and Limitations
d ............................ *
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR; Portfolio Transactions
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Contracts with FMR Affiliates
e ............................ Management Contracts
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Contracts with FMR Affiliates
17 a - c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation
c ............................ *
20 ............................. Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ *
b ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
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>
44.Selected Per-Share
Data and Ratios
45.Years ended 1997 1996F 1995 1994 1993E 1992D 1991D 1990C
February 28
46.Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
value, beginning
of period
47.Income from .031 .035 .030 .024 .022 .041 .054 .025
Investment
Operations
Net interest
income
48.Less (.031) .035 (.030) (.024) (.022) (.041) (.054) (.025)
Distributions
From net interest
income
49.Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
value, end of
period
50.Total returnB 3.18% 3.60% 3.00% 2.45% 2.24% 4.15% 5.52% 2.54%
51.Net assets, $ 1,344 $ 1,307 $ 1,163 $ 1,065 $ 856 $ 918 $ 764 $ 397
end of period
(In millions)
52.Ratio of .35%G .31%G 28%G .21%G .30%A, .10%G .07%G .00%G
expenses to G
average net
assets
53.Ratio of .34%H .31% .28% .21% .30%A .10% .07% .00%
expenses to
average net
assets after
expense
reductions
54.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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
55.Selected Per-Share Data and
Ratios
56.Years ended February 28 1997 1996D 1995 1994C
57.Net asset value, beginning of $ 9.930 $ 9.430 $ 9.760 $ 10.000
period
58.Income from Investment .453 .478 .477 .070
Operations
Net interest income
59. Net realized and unrealized .024 .499 (.330) (.240)
gain (loss)
60. Total from investment .477 .977 .147 (.170)
operations
61.Less Distributions (.454) (.477) (.477) (.070)
From net interest income
62. From net realized gain (.003) -- -- --
63. Total distributions (.457) (.477) (.477) (.070)
64.Net asset value, end of period $ 9.950 $ 9.930 $ 9.430 $ 9.760
65.Total returnB 4.96% 10.58% 1.67% (1.71)%
66.Net assets, end of period (000 $ 74,736 $ 71,810 $ 45,771 $ 22,713
omitted)
67.Ratio of expenses to average .54%E .24%E .05%E .00%E
net assets
68.Ratio of expenses to average .53%,F .24% .05% .00%
net assets after expense
reductions
69.Ratio of net interest income to 4.60% 4.93% 5.16% 4.66%A
average net assets
70.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>
71.Selected Per-Share
Data and Ratios
72.Years ended 1997 1996F 1995 1994G 1993E 1992D 1991D 1990C
February 28
73.Net asset $ 10.52 $ 10.02 $ 10.93 $ 11.33 $ 10.54 $ 10.24 $ 9.760 $ 10.00
value, beginning 0 0 0 0 0 0 0
of period
74.Income from .548 .571 .603 .631 .543 .663 .706 .301
Investment
Operations
Net interest
income
75. Net realized .082 .498 (.732) (.012) .858 .297 .472 (.249)
and
unrealized gain
(loss)
76. Total from .630 1.069 (.129) .619 1.401 .960 1.178 .052
investment
operations
77.Less (.549) (.570) (.603) (.631) (.543) (.663) (.706) (.301)
Distributions
From net interest
income
78. From net (.002) -- (.180) (.330) (.070) -- -- --
realized gain
79. In excess of -- -- -- (.060) -- -- -- --
net
realized gain
80. Total (.551) (.570) (.783) (1.021) (.613) (.663) (.706) (.301)
distributions
81. Redemption .001 .001 .002 .002 .002 .003 .008 .009
fees added
to paid in capital
82.Net asset $ 10.60 $ 10.52 $ 10.02 $ 10.93 $ 11.33 $ 10.54 $ 10.24 $ 9.760
value, end of 0 0 0 0 0 0 0
period
83.Total returnB 6.23% 10.94% (.85)% 5.63% 13.76% 9.66% 12.52% .59%
84.Net assets, $ 401,5 $ 409,2 $ 395,7 $ 566,6 $ 573,8 $ 479,1 $ 281,7 $ 107,4
end of period (000 03 01 60 13 71 37 25 09
omitted)
85.Ratio of .55% .54%H .55% .52%H .40%A, .36%H .19%H .00%H
expenses to H
average net
assets
86.Ratio of .54%I .54% .55% .52% .40%A .36% .19% .00%
expenses to
average net
assets after
expense
reductions
87.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
88.Portfolio 23% 38% 30% 54% 26%A 13% 15% 5%A
turnover 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 ind ices 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
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% 15.1
3% 4.68%
Lehman Bros. CA 1 -17 yr. Muni.
Bond Index -3.87% 15.77% 4.7
1%
Lipper Interm. Muni. Debt
Funds Avg. -3.87% 13.27% 4.0
5%
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% -7.5
9% 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. T he 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. H e 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 Co mpany, 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 maturitie s 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 securit y 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.
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account ($10,000 for 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.
ACCOUNT TYPE SPECIAL REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT 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
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<CAPTION>
<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>
<CAPTION>
<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):
5. REINVESTMENT OPTION. Your dividend and capital gain distributions, if
any, will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned this
option.
6. INCOME-EARNED OPTION. Your capital gain distributions, if any, will be
automatically reinvested, but you will be sent a check for each dividend
distribution. This option is not available for Spartan California Money
Market.
7. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
8. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions, if any, will be automatically invested in
another identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions, if any, will be reinvested at the NAV as
of the date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the funds' tax implications.
TAXES ON DISTRIBUTIONS. Interest income that a fund earns is distributed to
shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each fund may invest up to 100 % of its
assets in these securities. Individuals who are subject to the tax must
report this interest on their tax returns.
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 199 7 and 199 6 , 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 199 7 , 199 6 , and
199 5 , 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 199 7 .
1997 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <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%
* 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.
If your effective combined federal and state personal tax rate in 1997
is:
<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:
<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 NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may or may not include the effect of
Spartan California Income's 0.50 % redemption fee on shares held less
than 180 days. Excluding a fund's redemption fee from a total return
calculation produces a higher total return figure. Total returns, yields,
and other performance information may be quoted numerically or in a table,
graph, or similar illustration, and for Spartan California Money
Market may omit or include the effect of the $5.00 account closeout
fee.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show the money market fund's
7-day yields, the bond fund's 30-day yields, each fund's tax-equivalent
yields, and total returns for periods ended February 28, 1997. Total return
figures for Spartan California Money Market include the effect of the $5.00
account closeout fee based on an average size account, but Spartan
California Income's 0.50% redemption fee, applicable to shares held less
than less than 180 days is not.
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,
19 97 , none of the funds' income was subject to state taxes. Note
that each fund may invest in securities whose income is subject to the
federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty-/Se Tax- One Five Life of One Five Life of
ven-Day Equivalent Year Years Fund* * Year Years Fund* *
Yield * Yield
Spartan CA 3.09 % 5.32 % 3.18 % 3.01 % 3.68 % 3.18 % 15.99 % 29.98 %
Money Market
Spartan CA 4.36 % 7.51 % 4.96 % N/A 4.79 % 4.96 % N/A 15.99 %
Intermediate
Spartan CA 4.79% 8.25% 6.23% 7.26% 7.95% 6.23% 42.00% 74.26%
Income
</TABLE>
* A seven-day yield is presented for the money market fund, and
thirty-day yields are presented for the bond funds.
* * From November 27, 1989 (commencement of operations) for Spartan
California Money Market and Spartan California Income and from December 30,
1993 (commencement of operations) for Spartan California Intermediate.
If FMR had not reimbursed certain fund expenses during these periods,
the Spartan California Money Market yield would have been
2.94 % and total returns would have been lower.
The following table shows the income and capital elements of each fund's
cumulative total return. The table compares each fund's return to the
record of the Standard & Poor's 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 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 fixed-income investments such as the funds. The S&P 500 and
DJIA returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical $10,000
investment in each fund during the life of each fund, 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 period from November 27, 1989 (commencement of operations) to
February 28, 1997, a hypothetical $10,000 investment in Spartan California
Money Market would have grown to $ 12,998 .
SPARTAN CALIFORNIA MONEY MARKET INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
19 97 $ 10,000 $ 2,998 $ 0 $ 12,998 $ 28,331 $ 31,694 $ 12,707
1996 $ 10,000 $ 2,597 $ 0 $ 12,597 $ 22,456 $ 24,761 $ 12,303
1995 $ 10,000 $ 2,159 $ 0 $ 12,159 $ 16,671 $ 17,680 $ 11,986
1994 $ 10,000 $ 1,804 $ 0 $ 11,804 $ 15,529 $ 16,439 $ 11,652
1993 $ 10,000 $ 1,522 $ 0 $ 11,522 $ 14,334 $ 14,062 $ 11,336
1992 $ 10,000 $ 1,206 $ 0 $ 11,206 $ 12,952 $ 13,234 $ 11,009
1991 $ 10,000 $ 738 $ 0 $ 10,738 $ 11,164 $ 11,306 $ 10,707
19 90 * $ 10,000 $ 154 $ 0 $ 10,154 $ 9,738 $ 9,919 $ 10,167
</TABLE>
* From November 27, 1989 (commencement of operations)
Explanatory Notes: With an initial investment of $10,000 in Spartan
California Money Market on November 27, 1989, the net amount
invested in fund shares was $10,000. The cost of the initial investment
($10,000) together with the aggregate cost of reinvested dividends for the
period covered (their cash value at the time they were reinvested) amounted
to $ 12,998 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 2,627 for
dividends. The fund did not distribute any capital gains during the period.
The figures in the table do not include the effect of the fund's $5.00
account closeout fee.
During the period from December 30, 1993 (commencement of operations) to
February 28, 1997, a hypothetical $10,000 investment in Spartan California
Intermediate would have grown to $ 11,599 .
SPARTAN CALIFORNIA INTERMEDIATE INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
19 97 $ 9,950 $ 1,646 $ 3 $ 11,599 $ 18,194 $ 19,563 $ 10,947
1996 $ 9,930 $ 1,121 $ 0 $ 11,051 $ 14,421 $ 15,279 $ 10,624
1995 $ 9,430 $ 564 $ 0 $ 9,994 $ 10,706 $ 10,913 $ 10,350
19 94 * $ 9,760 $ 69 $ 0 $ 9,829 $ 9,973 $ 10,147 $ 10,062
</TABLE>
* From December 30, 1993 (commencement of operations)
Explanatory Notes: With an initial investment of $10,000 in Spartan
California Intermediate on December 30, 1993 , the net amount
invested in fund shares was $10,000. The cost of the initial investment
($10,000) together with the aggregate cost of reinvested dividends and
capital gain distributions for the period covered (their cash value at the
time they were reinvested) amounted to $ 11,598 . If distributions had
not been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would have
amounted to $ 1,478 for dividends and $ 3 for capital gain
distributions.
During November 27, 1989 (commencement of operations) to February 28, 1997,
a hypothetical $10,000 investment in Spartan California Income would have
grown to $ 17,426 .
SPARTAN CALIFORNIA INCOME INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1997 $ 10,600 $ 5,996 $ 830 $ 17,426 $ 28,331 $ 31,694 $ 12,677
1996 $ 10,520 $ 5,063 $ 821 $ 16,404 $ 22,456 $ 24,754 $ 12,303
1995 $ 10,020 $ 3,984 $ 782 $ 14,786 $ 16,671 $ 17,680 $ 11,986
1994 $ 10,930 $ 3,398 $ 586 $ 14,914 $ 15,529 $ 16,440 $ 11,652
1993 $ 11,330 $ 2,700 $ 90 $ 14,120 $ 14,334 $ 14,062 $ 11,366
1992 $ 10,530 $ 1,742 $ 0 $ 12,272 $ 12,952 $ 13,234 $ 11,009
1991 $ 10,180 $ 949 $ 0 $ 11,129 $ 11,164 $ 11,306 $ 10,707
1990* $ 9,990 $ 182 $ 0 $ 10,172 $ 9,738 $ 9,919 $ 10,167
</TABLE>
* From November 27, 1989 (commencement of operations).
Explanatory Notes: With an initial investment of $10,000 in Spartan
California Income on November 27, 1989, the net amount invested in
fund shares was $10,000 . The cost of the initial investment
($10,000) together with the aggregate cost of reinvested dividends and
capital gain distributions for the period covered (their cash value at the
time they were reinvested) amounted to $ 16,727 . If distributions had
not been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would have
amounted to $ 4,567 for dividends and $ 642 for capital gain
distributions. The figures in the table do not include the effect of the
fund's 0.50% redemption fee applicable to shares held less than 180
days.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on total
return, assume reinvestment of distributions, do not take sales charges or
redemption fees into consideration, and are prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to the
mutual fund rankings, a fund's performance may be compared to stock, bond,
and money market mutual fund performance indices prepared by Lipper or
other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest. The
total return of a benchmark index reflects reinvestment of all dividends
and capital gains paid by securities included in the index. Unlike a fund's
returns, however, the index returns do not reflect brokerage commissions,
transaction fees, or other costs of investing directly in the securities
included in the index.
The bond fund s may compare to the Lehman Brothers Municipal Bond
Index, a total return performance benchmark for investment-grade municipal
bonds with maturities of at least one year. In addition, Spartan
California Intermediate Income may compare its performance to that of the
Lehman Brothers California 1-17 Year Municipal Bond Index, a total return
performance benchmark for California investment-grade municipal bonds with
maturities between one and 17 years. Spartan California 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.
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, 199 7 , 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 the money market fund's policy of investing
so that at least 80% of its income distribution is free from federal income
tax. Spartan California Money Market 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, fr o m interest on obligations that are
exempt form California personal income tax are excludable from gross
income. For a fund to qualify to pay exempt-interest dividends under
California law, at least 50 percent of the value of its assets must consist
of such obligations at the close of each quarter of its fiscal year. For
purposes of California personal income taxation, distributions to
individual shareholders derived form 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 do es 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 Spartan California Money Market fund does not anticipate distributing
long-term capital gains.
As of February 28, 1997, Spartan California Money Market had a capital loss
carryforward of approximately $591,000 which will expire on February 28,
2003.
As of February 28, 1997, Spartan California Intermediate had a capital loss
carryforward of approximately $531,000 which will expire on February 28,
2003.
As of February 28, 1997, Spartan California Income had capital loss
carryforward s aggregating approximately $8,463,000 of which
$1,148,000 will expire on February 28, 2003, and of which $7,315,000 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. The bond funds intend 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' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the 1940 Act, control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company. Therefore, through their ownership of voting common
stock and the execution of the shareholders' voting agreement, members of
the Johnson family may be deemed, under the 1940 Act, to form a controlling
group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within the
Fidelity organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. 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 equipment 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.
WILLIAM O. McCOY (62), Member of the Advisory Board (1996), is the Vice
President of Finance for the University of North Carolina (16-school
system, 1995). Prior to his retirement in December 1994, Mr. McCoy was Vice
Chairman of the Board of BellSouth Corporation (telecommunications, 1984)
and President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company), Weeks Corporation of Atlanta
(real estate, 1994), Carolina Power and Light Company (electric utility,
1996) and the Kenan Transport Co. (1996). Previously, he was a Director of
First American Corporation (bank holding company, 1979-1996). In addition,
Mr. McCoy serves as a member of the Board of Visitors for the University of
North Carolina at Chapel Hill (1994) and for the Kenan Flager Business
School (University of North Carolina at Chapel Hill, 1988).
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 (64), Trustee (1993) is Chairman of the Board, President,
and Chief Executive Officer of Lexmark International, Inc. (office
machines, 1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet.
THOMAS R. WILLIAMS (68), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (57), Vice President, is Vice President of Fidelity's
fixed-income funds (1995) and Senior Vice President of FMR (1995).
SARAH H. ZENOBLE (48), 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. 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 o r 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 from Compensation from Compensation from from the Fund
Spartan CA Money Spartan CA Spartan CA Complex* A
Market A,B Intermediate Income A,D
Income A,C
J. Gary Burkhead** $ 0 $ 0 $ 0 $ 0
Ralph F. Cox $ 480 $ 26 $ 143 137,700
Phyllis Burke
Davis $ 469 $ 25 $ 140 134,700
Richard J.
Flynn*** $ 462 $ 24 $ 138 168,000
Edward C. Johnson
3d** $ 0 $ 0 $ 0 0
E. Bradley Jones $ 469 $ 25 $ 140 134,700
Donald J. Kirk $ 474 $ 25 $ 141 136,200
Peter S. Lynch** $ 0 $ 0 $ 0 0
William O.
McCoy **** $ 276 $ 21 $ 113 85,333
Gerald C.
McDonough $ 503 $ 27 $ 150 136,200
Edward H.
Malone*** $ 368 $ 20 $ 110 136,200
Marvin L. Mann $ 471 $ 25 $ 140 134,700
Thomas R. Williams $ 479 $ 26 $ 143 136,200
</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, $17, Phyllis
Burke Davis, $17, Richard J. Flynn, $0, E. Bradley Jones, $17, Donald J.
Kirk, $17, Gerald C. McDonough, $17, Edward H. Malone, $17, Marvin L. Mann,
$17, and Thomas R. Williams, $17.
C The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $1, Phyllis
Burke Davis, $1, Richard J. Flynn, $0, E. Bradley Jones, $1, Donald J.
Kirk, $1, William O. McCoy, $0, Gerald C. McDonough, $1, Edward H. Malone,
$1, Marvin L. Mann, $1, and Thomas R. Williams, $1.
D The following amounts are required to be deferred by each non-interested
Trustee, most of which is subject to vesting: Ralph F. Cox, $5, Phyllis
Burke Davis, $5, Richard J. Flynn, $0, E. Bradley Jones, $5, Donald J.
Kirk, $5, William O. McCoy, $0, Gerald C. McDonough, $0, Edward H. Malone,
$5, Marvin L. Mann, $5, and Thomas R. Williams, $5.
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 reaches
age 72, provided that, at the time of retirement, he or she ha d
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 that 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 California Income) (11.72%); National
Financial Services Corporation, Boston, MA (Spartan California
Intermediate) (25.40%); Chaiken Family Trust, Walnut Creek, CA (Spartan
California Intermediate) (5.68%); Fred C. Applegate, La Jolla, CA (Spartan
California Intermediate) (5.82%); National Financial Services Corporation,
Boston, MA (Spartan California Money Market) (16.35%).
A shareholder owning of record or beneficially more that 25% of a fund's
outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
FMR is responsible for the payment of all expenses of each fund with
certain exceptions. Specific expenses payable by FMR include, without
limitation, expenses for the typesetting, printing, and mailing proxy
materials to shareholders; legal expenses, and the fees of the custodian,
auditor and interested Trustees; costs of typesetting, printing, and
mailing prospectuses and statements of additional information, notices and
reports to shareholders; each fund's proportionate share of insurance
premiums and Investment Company Institute dues. FMR also provides for
transfer agent and dividend disbursing services and portfolio and general
accounting record maintenance through FSC.
FMR pays all other expenses of each fund with the following exceptions:
fees and expenses of all Trustees of the trust who are not "interested
persons" of the trust or FMR (the non-interested Trustees); interest on
borrowings; taxes; brokerage commissions (if any); and such nonrecurring
expenses as may arise, including costs of any litigation to which a fund
may be a party, and any obligation it may have to indemnify the officers
and Trustees with respect to litigation.
FMR is Spartan California Income's manager pursuant to a management
contract dated October 19, 1989, which was approved by shareholders on
October 3, 1990, and is the manager of Spartan California Money Market
pursuant to a management contract dated April 18, 1994. This April 18, 1994
contract was approved by Fidelity California Municipal Trust as sole share
holder of the money market fund on April 18, 1994, pursuant to an Agreement
and Plan of Conversion approved by public shareholders of the money market
fund on February 16, 1994. (The terms of the money market fund's current
contract with FMR duplicate those of its previous contract. which was dated
October 19, 1989). FMR is Spartan California Intermediate's manager
pursuant to a management contract dated December 17, 1993, which was
approved by FMR as then sole shareholder of the fund on December 20, 1993.
The management fee paid to FMR is reduced by an amount equal to the fees
and expenses paid by each fund to the non-interested Trustees.
For the services of FMR under each contract, Spartan California Money
Market, Spartan California Intermediate and Spartan California Income pay
FMR a monthly management fee at the annual rate of .50%, .55% and .55%,
respectively, of average net assets throughout the month. Fees received by
FMR for the last three fiscal years are shown in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Years Ended Amount of Credits Reducing Management Fees
Fund February 28 Management Fees Paid to FMR*
Spartan California Money Market 199 7 82,989 $ 4,680,314
199 6** 158,922 $ 4,029,487
199 5 0 $ 3,343,640
Spartan California Intermediate 199 7 5,816 $ 387,783
199 6** 0 $ 134,987
199 5 0 $ 16,381
Spartan California Income 199 7 48,551 $ 2,182,509
199 6** 49,404 $ 2,198,577
199 5 0 $ 2,432,384
</TABLE>
* After reduction of voluntary reimbursement, if any, and fees and expenses
paid by the fund to the non-interested Trustees.
** February 29
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 return and yield and repayment of
the reimbursement by each fund will lower its total return and yield.
During the fiscal periods reported, FMR voluntarily agreed to reimburse
certain funds to the extent that the fund's aggregate operating expenses
were in excess of an annual rate of its average net assets. The table below
identifies the funds in reimbursement; the levels of and periods for such
reimbursement; the amount of management fees incurred under each contract
before reimbursement; and the dollar amount reimbursed by FMR, if any, for
each period.
SPARTAN CALIFORNIA MONEY MARKET
FROM TO EXPENSE LIMITATION
December 1, 1995 - .35 %
July 1, 1995 November 30, 1995 .32%
August 1, 1994 June 30, 1995 .30%
March 1, 1994 July 31, 1994 .25%
MANAGEMENT FEE
FISCAL YEAR BEFORE REIMBURSEMENT AMOUNT OF REIMBURSEMENT
February 28, 1997 $ 6,695,623 $ 2,015,309
February 29, 1996 $ 6,275,939 $ 2,246,452
February 28, 1995 $5,998,081 $2,654,441
SPARTAN CALIFORNIA INTERMEDIATE
FROM TO EXPENSE LIMITATION
February 1, 1996 April 1, 1996 40%
May 1, 1995 January 31, 1996 25%
October 1, 1994 April 30, 1995 10%
MANAGEMENT FEE
FISCAL YEAR BEFORE REIMBURSEMENT AMOUNT OF REIMBURSEMENT
February 28, 1997 $396,854 $9,071
February 29, 1996 $304,877 $169,890
February 28, 1995 $196,443 $180,062
SPARTAN CALIFORNIA INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
MANAGEMENT FEE
FISCAL YEAR BEFORE REIMBURSEMENT AMOUNT OF REIMBURSEMENT
February 28, 1997 $2,182,509 $0
February 29, 1996 $2,198,577 $0
February 28, 1995 $2,432,384 $0
</TABLE>
To defray shareholder service costs, FMR or its affiliates also collect
Spartan California Money Market fund's $5.00 exchange fee, $5.00
account closeout fee, $5.00 fee for wire purchases and redemptions, and
$2.00 checkwriting charge. Prior to April 1, 1997, FMR collected a $5.00
exchange fee, $5.00 account fee, and a $5.00 fee for wire purchases and
redemptions, for Spartan California Intermediate and Spartan California
Income as well as a $2.00 check writing charge for Spartan California
Intermediate. Shareholder transaction fees and charges collected by FMR
are indicated in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Ended Account Checkwriting
February 28 Exchange Fees Closeout Fees Wire Fees Charges
SPARTAN 199 7 $4,115 $1,238 $760 $8,060
CALIFORNIA MONEY
MARKET
199 6* $7,095 $1,911 $1,485 $11,867
199 5 $8,370 $2,319 $1,540 $12,864
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Ended Account Checkwriting
February 28 Exchange Fees Closeout Fees Wire Fees Charges
SPARTAN 199 7 $480 $135 $20 $148
CALIFORNIA
INTERMEDIATE
199 6* $640 $125 $85 $152
199 5 $965 $170 $75 $80
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Period Ended Account
February 28 Exchange Fees Closeout Fees Wire Fees
SPARTAN CALIFORNIA 199 7 $1,595 $870 $181
INCOME
199 6* $2,590 $1,370 $320
199 5 $7,690 $2,445 $610
</TABLE>
* Year ended February 29
SUB-ADVISER. On behalf of Spartan California Money Market , 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 April 18, 1994 , which was
approved by shareholders on February 16, 1994 , 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 Spartan California
Money Market, for the fiscal years ended February 28, 1997, February 29,
1996, and February 28, 1995, FMR paid FMR Texas fees of $3,347,812,
$3,137,970, and $2,999,041, 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 (the Rule) under the Investment
Company Act of 1940. 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.
Spartan California Income's plan was approved by shareholders on October 3,
1990. Spartan California Intermediate's plan was approved by FMR as the
then sole shareholder of the fund on December 20, 1993. Spartan California
Money Market's plan was approved by Fidelity California Municipal Trust on
April 18, 1994 as the then sole shareholder for the fund, pursuant to an
Agreement and Plan of Conversion approved by public shareholders of the
fund on February 16, 1994.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent. UMB has
entered into sub-contracts with FSC, an affiliate of FMR, under the terms
of which FSC performs the processing activities associated with providing
transfer agent and shareholder servicing functions for each fund. Under
this arrangement, FSC receives an annual account fee and an asset-based fee
each based on account size and fund type for each retail account and
certain institutional accounts. With respect to certain institutional
retirement accounts, FSC receives an annual account fee and an asset-based
fee based on account type or fund type. These annual account fees are
subject to increase based on postal rate changes. FSC also collects small
account fees from certain accounts with balances of less than $2,500. UMB
has additional sub-contracts with FSC, pursuant to which FSC performs the
calculations necessary to determine each fund's NAV and dividends and
maintains each fund's accounting records. For pricing and bookkeeping
services, FSC receives a fee based on each fund's average net assets. UMB
is entitled to reimbursement from FMR for fees paid to FSC because FMR must
bear these costs pursuant to its management contract with each fund.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan California Intermediate Municipal Income Fund
and Spartan California 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.
Spartan 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 F und entered into
agreements to acquire all of the assets of the Fidelity California
Municipal Money Market Fund and Spartan California Municipal Money Market
Fund, series' of Fidelity California Municipal Trust, on December 30, 1991
and April 18, 1994, respectively. The Delaware trust's Trust Instrument
permits the Trustees to create additional funds.
In the event that FMR ceases to be investment adviser to a trust or any of
its funds, the right of the trust or the fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn. There is a remote possibility
that one fund might become liable for any misstatement in its prospectus or
statement of additional information about another fund.
The assets of each trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general 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 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 report of the auditor, are included in
the funds' Annual Report, which is a separate report supplied with this
SAI. The funds' financial statements, including the financial highlights,
and report of the auditor are incorporated herein by reference. For a free
additional copy of the funds' Annual Report, contact Fidelity at
1-800-544-8888
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 STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES :
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature are
assigned a dual rating. The first rating addresses the likelihood of
repayment of principal and payment of interest due and for short-term
obligations is designated by a note rating symbol. The second rating
addresses only the demand feature and is designated by a commercial paper
rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest.
I ssue s determined to possess very strong characteristics
are given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes over the term
of the notes.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS:
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest quality).
Those bonds within the Aa through B categories that Moody's believes
possess the strongest credit attributes within those categories are
designated by the symbol "1."
AAA - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
CAA - Bonds that are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT:
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB" through
"D"). While speculative grade debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Ratings from AA through CCC may be
modified by the addition of a plus sign (+) or minus sign (-) to show
relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highe st -rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
FIDELITY CALIFORNIA MUNICIPAL FUNDS
FIDELITY CALIFORNIA MUNICIPAL TRUST
FIDELITY CALIFORNIA MUNICIPAL TRUST II
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. *
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment Principles and
Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment Principles
and Risks
5 a .............................. Charter
b i............................. Cover Page; The Funds at a Glance; Charter;
Doing Business with Fidelity
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. Charter
d .............................. Charter; Breakdown of Expenses
e .............................. Cover Page; Charter
f .............................. Expenses
g .............................. *
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Transaction Details; Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Cover Page; Charter
b .............................. Expenses; How to Buy Shares; Transaction
Details
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trusts
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a-c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR; Portfolio Transactions
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Contracts with FMR Affiliates
17 a-c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation
c ............................ *
20 ............................. Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ Performance
b ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
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 Fide l ity 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>
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.
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results.
Each fund's fiscal year runs from March 1 through February 28. The tables
below show each fund's performance over past fiscal years with each bond
fund's performance 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 indexes for
California Insured and California Income 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal periods ended Past 1 Past 5 Past 10
February 28, 1997 year years years
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%
</TABLE>
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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%
</TABLE>
EXPLANATION OF TERMS
YEAR-BY-YEAR TOTAL RETURNS
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%
19.5
0% 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
%
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
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
%
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 Califo rn ia 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. T he 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 securit y 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. T he 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 ,0 00
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.
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
TO SELL SHARES THROUGH YOUR FIDELITY ULTRA SERVICE OR 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
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
<S> <C> <C>
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT 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
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$ 5 00 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
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$ 5 00 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
$ 5 00 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 $ 3 0,000 waiver is determined by aggregating
Fidelity accounts maintained by FSC or FBSI which are registered under the
same social security number or which list the same social security number
for the custodian of a Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $ 5 ,000, ($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 reserve s the right to temporarily
or permanently terminate the exchange privilege of any investor who makes
more than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
This prospectus is printed on recycled paper using soy-based inks.
FIDELITY 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. (F MR 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 exceed ing 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.
( vii i) 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.
( vi ii) 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, strategie s FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
FMR may not buy all of thes e 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 b illion
(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 , 199 6, 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,
199 6 .
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 b illion 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 b illion
(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 fund s , 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 199 7 .
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**
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
$ 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,
199 7 , 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
19 91 $ 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
19 88 $ 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>
<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 $ 10,029 $ 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, 198 7 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>
<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 $ 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, 198 7 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 (6 3 ), Trustee (199 7 ), 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. (5 7 ), 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
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
199 7 $2,929,149 .39%
199 6 $2,925,181 .40%
199 5 $2,723,476 .41%
CA Insured Management Fees as a
Years Ended February 28 Management Fees % of Average Net Assets
199 7 $827,688 .39%
199 6 $867,946 .40%
199 5 $940,793 .41%
CA Income Management Fees as a
Years Ended February 28 Management Fees % of Average Net Assets
199 7 $1,897,759 .39%
199 6 $1,959,028 .40%
199 5 $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 F MR T exas 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
</TABLE>
The pricing and bookkeeping fees described above are paid to FSC by UMB,
which is entitled to reimbursement from the funds for these expenses.
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 I I (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 fund s' financial statements,
including the financial highlights and report s 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.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a)(1) Financial Statements and Financial Highlights included in the Annual
Report, for Spartan California Municipal Money Market Fund, Spartan
California Intermediate Municipal Income Fund, and Spartan California
Municipal Income Fund for the fiscal year ended February 28, 1997, are
incorporated herein by reference to the funds' Statement of Additional
Information and were filed on April 14, 1997 for Fidelity California
Municipal Trust (No. 2-83367) and Fidelity California Municipal Trust II
(No. 33-42890) pursuant to Rule 30d-1 under the Investment Company Act of
1940 and are incorporated herein by reference.
(a)(2) Financial Statements and Financial Highlights included in the Annual
Report, for Fidelity California Municipal Money Market Fund, Fidelity
California Insured Municipal Income Fund, and Fidelity California Municipal
Income Fund for the fiscal year ended February 28, 1997, are incorporated
herein by reference to the funds' Statement of Additional Information and
were filed on April 14, 1997 for Fidelity California Municipal Trust (No.
2-83367) and Fidelity California Municipal Trust II (No. 33-42890) pursuant
to Rule 30d-1 under the Investment Company Act of 1940 and are incorporated
herein by reference.
(b) Exhibits:
(1)(a) Trust Instrument, dated June 20, 1991, is incorporated herein by
reference to Exhibit 1 of Post-Effective Amendment No. 11.
(b) Form of Supplement to the Trust Instrument of Fidelity California
Municipal Trust II is filed herein as Exhibit 1(b).
(2) By-laws of the Trust, as amended, are incorporated herein by reference
to Exhibit 2(a) of Fidelity Union Street Trust II's Post-Effective
Amendment No. 10 (File No. 33-43757).
(3) Not applicable.
(4) Not applicable.
(5) (a) Form of Management Contract, dated April 1, 1997, between Fidelity
California Municipal Money Market Fund and Fidelity Management & Research
Company is filed herein as Exhibit 5(a).
(b) Management Contract, dated December 30, 1991, between Fidelity
California Tax-Free Money Market Portfolio (currently known as Fidelity
California Municipal Money Market Fund) and Fidelity Management & Research
Company is incorporated herein by reference to Exhibit (5)(a) of
Post-Effective Amendment No. 13.
(c) Management Contract, dated April 18, 1994, between Spartan California
Municipal Money Market Portfolio (currently known as Spartan California
Municipal Money Market Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(b) of Post-Effective
Amendment No. 11.
(d) Sub-Advisory Agreement, dated December 30, 1991, between FMR Texas
Inc. and Fidelity Management & Research Company on behalf of Fidelity
California Tax-Free Money Market Portfolio (currently known as Fidelity
California Municipal Money Market Fund) is incorporated herein by reference
to Exhibit (5)(c) of Post-Effective Amendment No. 11.
(e) Sub-Advisory Agreement, dated April 18, 1994, between FMR Texas Inc.
and Fidelity Management & Research Company on behalf of Spartan California
Municipal Money Market Portfolio (currently known as Spartan California
Municipal Money Market Fund) is incorporated herein by reference to Exhibit
(5)(d) of Post-Effective Amendment No. 11.
(6)(a) General Distribution Agreement, dated December 30, 1991, between
Fidelity California Tax-Free Money Market Portfolio (currently known as
Fidelity California Municipal Money Market Fund) and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit (6)(a) of
Post-Effective Amendment No. 11.
(b) General Distribution Agreement, dated October 19, 1989, between
Spartan California Municipal Money Market Portfolio (currently known as
Spartan California Municipal Money Market Fund) and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(b) of
Post-Effective Amendment No. 11.
(c) Amendment to General Distribution Agreement, dated January 1, 1988,
between Fidelity California Tax-Free Money Market Portfolio (currently
known as Fidelity California Municipal Money Market Fund) and Fidelity
Distributors Corporation is incorporated herein by reference to Exhibit
6(c) of Post-Effective Amendment No. 11.
(d) Amendments to the General Distribution Agreement between the
Registrant and Fidelity Distributors Corporation, dated March 14, 1996 and
July 15, 1996, are incorporated herein by reference to Exhibit 6(a) of
Fidelity Court Street Trust's Post-Effective Amendment No. 61 (File No.
2-58774).
(7) (a) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, as amended on November 16, 1995, is incorporated herein
by reference to Exhibit 7(a) of Fidelity Select Portfolio's (File No.
2-69972) Post-Effective Amendment No. 54.
(b) The Fee Deferral Plan for Non-Interested Person Directors and Trustees
of the Fidelity Funds, effective as of December 1, 1995, is incorporated
herein by reference to Exhibit 7(b) of Fidelity School Street Trust's (File
No. 2-57167) Post-Effective Amendment No. 47.
(8) (a) Custodian Agreement, Appendix B, and Appendix C, dated December 1,
1994, between UMB Bank, n.a. and the Registrant is incorporated herein by
reference to Exhibit 8 of Fidelity California Municipal Trust's
Post-Effective Amendment No. 28 (File No. 2-83367).
(8) (b) Appendix A, dated October 17, 1996, to the Custodian Agreement,
dated December 1, 1994, between UMB Bank, n.a. and the Registrant is
incorporated herein by reference to Exhibit 8(a) of Fidelity Court Street
Trust's Post-Effective Amendment No. 61 (File No. 2-58774).
(9) Not applicable.
(10) Not applicable.
(11) Consent of Price Waterhouse LLP is filed herein as Exhibit 11.
(12) Not applicable.
(13) Not applicable.
(14) (a) Fidelity Individual Retirement Account Custodial Agreement and
Disclosure Statement, as currently in effect, is incorporated herein by
reference to Exhibit 14(a) of Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
(b) Fidelity Institutional Individual Retirement Account Custodial
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(d) of Fidelity Union Street Trust's (File
No. 2-50318) Post-Effective Amendment No. 87.
(c) National Financial Services Corporation Individual Retirement Account
Custodial Agreement and Disclosure Statement, as currently in effect, is
incorporated herein by reference to Exhibit 14(h) of Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(d) Fidelity Portfolio Advisory Services Individual Retirement Account
Custodial Agreement and Disclosure Statement, as currently in effect, is
incorporated herein by reference to Exhibit 14(i) of Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(e) Fidelity 403(b)(7) Custodial Account Agreement, as currently in
effect, is incorporated herein by reference to Exhibit 14(e) of Fidelity
Union Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(f) National Financial Services Corporation Defined Contribution
Retirement Plan and Trust Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(k) of Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(g) The CORPORATEplan for Retirement Profit Sharing/401K Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(l)
of Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(h) The CORPORATEplan for Retirement Money Purchase Pension Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(m)
of Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(i) Fidelity Investments Section 403(b)(7) Individual Custodial Account
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(f) of Fidelity Commonwealth Trust's (File
No. 2-52322) Post Effective Amendment No. 57.
(j) Plymouth Investments Defined Contribution Retirement Plan and Trust
Agreement, as currently in effect, is incorporated herein by reference to
Exhibit 14(o) of Fidelity Commonwealth Trust's (File No. 2-52322) Post
Effective Amendment No. 57.
(k) The Fidelity Prototype Defined Benefit Pension Plan and Trust Basic
Plan Document and Adoption Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(d) of Fidelity Securities
Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(l) The Institutional Prototype Plan Basic Plan Document, Standardized
Adoption Agreement, and Non-Standardized Adoption Agreement, as currently
in effect, is incorporated herein by reference to Exhibit 14(o) of Fidelity
Securities Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(m) The CORPORATEplan for Retirement 100SM Profit Sharing/401(k) Basic
Plan Document, Standardized Adoption Agreement, and Non-Standardized
Adoption Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(f) of Fidelity Securities Fund's (File No. 2-93601)
Post Effective Amendment No. 33.
(n) The Fidelity Investments 401(a) Prototype Plan for Tax-Exempt
Employers Basic Plan Document, Standardized Profit Sharing Plan Adoption
Agreement, Non-Standardized Discretionary Contribution Plan No. 002
Adoption Agreement, and Non-Standardized Discretionary Contribution Plan
No. 003 Adoption Agreement, as currently in effect, is incorporated herein
by reference to Exhibit 14(g) of Fidelity Securities Fund's (File No.
2-93601) Post Effective Amendment No. 33.
(o) Fidelity Investments 403(b) Sample Plan Basic Plan Document and
Adoption Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(p) of Fidelity Securities Fund's (File No. 2-93601)
Post Effective Amendment No. 33.
(p) Fidelity Defined Contribution Retirement Plan and Trust Agreement, as
currently in effect, is incorporated herein by reference to Exhibit 14(c)
of Fidelity Securities Fund's (File No. 2-93601) Post Effective Amendment
No. 33.
(15)(a) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
California Tax-Free Money Market Portfolio (currently known as Fidelity
California Municipal Money Market Fund) is incorporated herein by reference
to Exhibit (15)(a) of Post-Effective No. 11.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
California Municipal Money Market Portfolio (currently known as Spartan
California Municipal Money Market Fund) is incorporated herein by reference
to Exhibit (15)(b) of Post-Effective No. 11.
(16) Schedule for the the 7-day yields, tax-equivalent yields, and total
returns for Spartan California Municipal Money Market Portfolio (currently
known as Spartan California Municipal Money Market Fund) on behalf of the
trust is incorporated herein by reference to Exhibit 16 of Post-Effective
No. 11.
(17) Financial Data Schedules are filed herein as Exhibit 27.
(18) Not applicable.
Item 25. Persons Controlled by or under Common Control with Registrant
The Registrant's Board of Trustees is the same as the boards of other
funds managed by Fidelity Management & Research Company. In addition, the
officers of these funds are substantially identical. Nonetheless, the
Registrant takes the position that it is not under common control with
these other funds since the power residing in the respective boards and
officers arises as the result of an official position with the respective
funds.
Item 26. Number of Holders of Securities
February 28, 1997
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity California Municipal
Money Market Fund 31,415
Spartan California Municipal
Money Market Fund 9,327
Item 27. Indemnification
Pursuant to Del. Code Ann. title 12 (sub-section) 3817, a Delaware
business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and all
claims and demands whatsoever. Article X, Section 10.02 of the Trust
Instrument states that the Registrant shall indemnify any present trustee
or officer to the fullest extent permitted by law against liability, and
all expenses reasonably incurred by him or her in connection with any
claim, action, suit or proceeding in which he or she is involved by virtue
of his or her service as a trustee, officer, or both, and against any
amount incurred in settlement thereof. Indemnification will not be provided
to a person adjudged by a court or other adjudicatory body to be liable to
the Registrant or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his or her duties
(collectively, "disabling conduct"), or not to have acted in good faith in
the reasonable belief that his or her action was in the best interest of
the Registrant. In the event of a settlement, no indemnification may be
provided unless there has been a determination, as specified in the Trust
Instrument, that the officer or trustee did not engage in disabling
conduct.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against any
loss, liability, claim, damages or expense arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information, shareholder
reports or other information filed or made public by the Registrant
included a materially misleading statement or omission. However, the
Registrant does not agree to indemnify the Distributor or hold it harmless
to the extent that the statement or omission was made in reliance upon, and
in conformity with, information furnished to the Registrant by or on behalf
of the Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of their own
disabling conduct.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("Service") is appointed sub-transfer agent, the Transfer Agent agrees to
indemnify Service for Service's losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) (losses) to the
extent that the Transfer Agent is entitled to and receives indemnification
from the Portfolio for the same events. Under the Transfer Agency
Agreement, the Registrant agrees to indemnify and hold the Transfer Agent
harmless against any losses, claims, damages, liabilities, or expenses
(including reasonable counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other than the
Registrant, including by a shareholder which names the Transfer Agent
and/or the Registrant as a party and is not based on and does not result
from the Transfer Agent's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with the
Transfer Agent's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent contributed to
by the Transfer Agent's willful misfeasance, bad faith or negligence or
reckless disregard of duties) which results from the negligence of the
Registrant, or from the Transfer Agent's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of the Transfer
Agent's acting in reliance upon advice reasonably believed by the Transfer
Agent to have been given by counsel for the Registrant, or as a result of
the Transfer Agent's acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR Corp.;
Chairman of the Board and Director of FMR, FMR
Corp., FMR Texas Inc., FMR (U.K.) Inc., and FMR
(Far East) Inc.; Chairman of the Board and
Representative Director of Fidelity Investments Japan
Limited; President and Trustee of funds advised by
FMR.
J. Gary Burkhead President and Director of FMR, FMR Texas Inc., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Managing
Director of FMR Corp.; Senior Vice President and
Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
Dwight D. Churchill Vice President of FMR.
John D. Crumrine Assistant Treasurer of FMR, FMR (U.K.) Inc., FMR
(Far East) Inc., and FMR Texas Inc.; Vice President
and Treasurer of FMR Corp.
William Danoff Vice President of FMR and of a fund advised by FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Larry A. Domash Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of
FMR Texas Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Vice President of FMR.
Bart Grenier Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of
Equity funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical
Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Vice President of FMR and of a fund advised by FMR.
Stephen P. Jonas Vice President of FMR; Treasurer of FMR, FMR
(U.K.) Inc., FMR (Far East) Inc., and FMR Texas Inc.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR; Vice President of High
Income funds advised by FMR.
Alan Leifer Vice President of FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Arthur S. Loring Senior Vice President, Clerk, and General Counsel of
FMR; Vice President/Legal, and Assistant Clerk of
FMR Corp.; Secretary of funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Malcolm W. MacNaught II Vice President of FMR and of a fund advised by FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Vice President of FMR; Senior Vice President and
Director of Operations and Compliance of FMR (U.K.)
Inc.
Robert E. Stansky Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR.
</TABLE>
(2) FMR TEXAS INC. (FMR Texas)
FMR Texas provides investment advisory services to Fidelity Management &
Research Company. The directors and officers of the Sub-Adviser have held
the following positions of a substantial nature during the past two fiscal
years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR
Texas, FMR, FMR Corp., FMR (Far East) Inc.,
and FMR (U.K.) Inc.; Chairman of the
Executive Committee of FMR; President and
Chief Executive Officer of FMR Corp.;
Chairman of the Board and Representative
Director of Fidelity Investments Japan Limited;
President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Texas, FMR,
FMR (Far East) Inc., and FMR (U.K.) Inc.;
Managing Director of FMR Corp.; Senior Vice
President and Trustee of funds advised by FMR.
Robert H. Auld Vice President of FMR Texas.
Leland C. Barron Vice President of FMR Texas and of funds
advised by FMR.
Robert K. Duby Vice President of FMR Texas and of funds
advised by FMR.
Robert Litterst Vice President of FMR Texas and of funds
advised by FMR.
Thomas D. Maher Vice President of FMR Texas and Assistant Vice
President of Money Market funds advised by
FMR.
Scott A. Orr Vice President of FMR Texas and of funds
advised by FMR.
Burnell R. Stehman Vice President of FMR Texas and of funds
advised by FMR.
John J. Todd Vice President of FMR Texas and of funds
advised by FMR.
Sarah H. Zenoble Vice President of FMR Texas and of Money
Market funds advised by FMR.
Stephen P. Jonas Treasurer of FMR Texas, FMR (U.K.) Inc.,
FMR (Far East) Inc., and FMR; Vice President
of FMR.
John D. Crumrine Assistant Treasurer of FMR Texas, FMR (U.K.)
Inc., FMR (Far East) Inc., and FMR; Vice
President and Treasurer of FMR Corp.
Jay Freedman Secretary of FMR Texas; Clerk of FMR (U.K.)
Inc., FMR (Far East) Inc., and FMR Corp.;
Assistant Clerk of FMR.
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
Mark Peterson Director None
Paul Hondros President None
Arthur S. Loring Vice President and Clerk Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity Service
Co., 82 Devonshire Street, Boston, MA 02109, or the funds' custodian UMB
Bank, n.a., 1010 Grand Avenue, Kansas City, MO.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for the effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 15 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and the Commonwealth of Massachusetts, on the 17th
day of April 1997.
FIDELITY CALIFORNIA MUNICIPAL TRUST II
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d (dagger) President and Trustee April 17, 1997
Edward C. Johnson 3d (Principal Executive Officer)
/s/Kenneth A. Rathgeber * Treasurer April 17, 1997
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee April 17, 1997
J. Gary Burkhead
/s/Ralph F. Cox ** Trustee April 17, 1997
Ralph F. Cox
/s/Phyllis Burke Davis ** Trustee April 17, 1997
Phyllis Burke Davis
/s/Robert M. Gates *** Trustee April 17, 1997
Robert M. Gates
/s/E. Bradley Jones ** Trustee April 17, 1997
E. Bradley Jones
/s/Donald J. Kirk ** Trustee April 17, 1997
Donald J. Kirk
/s/Peter S. Lynch ** Trustee April 17, 1997
Peter S. Lynch
/s/Marvin L. Mann ** Trustee April 17, 1997
Marvin L. Mann
/s/William O. McCoy ** Trustee April 17, 1997
William O. McCoy
/s/Gerald C. McDonough ** Trustee April 17, 1997
Gerald C. McDonough
/s/Thomas R. Williams ** Trustee April 17, 1997
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated January 3, 1997 and filed herewith.
* Signature affixed by John H. Costello pursuant to a power of attorney
dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 19, 1996 and filed herewith.
*** Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated March 6, 1997 and filed herewith.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Plans Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Union Street Trust II
Fidelity Exchange Fund Fidelity Yen Performance Portfolio, L.P.
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as President and Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and appoint
J. Gary Burkhead my true and lawful attorney-in-fact, with full power of
substitution, and with full power to him to sign for me and in my name in
the appropriate capacity, all Registration Statements of the Funds on Form
N-1A, Form N-8A, Form N-8B-2, or any successor thereto, any and all
subsequent Amendments, Pre-Effective Amendments, or Post-Effective
Amendments to said Registration Statements on Form N-1A or any successor
thereto, any Registration Statements on Form N-14, and any supplements or
other instruments in connection therewith, and generally to do all such
things in my name and behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company Act of
1940, and all related requirements of the Securities and Exchange
Commission. I hereby ratify and confirm all that said attorney-in-fact or
his substitutes may do or cause to be done by virtue hereof. This power of
attorney is effective for all documents filed on or after January 3, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d January 3, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Treasurer and principal financial and accounting
officer of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as President and Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and appoint
John H. Costello and John E. Ferris each of them singly my true and lawful
attorneys-in-fact, with full power of substitution, and with full power to
each of them to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration Statements on
Form N-1A or any successor thereto, any Registration Statements on Form
N-14, and any supplements or other instruments in connection therewith, and
generally to do all such things in my name and behalf in connection
therewith as said attorneys-in-fact deems necessary or appropriate, to
comply with the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorneys-in-fact or their substitutes may do or cause to be done by virtue
hereof. This power of attorney is effective for all documents filed on or
after January 1, 1997.
WITNESS my hand on the date set forth below.
/s/Kenneth A. Rathgeber__________ December 19, 1996
Kenneth A. Rathgeber
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as Directors, Trustees, or General Partners
(collectively, the "Funds"), hereby constitute and appoint Arthur J. Brown,
Arthur C. Delibert, Stephanie A. Djinis, Robert C. Hacker, Thomas M.
Leahey, Richard M. Phillips, and Dana L. Platt, each of them singly, our
true and lawful attorneys-in-fact, with full power of substitution, and
with full power to each of them, to sign for us and in our names in the
appropriate capacities, all Registration Statements of the Funds on Form
N-1A, Form N-8A or any successor thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements on Form N-1A or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact
deems necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I hereby
ratify and confirm all that said attorneys-in-fact or their substitutes may
do or cause to be done by virtue hereof. This power of attorney is
effective for all documents filed on or after January 1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company or an affiliate acts as investment adviser and for which the
undersigned individual serves as Director, Trustee, or General Partner
(collectively, the "Funds"), hereby constitute and appoint Arthur J. Brown,
Arthur C. Delibert, Stephanie A. Djinis, Robert C. Hacker, Thomas M.
Leahey, Richard M. Phillips, and Dana L. Platt, each of them singly, my
true and lawful attorneys-in-fact, with full power of substitution, and
with full power to each of them, to sign for me and in my name in the
appropriate capacities, all Registration Statements of the Funds on Form
N-1A, Form N-8A or any successor thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements on Form N-1A or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission. I hereby ratify
and confirm all that said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof. This power of attorney is effective for
all documents filed on or after March 1, 1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
Exhibit 1(b)
FORM OF
Supplement To
Trust Instrument of
Fidelity California Municipal Trust II
This Supplement to the Trust Instrument of Fidelity California Municipal
Trust II, (the "Trust"), dated June 20, 1991, is adopted by the Trustees
pursuant to Article XI, Section 11.06, of the Trust and incorporates all
amendments to the Trust Instrument in effect as of the date hereof as
follows:
1. The Trust Instrument is amended by a resolution of the Trustees adopted
at a meeting on
September 14, 1995, by adding Section 7.04 as follows:
DERIVATIVE ACTIONS.
Section 7.04. Except as otherwise provided in Section 3816 of the
Delaware Act, all matters relating to the bringing of derivative actions in
the right of the Trust shall be governed by the General Corporation Law of
the State of Delaware relating to derivative actions, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and
the Shareholders were shareholders of a Delaware corporation.
2. Section 11.05 of the Trust Instrument is amended and restated by a
resolution of the Trustees
adopted at a meeting on September 14, 1995, as follows:
MERGERS.
Section 11.05. (a) Notwithstanding anything else herein, the Trustees, in
order to change the form of organization of the Trust, may, without prior
Shareholder approval, (i) cause the Trust to merge or consolidate with or
into one or more trusts, partnerships (general or limited), associations,
limited liability companies or corporations so long as the surviving or
resulting entity is an open-end management investment company under the
1940 Act, or is a Series thereof, that will succeed to or assume the
Trust's registration under that Act and which is formed, organized or
existing under the laws of a state, commonwealth, possession or colony of
the United States or (ii) cause the Trust to incorporate under the laws of
Delaware.
(b) The Trustees may, subject to a Majority Shareholder Vote of the
Trust, and subject to a vote of a majority of the Trustees, cause the Trust
to merge or consolidate with or into one or more trusts, partnerships
(general or limited), associations, limited liability companies or
corporations.
(c) Any agreement of merger or consolidation or certificate of merger or
consolidation may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be
valid.
(d) Pursuant to and in accordance with the provisions of Section 3815 (f)
of the Delaware Act, and notwithstanding anything to the contrary contained
in this Trust Instrument, an agreement of merger or consolidation approved
by the Trustees in accordance with paragraphs (a) or (b) of this Section
11.05 may effect any amendment to the Trust Instrument or effect the
adoption of a new trust instrument of the Trust if it is the surviving or
resulting trust in the merger or consolidation.
3. Section 10.01 of the Trust Instrument is amended and restated by a
resolution of the Trustees
adopted at a meeting on September 14, 1995, as follows:
LIMITATION OF LIABILITY.
Section 10.01. Neither a Trustee nor an officer of the Trust, when acting
in such capacity, shall be personally liable to any person other than the
Trust or a beneficial owner for any act, omission or obligation of the
Trust, any Trustee or any officer of the Trust. Neither a Trustee nor an
officer of the Trust shall be liable for any act or omission or any conduct
whatsoever in his capacity as Trustee or as an officer of the Trust,
provided that nothing contained herein or in the Delaware Act shall protect
any Trustee or any officer of the Trust against any liability to the Trust
or to Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee or officer of
the Trust hereunder.
4. Section 11.02 is amended and restated by a resolution of the Trustees
adopted at a meeting on
September 14, 1995, as follows:
TRUSTEES' AND OFFICERS' GOOD FAITH ACTION, EXPERT ADVICE, NO BOND
OR SURETY.
Section 11.02. The exercise by the Trustees or the officers of the Trust
of their powers and discretions hereunder in good faith and with reasonable
care under the circumstances then prevailing shall be binding upon everyone
interested. Subject to the provisions of Article X hereof and to Section
11.01 of this Article XI, the Trustees and the officers of the Trust shall
not be liable for errors of judgment or mistakes of fact or law. The
Trustees and the officers of the Trust may take advice of counsel or other
experts with respect to the meaning and operation of this Trust Instrument,
and subject to the provisions of Article X hereof and Section 11.01 of this
Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The
Trustees and the officers of the Trust shall not be required to give any
bond as such, nor any surety if a bond is obtained.
5. The second paragraph of Section 7.01 of the Trust Instrument is amended
and restated pursuant to a resolution of the shareholders adopted at a
meeting on March 24, 1997 as follows:
VOTING POWERS.
Section 7.01. ...On any matter submitted to a vote of the Shareholders, all
Shares shall be voted separately by individual Series, except (i) when
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (ii) when the Trustees have determined that the
matter affects the interests of one or more Series, then the Shareholders
of all such Series shall be entitled to vote thereon. The Trustees may
also determine that a matter only affects the interests of one or more
classes of a Series, in which case any such matters shall be voted on by
such class or classes. A Shareholder of each Series shall be entitled to
one vote for each dollar of net asset value (number of shares owned times
net asset value per share) of such Series, on any matter on which such
Shareholder is entitled to vote and each fractional dollar amount shall be
entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by
proxy, or in any manner provided for in the Bylaws. A proxy may be given
in writing. The Bylaws may provide that proxies may also, or may instead,
be given by any electronic or telecommunications device or in any other
manner. Notwithstanding anything else herein or in the Bylaws, in the
event a proposal by anyone other than the officers or Trustees of the Trust
is submitted to a vote of the Shareholders of one or more Series or of the
Trust, or in the event of any proxy contest or proxy solicitation or
proposal in opposition to any proposal by the officers or Trustees of the
Trust, Shares may be voted only in person or by written proxy. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and
may take any action required or permitted by law, this Trust Instrument or
any Bylaws of the Trust, to be taken by Shareholders.
6. Section 4.01 of the Trust Instrument is amended by resolution of the
Trustees acting pursuant to the last sentence of Section 7.01 thereof and
adopted by Unanimous Written Consent dated August 30, 1991, by
redesignating subsections (w) and (x) as subsections (x) and (y),
respectively, and by adding new subsection (w) as follows:
(w) Notwithstanding any other provision hereof, to invest all of the
assets of any Series in a single open-end investment company, including
investment by means of transfer of such assets in exchange for an interest
or interests in such investment company;
7. Section 11.06 is amended by a resolution of the Trustees adopted at a
meeting on September 14,
1995 by adding after the first sentence the following:
A supplemental trust instrument executed by any one Trustee may be relied
upon as a Supplement hereof.
IN WITNESS WHEREOF, the undersigned, being a trustee of the Trust, has
executed this instrument.
[SIGNATURE LINES OMITTED]
Exhibit 5(a)
FORM OF
MANAGEMENT CONTRACT
BETWEEN
FIDELITY CALIFORNIA MUNICIPAL TRUST II
FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT AMENDED and RESTATED as of this 1st day of April, 1997, by and
between Fidelity California Municipal Trust II, a Delaware business trust
which may issue one or more series of shares of beneficial interest
(hereinafter called the "Fund"), on behalf of Fidelity California Municipal
Money Market Fund (hereinafter called the "Portfolio"), and Fidelity
Management & Research Company, a Massachusetts corporation (hereinafter
called the "Adviser") as set forth in its entirety below.
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Portfolio in
accordance with the investment objective, policies and limitations as
provided in the Portfolio's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and rules
thereunder, as amended from time to time (the "1940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser. The Adviser shall also furnish for the use of the Portfolio
office space and all necessary office facilities, equipment and personnel
for servicing the investments of the Portfolio; and shall pay the salaries
and fees of all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all personnel of
the Fund or the Adviser performing services relating to research,
statistical and investment activities. The Adviser is authorized, in its
discretion and without prior consultation with the Portfolio, to buy, sell,
lend and otherwise trade in any stocks, bonds and other securities and
investment instruments on behalf of the Portfolio. The investment policies
and all other actions of the Portfolio are and shall at all times be
subject to the control and direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for the
performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund. The Adviser shall,
subject to the supervision of the Board of Trustees, perform various
services for the Portfolio, including but not limited to: (i) providing the
Portfolio with office space, equipment and facilities (which may be its
own) for maintaining its organization; (ii) on behalf of the Portfolio,
supervising relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable; (iii) preparing all general
shareholder communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered, maintaining
the registration and qualification of the Portfolio's shares under federal
and state law; and (vii) investigating the development of and developing
and implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Portfolio as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, information or
analyses to the Fund as the Fund's Board of Trustees may request from time
to time or as the Adviser may deem to be desirable. The Adviser shall make
recommendations to the Fund's Board of Trustees with respect to Fund
policies, and shall carry out such policies as are adopted by the Trustees.
The Adviser shall, subject to review by the Board of Trustees, furnish such
other services as the Adviser shall from time to time determine to be
necessary or useful to perform its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or dealers
selected by the Adviser, which may include brokers or dealers affiliated
with the Adviser. The Adviser shall use its best efforts to seek to
execute portfolio transactions at prices which are advantageous to the
Portfolio and at commission rates which are reasonable in relation to the
benefits received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the
other accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This determination
may be viewed in terms of either that particular transaction or the overall
responsibilities which the Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Trustees of
the Fund shall periodically review the commissions paid by the Portfolio to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor. The
Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of the
Fund are or may be or become interested in the Adviser as directors,
officers or otherwise and that directors, officers and stockholders of the
Adviser are or may be or become similarly interested in the Fund, and that
the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
3. The Adviser will be compensated on the following basis for the services
and facilities to be furnished hereunder. The Adviser shall receive a
monthly management fee, payable monthly as soon as practicable after the
last day of each month, composed of a Group Fee and an Individual Fund Fee.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the monthly
average of the net assets of the registered investment companies having
Advisory and Service or Management Contracts with the Adviser (computed in
the manner set forth in the Fund's Declaration of Trust or other
organizational document) determined as of the close of business on each
business day throughout the month. The Group Fee Rate shall be determined
on a cumulative basis pursuant to the following schedule:
Average Net Assets Annualized Fee Rate (for each level)
0 - $ 3 billion .3700%
3 - 6 .3400
6 - 9 .3100
9 - 12 .2800
12 - 15 .2500
15 - 18 .2200
18 - 21 .2000
21 - 24 .1900
24 - 30 .1800
30 - 36 .1750
36 - 42 .1700
42 - 48 .1650
48 - 66 .1600
66 - 84 .1550
84 - 120 .1500
120 - 156 .1450
156 - 192 .1400
192 - 228 .1350
228 - 264 .1300
264 - 300 .1275
300 - 336 .1250
336 - 372 .1225
372 - 408 .1200
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over 516 .1100
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be .25%.
The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute the
Annual Management Fee Rate. One-twelfth of the Annual Management Fee Rate
shall be applied to the average of the net assets of the Portfolio
(computed in the manner set forth in the Fund's Declaration of Trust or
other organizational document) determined as of the close of business on
each business day throughout the month.
4. It is understood that the Portfolio will pay all its expenses other
than those expressly stated to be payable by the Adviser hereunder, which
expenses payable by the Portfolio shall include, without limitation, (i)
interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase or sale of securities and other investment
instruments; (iii) fees and expenses of the Fund's Trustees other than
those who are "interested persons" of the Fund or the Adviser; (iv) legal
and audit expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Fund and the Portfolio's shares for distribution under
state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders of the Portfolio;
(viii) all other expenses incidental to holding meetings of the Portfolio's
shareholders, including proxy solicitations therefor; (ix) a pro rata
share, based on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management Contracts
with the Adviser, of 50% of insurance premiums for fidelity and other
coverage; (x) its proportionate share of association membership dues; (xi)
expenses of typesetting for printing Prospectuses and Statements of
Additional Information and supplements thereto; (xii) expenses of printing
and mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a party
and the legal obligation which the Portfolio may have to indemnify the
Fund's Trustees and officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage
in other activities, provided, however, that such other services and
activities do not, during the term of this Contract, interfere, in a
material manner, with the Adviser's ability to meet all of its obligations
with respect to rendering services to the Portfolio hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser,
the Adviser shall not be subject to liability to the Portfolio or to any
shareholder of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security or other
investment instrument.
6. (a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 6, this Contract shall continue in force until May 31, 1997
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually by vote of the
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio.
(b) This Contract may be modified by mutual consent, such consent on the
part of the Fund to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of this
paragraph 6, the terms of any continuance or modification of this Contract
must have been approved by the vote of a majority of those Trustees of the
Fund who are not parties to the Contract or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
(d) Either party hereto may, at any time on sixty (60) days' prior written
notice to the other, terminate this Contract, without payment of any
penalty, by action of its Trustees or Board of Directors, as the case may
be, or with respect to the Portfolio by vote of a majority of the
outstanding voting securities of the Portfolio. This Contract shall
terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust or
other organizational document and agrees that the obligations assumed by
the Fund pursuant to this Contract shall be limited in all cases to the
Portfolio and its assets, and the Adviser shall not seek satisfaction of
any such obligation from the shareholders or any shareholder of the
Portfolio or any other Portfolios of the Fund. In addition, the Adviser
shall not seek satisfaction of any such obligations from the Trustees or
any individual Trustee. The Adviser understands that the rights and
obligations of any Portfolio under the Declaration of Trust or other
organizational document are separate and distinct from those of any and all
other Portfolios.
8. This Contract shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without giving effect to the
choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, as now in effect or as
hereafter amended, and subject to such orders as may be granted by the
Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be signed in
their behalf by their respective officers thereunto duly authorized, and
their respective seals to be hereunto affixed, all as of the date written
above.
[SIGNATUE LINES OMITTED]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Prospectuses
and Statements of Additional Information in Post-Effective Amendment No. 15
to the Registration Statement on Form N-1A of Fidelity California Municipal
Trust II: Spartan California Municipal Money Market Fund and Fidelity
California Municipal Money Market Fund (together the "Funds"), of our
reports dated April 2, 1997, on the financial statements and financial
highlights included in the February 28, 1997 Annual Reports to Shareholders
of the Funds.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Auditor" in the Statements
of Additional Information.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000878662
<NAME> Fidelity California Municipal Trust II
<SERIES>
<NUMBER> 11
<NAME> Fidelity California Municipal Money Market Fund
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> feb-28-1997
<PERIOD-END> feb-28-1997
<INVESTMENTS-AT-COST> 807,000
<INVESTMENTS-AT-VALUE> 807,000
<RECEIVABLES> 7,246
<ASSETS-OTHER> 8,536
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 822,782
<PAYABLE-FOR-SECURITIES> 2,601
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 476
<TOTAL-LIABILITIES> 3,077
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 820,160
<SHARES-COMMON-STOCK> 820,184
<SHARES-COMMON-PRIOR> 732,992
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (455)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 819,705
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25,748
<OTHER-INCOME> 0
<EXPENSES-NET> 4,533
<NET-INVESTMENT-INCOME> 21,215
<REALIZED-GAINS-CURRENT> (11)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21,215
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,802,872
<NUMBER-OF-SHARES-REDEEMED> 2,736,308
<SHARES-REINVESTED> 20,628
<NET-CHANGE-IN-ASSETS> 87,181
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (444)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,929
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,636
<AVERAGE-NET-ASSETS> 742,846
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .029
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000878662
<NAME> Fidelity California Municipal Trust II
<SERIES>
<NUMBER> 21
<NAME> Spartan California Municipal Money Market Fund
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> feb-28-1997
<PERIOD-END> feb-28-1997
<INVESTMENTS-AT-COST> 1,332,720
<INVESTMENTS-AT-VALUE> 1,332,720
<RECEIVABLES> 12,905
<ASSETS-OTHER> 2,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,347,831
<PAYABLE-FOR-SECURITIES> 3,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 473
<TOTAL-LIABILITIES> 3,973
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,344,446
<SHARES-COMMON-STOCK> 1,344,446
<SHARES-COMMON-PRIOR> 1,307,903
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (588)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,343,858
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,771
<OTHER-INCOME> 0
<EXPENSES-NET> 4,620
<NET-INVESTMENT-INCOME> 42,151
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 42,160
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 42,151
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,487,179
<NUMBER-OF-SHARES-REDEEMED> 1,491,837
<SHARES-REINVESTED> 41,201
<NET-CHANGE-IN-ASSETS> 36,552
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (597)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,696
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,718
<AVERAGE-NET-ASSETS> 1,343,540
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .031
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .031
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
