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. 16 [X]
and
REGISTRATION STATEMENT (No. 811-6397)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 16 [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: 617-563-7000
Arthur S. Loring, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
(x) on August 28, 1997 pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) on ( ) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed
post-effective amendment.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the Notice required by such Rule
on April 28, 1997.
FIDELITY CALIFORNIA MUNICIPAL TRUST II:
FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
Form N-1A
Item Number Prospectus Section
<TABLE>
<CAPTION>
<S> <C>
1................................................. Cover Page
...
2a................................................ Expenses
..
Contents; The Funds at a Glance; Who May Want to Invest
b,c...............................................
3a............................................... Financial Highlights
*
b.................................................
.
Performance
c,d...............................................
4a(i) Charter
..............................................
The Funds at a Glance; Investment Principles and Risks
(ii)..............................................
Investment Principles and Risks
b.................................................
.
Who May Want to Invest; Investment Principles and Risks
c.................................................
.
5a Charter
.................................................
Cover Page; The Funds at a Glance; Charter; Doing Business
b(i).............................................. with Fidelity
b(ii) Charter
............................................
Expenses; Breakdown of Expenses
b(iii)...........................................
.
c............................................... *
Charter; Breakdown of Expenses
d.................................................
.
Cover Page; Charter
e.................................................
.
Expenses
f..................................................
.
g(i)............................................. Charter
*
g(ii).............................................
5A Performance
................................................
6a(i)............................................ Charter
...
a(ii) How to Buy Shares; How to Sell Shares; Transaction Details;
............................................ Exchange Restrictions
Charter
a(iii)...........................................
Charter
b.................................................
Transaction Details; Exchange Restrictions
c................................................
*
d.................................................
Doing Business with Fidelity; How to Buy Shares; How to Sell
e................................................. Shares; Investor Services
Dividends, Capital Gains, and Taxes
f,g...............................................
7a................................................ Cover Page; Charter
..
Expenses; How to Buy Shares; Transaction Details
b.................................................
.
*
c.................................................
.
How to Buy Shares
d.................................................
.
*
e.................................................
.
Breakdown of Expenses
f..................................................
.
8................................................. How to Sell Shares, Investor Services; Transaction Details;
.. Exchange Restrictions
9................................................. *
..
</TABLE>
* Not Applicable
FIDELITY CALIFORNIA MUNICIPAL TRUST II:
FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
(CONTINUED)
Form N-1A
Item Number Statement of Additional Information Section
<TABLE>
<CAPTION>
<S> <C>
10, Cover Page
11........................................
12............................................. Description of the Trust
.
13a-c....................................... Investment Policies and Limitations
*
d............................................
14a - Trustees and Officers
c........................................
15a, *
b.........................................
Trustees and Officers
c.............................................
16a(i)....................................... FMR; Portfolio Transactions
..
Trustees and Officers
a(ii)........................................
a(iii), Management Contracts
b...................................
c, Contracts with FMR Affiliates
d..........................................
*
e.............................................
Distribution and Service Plans
f............................................
*
g.............................................
Description of the Trust
h.............................................
Contracts with FMR Affiliates
i.............................................
17a, Portfolio Transactions
b,c.......................................
*
d,e.........................................
18a........................................... Description of the Trust
..
*
b.............................................
19a........................................... Additional Purchase and Redemption Information
..
Additional Purchase and Redemption Information; Valuation of
b............................................ Portfolio Securities
*
c.............................................
20............................................. Distributions and Taxes
..
21a,b........................................ Contracts with FMR Affiliates
..
*
c.............................................
22a........................................... Performance
..
*
b.............................................
23............................................. Financial Statements
..
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing, or a copy of
the Statement of Additional Information (SAI) dated August 28, 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 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 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, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
CFS-pro-0897
FIDELITY
CALIFORNIA
MUNICIPAL
MONEY MARKET
FUND
(fund number 097, trading symbol FCFXX)
The fund seeks a high level of current income free from federal income tax
and California personal income tax. It maintains a stable $1.00 share price
by investing in high-quality, short-term municipal money market securities.
PROSPECTUS
AUGUST 28, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
PERFORMANCE How the fund has
done over time.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current tax-free income for California residents while
maintaining a stable $1.00 share price. As with any mutual fund, there is
no assurance that the fund will achieve its goal.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and California
personal income tax.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FMR Texas), a
subsidiary of FMR, chooses investments for the fund.
SIZE: As of February 28, 1997, the fund had over $819 million in assets.
WHO MAY WANT TO INVEST
This non-diversified fund may be appropriate for investors in higher tax
brackets who would like to earn federal and California tax-exempt income at
current municipal money market rates while preserving the value of their
investment. The fund is managed to keep its share price stable at $1.00.
The rate of income will vary from day to day, generally reflecting
short-term interest rates.
The fund does not constitute a balanced investment plan. However, because
it emphasizes stability, it could be well-suited for a portion of your
investments.
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.
California Municipal Money
Market is in the MONEY
MARKET category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) 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
Exchange fee None
Annual account maintenance fee $12.0
(for accounts under $2,500) 0
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The 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. The fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (see "Breakdown of Expenses" 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, the fund has entered into arrangements with its custodian and
transfer agent whereby credit realized as a result of uninvested cash
balances is used to reduce custodian and transfer agent expenses. Including
these reductions, the total operating expenses presented in the table would
have been 0.61% for the fund.
Management fee 0.39
%
12b-1 fee None
Other expenses 0.23
%
Total fund operating expenses 0.62
%
EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses if you
close your account after the number of years indicated:
After 1 year $ 6
After 3 years $ 20
After 5 years $ 35
After 10 years $ 77
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by Price
Waterhouse LLP, independent accountants. The fund's financial highlights,
financial statements, and report of the auditor are included in the fund's
Annual Report, and are incorporated by reference into (are legally a part
of) the fund's SAI. Contact Fidelity for a free copy of the Annual Report
or the SAI.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended 1997 1996 1995 1994 1993D 1992 1991 1990 1989C 1988C
February 28 E C C C
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
Income from .029 .032 .026 .020 .019 .035 .047 .054 .052 .042
Investment
Operations
Net interest income
Less Distribu
tions (.029) (.032 (.026 (.020 (.019) (.035 (.047 (.054 (.052) (.042)
From net interest ) ) ) ) ) )
income
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
Total returnB 2.90% 3.21 2.60 1.97 1.92% 3.59 4.85 5.53 5.36% 4.27%
% % % % % %
</TABLE>
RATIOS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end
of $ 820 $ 733 $ 675 $ 612 $ 568 $ 557 $ 539 $ 624 $ 736 $ 547
period
(In millions)
Ratio of expenses .62% .64% .62% .64% .62% .63% .61% .60% .53% .58%F
to average net A
assets
Ratio of expenses .61%G .64% .62% .64% .62% .63% .61% .60% .53%F .58%
to average net A
assets after
expense reductions
Ratio of net interest 2.86% 3.17 2.58 1.95 2.29% 3.50 4.75 5.42 5.31% 4.17%
income to average % % % A % % %
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.
PERFORMANCE
Money market fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results.
The fund's fiscal year runs from March 1 through February 28. The tables
below show the fund's performance over past fiscal years compared to a
measure of inflation.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Pas Past Past
February 28, 1997 t 1 5 10
yea year year
r s s
CA Muni Money Market 2.90 2.62 3.68
% % %
Consumer Price Index 3.03 2.86 3.64
% % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Pas Past Past
February 28, 1997 t 1 5 10
yea year year
r s s
CA Muni Money Market 2.90 13.80 43.53
% % %
Consumer Price Index 3.03 15.15 43.01
% % %
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given period,
assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time. An
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as
actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. When a 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.
UNDERSTANDING
PERFORMANCE
SEVEN-DAY YIELD illustrates
the income earned by a
money market fund over a
recent seven-day period. TOTAL
RETURN reflects both the
reinvestment of income and
the change in a fund's share
price. Since money market
funds maintain a stable $1.00
share price, current seven-day
yields are the most common
illustration of money market
fund performance.
(checkmark)
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
CALIFORNIA MUNICIPAL MONEY MARKET IS A MUTUAL FUND: an investment that
pools shareholders' money and invests it toward a specified goal. The fund
is a non-diversified fund of Fidelity California Municipal Trust II, an
open-end management investment company organized as a Delaware business
trust on June 20, 1991.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the fund's
activities, review contractual arrangements with companies that provide
services to the fund, and review the fund's performance. The trustees serve
as trustees for other Fidelity funds. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY MATERIALS.
These meetings may be called to elect or remove trustees, change
fundamental policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which handles the fund's business affairs. FMR
Texas, located in Irving, Texas, has primary responsibility for providing
investment ma nagement services.
Fidelity investment personnel may invest in securities for their own
accounts 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.
UMB Bank, n.a. (UMB) is the fund's transfer agent, and is located at 1010
Grand Avenue, Kansas City, Missouri. UMB employs Fidelity Service Company,
Inc. (FSC) to perform transfer agent servicing functions for the fund.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 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)
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.
FMR may use its broker-dealer affiliates and other firms that sell fund
shares to carry out the fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those of
other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
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. FMR normally
invests at least 65% of the 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.
The fund complies with industry-standard requirements on the quality,
maturity, and diversification of its investments, which are designed to
help maintain a stable $1.00 share price. Of course, there is no guarantee
that the fund will maintain a stable $1.00 share price. The fund will
purchase only high-quality securities that FMR believes present minimal
credit risks and will observe maturity restrictions on securities it buys.
In general, securities with longer maturities are more vulnerable to price
changes, although they may provide higher yields. It is possible that a
major change in interest rates or a default on the fund's investments could
cause its share price (and the value of your investment) to change.
In addition, since the fund concentrates its investments in California
municipal securities, an investment in the fund may be riskier than an
investment in other types of money market funds.
The 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 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 fund earns income at current municipal money market rates. It stresses
tax-free income, preservation of capital, and liquidity and does not seek
the higher yields or capital appreciation that more aggressive investments
may provide. The fund's yield will vary from day to day and generally
reflects current short-term interest rates and other market conditions.
If you are subject to the federal alternative minimum tax, you should note
that FMR may invest all of the fund's assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
FMR normally invests the fund's assets according to its investment
strategy. The fund does not expect to invest in federally taxable
obligations, but may invest a portion of its assets in state taxable
obligations. The fund also reserves the right to hold a substantial amount
of uninvested cash or to invest more than normally permitted in taxable
obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of the fund's limitations and more detailed information
about the fund's investments are contained in the fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Fund holdings and recent investment strategies are detailed in the
fund's financial reports, which are sent to shareholders twice a year. For
a free SAI or financial report, call 1-800-544-8888.
MONEY MARKET SECURITIES are high-quality, short-term instruments issued by
municipalities, local and state governments, and other entities. These
securities may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or 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.
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 the 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 the 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.
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.
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, 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.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. These interest rate adjustments are designed to help
stabilize the security's price.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. In exchange for this benefit, the fund may accept a lower
interest rate. The credit quality of the investment may be affected by the
creditworthiness of the put provider. Demand features, standby commitments,
and tender options are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities, and some other securities, may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading practices
in which payment and delivery for the security take place at a later date
than is customary for that type of security. The market value of the
security could change during this period.
CASH MANAGEMENT. The 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.
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: The fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, the fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any issuer. These limitations do not apply to U.S. Government
securities or to securities of other investment companies. The fund may
invest more than 25% of its total assets in tax-free securities that
finance similar types of projects.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements, and may make additional
investments while borrowings are outstanding.
RESTRICTIONS: The 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.
The fund 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.
The 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 fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to an affiliate who provides
assistance with these services. The fund also pays OTHER EXPENSES, which
are explained later on this page.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The 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 an 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%. The individual fund fee
rate is 0.25%. The fund's total management fee rate for fiscal 1997 was
0.39%.
FMR Texas is the 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's services. FMR paid FMR Texas a fee equal to
0.20% of the 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 fund's annual
operating costs, the fund has other expenses as well.
UMB is the transfer and service agent for the fund. UMB has entered into
sub-agreements with FSC under which FSC performs transfer agency,
dividend disbursing, shareholder serving, and accounting functions for the
fund. These services include processing shareholder transactions,
valuing the fund's investments, and calculating the fund's share price
and dividends. Under the terms of the sub-agreements, FSC receives all
related fees paid to UMB by the fund.
For the fiscal year ended February 1997, the fund paid transfer
agency and pricing and bookkeeping fees equal to 0.21% of its average net
assets.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund has adopted a DISTRIBUTION AND SERVICE PLAN. This plan recognizes
that FMR may use its management fee revenue, as well as past profits or its
resources from any other source, to pay FDC for expenses incurred in
connection with the distribution of fund shares. FMR directly, or through
FDC, may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services for,
the fund's shares. Currently, the Board of Trustees has not authorized such
payments.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in the fund through a brokerage account. You can
choose California Municipal 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 fund 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 the 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
THE FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. The fund is managed to keep its share price stable at $1.00.
The fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally
calculated at 4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $5,000
TO ADD TO AN ACCOUNT $250
Through regular investment plans* $100
MINIMUM BALANCE $2,000
*FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE .
These minimums may vary for investments through Fidelity Portfolio Advisory
Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (small solid bullet) Exchange from another (small solid bullet) Exchange from another
Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(small solid bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: up to
$100,000.
</TABLE>
<TABLE>
<CAPTION>
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Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check
application. Make your payable to "Fidelity
check payable to California Municipal
"Fidelity California Money Market Fund."
Municipal Money Indicate your fund
Market Fund." Mail to account number on
the address indicated your check and mail to
on the application. the address printed on
your account statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
</TABLE>
<TABLE>
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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check Fidelity Investor Center.
to a Fidelity Investor Call 1-800-544-9797 for
Center. Call the center nearest you.
1-800-544-9797 for the
center nearest you.
</TABLE>
<TABLE>
<CAPTION>
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Wire (wire_graphic) (small solid bullet) Call 1-800-544-7777 to (small solid bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify "Fidelity
Bank Routing California Municipal
#021001033, Money Market Fund"
Account #00163053. and include your
Specify "Fidelity account number and
California Municipal your name.
Money Market Fund"
and include your new
account number and
your name.
</TABLE>
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<CAPTION>
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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
</TABLE>
<TABLE>
<CAPTION>
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
TO SELL SHARES THROUGH YOUR FIDELITY ULTRA SERVICE OR FIDELITYPLUS ACCOUNT,
call 1-800-544-6262 to receive a handbook with instructions.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $2,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
$100,000.
(small solid bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: up to
$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>
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Check (check_graphic) All account types (small solid bullet) Minimum check: $500.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
</TABLE>
<TABLE>
<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.
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 the fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
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 services that let you transfer money into your fund
account, or between fund accounts, automatically.
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM $100
FREQUENCY Monthly or quarterly
SETTING UP Complete the
appropriate section on
the fund application.
For existing accounts,
call 1-800-544-6666
for an application.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY
FUND
MINIMUM $100
FREQUENCY Every pay period
SETTING UP Check the
appropriate box on
the fund application,
or call
1-800-544-6666 for
an authorization form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
MINIMUM $100
FREQUENCY Monthly, bimonthly,
quarterly, or annually
SETTING UP To establish, call
1-800-544-6666 after
both accounts are
opened.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The 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.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The fund offers three
options:
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. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
3. 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 record date of the distribution. The mailing of distribution checks
will begin within seven days.
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the fund's tax implications.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
The fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
Interest income that the 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. The fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
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 the fund's income
dividends was free from federal income and California taxes. 27.44% of the
fund's income dividends was subject to the federal alternative minimum tax.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Like most money market funds, the fund values the securities it owns on the
basis of amortized cost. This method minimizes the effect of changes in a
security's market value and helps the fund to maintain a stable $1.00 share
price.
THE FUND'S OFFERING PRICE (price to buy one share) is its NAV. The fund's
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.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) The fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees the fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) The fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
(small solid bullet) If your account is not an Ultra Service Account, there
is a $1.00 charge for each check written under $500.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $24.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. This fee will not be
deducted from Fidelity brokerage accounts, retirement accounts (except
non-prototype retirement accounts), accounts using regular investment
plans, or if total assets with Fidelity exceed $30,000. Eligibility for the
$30,000 waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number or
which list the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $2,000, you will be given 30 days'
notice to reestablish the minimum balance. 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 fund without reimbursement
from the fund. 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 the fund
for shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be available for
sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, the fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) The exchange limit may be modified for accounts in
certain institutional retirement plans to conform to plan exchange limits
and Department of Labor regulations. See your plan materials for further
information.
(small solid bullet) The fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if the
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
fund reserves the right to terminate or modify the exchange privilege in
the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose fees
of up to 1.00% on purchases, 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
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 28, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus (dated
August 28, 1997). Please retain this document for future reference. The
fund's 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
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contract
Distribution and Service Plan
Contracts with FMR Affiliates
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
CFS-ptb-0897
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations listed below the
investment policies and limitations described in this S tatement of
Additional Information are not fundamental and may be changed without
shareholder approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) make short sales of securities (unless it owns or by virtue of its
ownership of other securities has the right to obtain securities equivalent
in kind and amount to the securities sold);
(3) purchase any securities on margin;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three business days (not including
Sundays and holidays) to the extent necessary to comply with the 33 1/3%
limitation;
(5) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(7) purchase or sell real estate, but this shall not prevent the fund from
investing in municipal bonds or other obligations secured by real estate or
interests therein;
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of debt securities or to repurchase
agreements); or
(10) invest in oil, gas or other mineral exploration or development
programs.
(11) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company managed by Fidelity Management &
Research Company or an affiliate or successor with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the fund
currently intends to comply with certain diversification limits imposed by
Subchapter M.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (4)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to invest more than 25% of its total
assets in industrial revenue bonds related to a single industry.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company managed by
Fidelity Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies and
limitations as the fund.
For 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.
For the fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page .
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. Government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If the fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the fund does not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, the fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should the 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.
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 fund's distributions. If
such proposals were enacted, the availability of municipal obligations and
the value of the fund's holdings would be affected and the Trustees would
reevaluate the fund's investment objective and policies.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
FMR may determine some restricted securities and municipal lease
obligations to be illiquid.
In the absence of market quotations, illiquid investments are valued for
purposes of monitoring amortized cost valuation at fair value as determined
in good faith by a committee appointed by the Board of Trustees. If through
a change in values, net assets, or other circumstances, the fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, the fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates, but it
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. The fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and the fund may have to borrow from a bank at
a higher interest rate if an interfund loan is called or not renewed.
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 fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the fund.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. 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 fund will not hold
such obligations directly as a lessor of the property, but will purchase a
participation interest in a municipal obligation from a bank or other third
party. A participation interest gives the fund a specified, undivided
interest in the obligation in proportion to its purchased interest in the
total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
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. 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to the fund in connection with
bankruptcy proceedings), it is the fund's current policy to engage in
repurchase agreement transactions with parties whose creditworthiness has
been reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the fund might obtain
a less favorable price than prevailed when it decided to seek registration
of the security. However, in general, the fund anticipates holding
restricted securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of the fund's
assets and may be viewed as a form of leverage.
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.
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, the 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 March 1, 199 7 , the State had approximately $17. 7
billion of general obligation bonds outstanding (including $ 368
million of commercial paper notes which are intended to be refinanced by
future bond sales), and $ 9.7 billion remained authorized but
unissued. In addition, the State had lease-purchase obligations, payable
from the State's General Fund, of approximately $ 6.1 billion. State
voters approved a bout $6.4 billion of new bonds in two elections
in 1996. 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:
(small solid bullet) significant cuts in health and welfare program
expenditures;
(small 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;
(small 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;
(small solid bullet) reduction in growth of support for higher education
programs, coupled with increases in student fees;
(small solid bullet) revenue increase (particularly in the FY 1991-92
budget), most of which were for a short duration;
(small 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
(small 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.
1996 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.
R evenues for the Fiscal Year were estimated to total $47.643
billion, a 3.3 percent increase over the final estimated 1995-96 revenues.
The Budget Act contain ed 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.
PROPOSED 1997-98 BUDGET. On January 9, 1997, the Governor released his
proposed budget for FY 1997-98 , which was updated in May 1997 .
Assuming continuing strength in the economy, the Governor project ed
General Fund revenues of $5 2 . 0 billion, and propose d
expenditures of $5 1 . 7 billion, to leave a budget reserve in
the SFEU of $5 8 0 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 further tax cut s ,
and sweeping changes in public assistance programs to respond to the new
federal welfare reform law. As of late July, 1997, the Legislature and
Governor had still not agreed on a spending plan for the 1997-98 fiscal
year, which began on July 1. Major policy differences still unresolved
included the details of welfare reform legislation, possible tax cuts,
state employee salaries, and other matters, Unlike 1992, the State has
adequate cash resources to continue to pay necessary ongoing obligations,
such as debt service on bonds, most employee salaries and welfare payments,
until a budget is adopted. However, some State creditors cannot be paid
until the budget is passed.
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 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 SAI. 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 to that of the United States.
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, any
increase or decrease 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 U.S. 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 Commonwealth 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, U.S. 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" or "wage credit limitation"). As a result of
amendments incorporated in the Small Business Job Protection Act of 1996
enacted by the U.S. Congress and signed into law by President Clinton on
August 20, 1996 (the "1996 Amendments"), 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 U.S. 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, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
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 Section 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 Section 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 1996 Amendments to
Section 936. 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 the fund by FMR pursuant to authority contained in the fund's
management contract. FMR has granted investment management authority to the
sub-adviser (see the section entitled "Management Contract"), 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
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 fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the 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 fund may be useful to FMR in rendering investment management
services to the fund or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the fund, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with National Financial Services
Corporation (NFSC), an indirect 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 NFSC to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
fund and review the commissions paid by the fund over representative
periods of time to determine if they are reasonable in relation to the
benefits to the fund.
For the fiscal years ended February 1997, 1996, and 1995, the fund paid no
brokerage commissions.
During the fiscal year ended February 1997, the fund paid no fees to
brokerage firms that provided research services.
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the fund is concerned. In other cases,
however, the ability of the fund to participate in volume transactions will
produce better executions and prices for the fund. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to the fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
VALUATION
FSC normally determines the fund's net asset value per share (NAV) as of
the close of the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern
time). The valuation of portfolio securities is determined as of this time
for the purpose of computing the fund's NAV.
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
1940 Act. The fund must adhere to certain conditions under Rule 2a-7, as
summarized in the section entitled "Quality and Maturity" on page 5.
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 fund may quote performance in various ways. All performance information
supplied by the fund in advertising is historical and is not intended to
indicate future returns. The fund's yield and total return fluctuate in
response to market conditions and other factors.
YIELD CALCULATIONS. To compute the 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 fund also
may calculate an effective yield by compounding the base period return over
a one-year period. In addition to the current yield, the fund may quote
yields in advertising based on any historical seven-day period. Yields for
the fund are calculated on the same basis as other money market funds, as
required by applicable regulations.
Yield information may be useful in reviewing the fund's performance and in
providing a basis for comparison with other investment alternatives.
However, the fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates the
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
The fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing the fund's yield by
the result of one minus a stated combined federal and state income tax
rate. If only a portion of the fund's yield is tax-exempt, only that
portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
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 the fund will achieve any specific tax-exempt
yield. While the fund invests principally in obligations whose interest is
exempt from federal and state income tax, other income received by the fund
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 California State Combined
Marginal Rate Marginal Rate Federal and State
Effective Rate**
Single Return Joint Return
$ 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>
To match these tax-free yields: Y our taxable investment would have to earn the following yield:
</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>
The fund may invest a portion of its assets in obligations that are subject
to state or federal income taxes. When the fund invests in these
obligations, its tax-equivalent yield will be lower. In the table above,
the tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in
the fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
HISTORICAL FUND RESULTS. The following table shows the fund's 7-day yields,
tax-equivalent yields, and total returns for the period ended February 28,
1997.
The tax-equivalent yield is based on a combined effective federal and state
income tax rate of 41.95% and reflects that, as of February 28, 1997, none
of the fund's income was subject to state taxes. Note that the fund may
invest in securities whose income is subject to the federal alternative
minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven-Da Tax- One Five Ten One Five Ten
y Equivalent Year Years Years Year Years Years
Yield Yield
California Municipal 2.76% 4.75% 2.90% 2.62% 3.68% 2.90% 13.80% 43.53%
Money Market
</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 the fund's
cumulative total return. The table compares the 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 the fund. The S&P 500
and DJIA comparisons are provided to show how the 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 the fund invests in short-term fixed-income
securities, common stocks represent a different type of investment from the
funds. Common stocks generally offer greater growth potential than the
funds, but generally experience greater price volatility, which means
greater potential for loss. In addition, common stocks generally provide
lower income than fixed-income investments such as the fund. 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.
During the 10-year period ended February 28, 1997, a hypothetical $10,000
investment in the fund would have grown to $14,353, assuming all
distributions were reinvested. This was a period of fluctuating interest
rates and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today. Tax consequences of different investments
have not been factored into the figures below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY CALIFORNIA MUNICIPAL MONEY MARKET FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1997 $ 10,000 $ 4,353 $ 0 $ 14,353 $ 37,674 $ 41,930 $ 14,301
1996 $ 10,000 $ 3,949 $ 0 $ 13,949 $ 29,862 $ 32,749 $ 13,880
1995 $ 10,000 $ 3,515 $ 0 $ 13,515 $ 22,169 $ 23,391 $ 13,522
1994 $ 10,000 $ 3,172 $ 0 $ 13,172 $ 20,650 $ 21,749 $ 13,145
1993 $ 10,000 $ 2,917 $ 0 $ 12,917 $ 19,060 $ 18,604 $ 12,823
1992 $ 10,000 $ 2,612 $ 0 $ 12,612 $ 17,223 $ 17,508 $ 12,419
1991 $ 10,000 $ 2,154 $ 0 $ 12,154 $ 14,846 $ 14,958 $ 12,079
1990 $ 10,000 $ 1,570 $ 0 $ 11,570 $ 12,949 $ 13,122 $ 11,470
1989 $ 10,000 $ 943 $ 0 $ 10,943 $ 10,890 $ 10,864 $ 10,896
1988 $ 10,000 $ 422 $ 0 $ 10,422 $ 9,733 $ 9,614 $ 10,394
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in California
Municipal 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.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. 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, the fund's performance may be compared to stock,
bond, and money market mutual fund performance indices prepared by Lipper
or other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, the fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
The fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, the
fund may offer greater liquidity or higher potential returns than CDs, the
fund does not guarantee your principal or your return, and fund shares are
not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC Financial Data, Inc. of
Ashland, Massachusetts. These averages assume reinvestment of
distributions. IBC's MONEY FUND REPORT AVERAGES(trademark)/All Tax-Free,
which is reported in IBC's MONEY FUND REPORT(trademark), covers over 424
all tax-free money market funds.
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.
The fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
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 fund may reference the growth and variety of money
market mutual funds and the adviser's innovation and participation in the
industry. The equity funds under management figure represents the largest
amount of equity fund assets under management by a mutual fund investment
adviser in the United States, making FMR America's leading equity (stock)
fund manager. FMR, its subsidiaries, and affiliates maintain a worldwide
information and communications network for the purpose of researching and
managing investments abroad.
In addition to performance rankings, the fund may compare its total expense
ratio to the average total expense ratio of similar funds tracked by
Lipper. The fund's total expense ratio is a significant factor in comparing
bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its 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, President's Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. Although FMR expects the same
holiday schedule to be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, the fund will not process wire
purchases and redemptions on days when the Federal Reserve Wire System is
closed.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that portfolio securities are traded in other markets on days when
the NYSE is closed, the fund's NAV may be affected on days when investors
do not have access to the fund to purchase or redeem shares. In addition,
trading in some of the fund's portfolio securities may not occur on days
when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), the fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, the fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that the fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. 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. The 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.
The fund purchases municipal securities whose interest FMR believes is free
from federal income tax. Generally, issuers or other parties have entered
into covenants requiring continuing compliance with federal tax
requirements to preserve the tax-free status of interest payments over the
life of the security. If at any time the covenants are not complied with,
or if the IRS otherwise determines that the issuer did not comply with
relevant tax requirements, interest payments from a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, the tax status of the pass-through
of tax-free income may also be based on the federal and state tax treatment
of the structure.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the 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 the 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 fund's policy of investing so that at least 80%
of its income distributions is free from federal income tax. The 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
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 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 purp oses .
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund, and such shares are held
six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
the fund are taxable to shareholders as dividends, not as capital gains.
The fund does not anticipate distributing long-term capital gains.
As of February 28, 1997, the fund had a capital loss carryforward
aggregating approximately $457,000. This loss carryforward, of which
$446,000 and $11,000 will expire on February 28, 2003 and 2005,
respectively, is available to offset future capital gains.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
the fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis.
The fund is treated as a separate entity from the other funds of Fidelity
California Municipal Trust II for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether the fund is suitable to their particular tax
situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the 1940 Act, control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company. Therefore, through their ownership of voting common
stock and the execution of the shareholders' voting agreement, members of
the Johnson family may be deemed, under the 1940 Act, to form a controlling
group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of the
trust are listed below. Except as indicated, each individual has held the
office shown or other offices in the same company for the last five years.
All persons named as Trustees and Members of the Advisory Board also serve
in similar capacities for other funds advised by FMR. The business address
of each Trustee, Member of the Advisory Board, 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), Member of the Advisory Board (1997), is Vice
Chairman and a member of the Board of Directors of FMR Corp. (1997) and
President and Chief Executive Officer of the Fidelity Institutional Group
(1997). Previously, Mr. Burkhead served as President of Fidelity Management
& Research Co.
RALPH F. COX (64), Trustee, is President of RABAR Enterprises (management
consulting-engineering industry, 1994). Prior to February 1994, he was
President of Green hill Petroleum Corporation (petroleum exploration and
production). Until March 1990, Mr. Cox was President and Chief Operation
Officer of Union Pacific Resources Company (exploration and production). He
is a Director of USA Waste Services, Inc. (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 LucasVarity 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),
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 manufacturing, 1985-1995),
Hyster-Yale Materials Handling, Inc. (1985-1995), and Cleveland-Cliffs Inc.
(mining), and as a Trustee of First Union Real Estate Investments. In
addition, he serves as a Trustee of the Cleveland Clinic Foundation, where
he has also been a member of the Executive Committee as well as Chairman of
the Board and President, 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 (63), Trustee (1997) is the Vice President of Finance for
the University of North Carolina (16-school system, 1995). Prior to his
retirement in December 1994, Mr. McCoy was Vice Chairman of the Board of
BellSouth Corporation (telecommunications, 1984) and President of BellSouth
Enterprises (1986). He is currently a Director of Liberty Corporation
(holding company, 1984), Weeks Corporation of Atlanta (real estate, 1994),
Carolina Power and Light Company (electric utility, 1996), and the Kenan
Transport Co. (1996). Previously, he was a Director of First American
Corporation (bank holding company, 1979-1996). In addition, Mr. McCoy
serves as a member of the Board of Visitors for the University of North
Carolina at Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
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.
* ROBERT C. POZEN (50), Trustee (1997) and Senior Vice President, is also
President and a Director of FMR (1997); and President and a Director of FMR
Texas Inc. (1997), Fidelity Management & Research (U.K.) Inc. (1997), and
Fidelity Management & Research (Far East) Inc. (1997). Previously, Mr.
Pozen served as General Counsel, managing Director, and Senior Vice
President of FMR Corp.
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).
B OYCE GREER (41), is Vice President of Fidelity California Municipal
Money Market Fund, (1997), and other funds advised by FMR. He joined
Fid elity in 1991.
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.
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration at
First Data Investor Services Group, Inc. (1996-1997). Prior to 1996, Mr.
Silver was Senior Vice President and Chief Financial Officer at the
Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice President
of Fidelity's municipal bond funds (1996) and of Fidelity's money market
funds and Vice President and Associate General Counsel of FMR Texas Inc.
JOHN H. COSTELLO (50), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (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, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money market funds
(1996) and an employee of FMR (1996). Prior to joining FMR, Mr. Simpson was
Vice President and Fund Controller of Liberty Investment Services
(1987-1995).
The following table sets forth information describing the compensation of
each Trustee 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>
Trustees and Members of the Advisory Board Aggregate Total
Compensation Compensation
from from the
California Money Fund Complex*A
Market A,B
J. Gary Burkhead ** $ 0 $ 0
Ralph F. Cox $ 265 $ 137,700
Phyllis Burke Davis $ 259 $ 134,700
Richard J. Flynn*** $ 252 $ 168,000
Edward C. Johnson 3d ** $ 0 $ 0
E. Bradley Jones $ 259 $ 134,700
Donald J. Kirk $ 262 $ 136,200
Peter S. Lynch ** $ 0 $ 0
William O. McCoy**** $ 149 $ 85,333
Gerald C. McDonough $ 278 $ 136,200
Edward H. Malone*** $ 201 $ 136,200
Marvin L. Mann $ 260 $ 134,700
Thomas R. Williams $ 264 $ 136,200
</TABLE>
* Information is for Calendar year ended December 31, 1996 for 235 funds in
the complex.
** Interested Trustees of the fund and Mr. Burkhead 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 the trust. 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.
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.
Under a deferred compensation plan adopted in September 1995 and amended in
November 1996 (the Plan), non-interested Trustees must defer receipt of a
portion of, and may elect to defer receipt of an additional portion of
their annual fees. Amounts deferred under the Plan are treated as though
equivalent dollar amounts had been invested in shares of a cross-section of
Fidelity Funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees under the
Plan will be directly linked to the investment performance of the Reference
Funds. Deferral of fees in accordance with the Plan will have a negligible
effect on a fund's assets, liabilities, and net income per share, and will
not obligate a fund to retain the services of any Trustee or to pay any
particular level of compensation to the Trustee. A fund may invest in the
Reference Funds 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 then-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 and are treated as though
equivalent dollar amounts had been invested in shares of the Reference
Funds. The amounts ultimately received by the Trustees in connection with
the credits to their Plan accounts will be directly linked to the
investment performance of the Reference Funds. 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 June 30, 1997, the Trustees and officers of the fund owned, in the
aggregate, less than 1% of the fund's total outstanding shares.
MANAGEMENT CONTRACT
FMR is the fund's manager pursuant to a management contract dated April 1,
1997, which was approved by shareholders on March 19, 1997.
MANAGEMENT SERVICES. The fund employs FMR to furnish investment advisory
and other services. Under the terms of its management contract with the
fund, FMR acts as investment adviser and, subject to the supervision of the
Board of Trustees, directs the investments of the fund in accordance with
its investment objective, policies, and limitations. FMR also provides the
fund with all necessary office facilities and personnel for servicing the
fund's investments, compensates all officers of the fund and all Trustees
who are "interested persons" of the trust or of FMR, and all personnel of
the fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the fund. These services include providing facilities
for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the fund's
records and the registration of the fund's shares under federal securities
laws and making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing reports,
evaluations, and analyses on a variety of subjects to the Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable to
FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, the fund pays all of its expenses that are not
assumed by those parties. The 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. The fund's
management contract further provides that the fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders; however, under the terms
of the fund's transfer agent agreement, the transfer agent bears the costs
of providing these services to existing shareholders. Other expenses paid
by the fund include interest, taxes, brokerage commissions, the fund's
proportionate share of insurance premiums and Investment Company Institute
dues, and the costs of registering shares under federal securities laws and
making necessary filings under state securities laws. The fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which the fund may be a party, and any obligation it may have
to indemnify its officers and Trustees with respect to litigation.
MANAGEMENT FEE. For the services of FMR under the management contract, the
fund pays FMR a monthly management fee which has two components: a group
fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Prior to March 1, 1994 , the group fee rate is based on a schedule
with breakpoints ending at .1500% for average group assets in excess of $84
billion. The group fee rate breakpoints shown above for average group
assets in excess of $120 billion and under $228 billion were voluntarily
adopted by FMR on January 1, 1992. The additional breakpoints shown above
for average group assets in excess of $228 billion were voluntarily adopted
by FMR on November 1, 1993.
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 fund's current
management contract reflects the group fee rate schedule above for average
group assets under $156 billion and the group fee rate schedule below for
average group assets in excess of $156 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The individual fund fee rate is .25%. Based on the average group net assets
of the funds advised by FMR for February 1997, the annual management fee
rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1414% + .25% = .3914%
One-twelfth of this annual management fee rate is applied to the fund's net
assets averaged for the most recent month, giving a dollar amount, which is
the fee for that month.
For the fiscal years ended February 28, 1997, 1996, and 1995, the fund paid
FMR management fees of $2,929,149, $2,925,181 and $2,723,476 respectively.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase the fund's total returns and yield and repayment of
the reimbursement by the fund will lower its total returns and yield.
SUB-ADVISER. 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 funds.
Under the terms of 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 the fund, 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 PLAN
The Trustees have approved a Distribution and Service Plan on behalf of the
fund (the Plan) pursuant to Rule 12b-1 under the 1940 Act (the Rule). The
Rule provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan approved on
behalf of the fund under the Rule. The Plan, as approved by the Trustees,
allows the fund and FMR to incur certain expenses that might be considered
to constitute indirect payment by the fund of distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR is
deemed to be indirect financing by the fund of the distribution of its
shares, such payment is authorized by the Plan. The Plan specifically
recognizes that FMR may use its management fee revenue, as well as its past
profits or its other resources, to pay FDC for expenses incurred in
connection with the distribution of fund shares. In addition, the Plan
provides that FMR, directly or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of fund
shares, or provide shareholder support services. Currently, the Board of
Trustees has not authorized such payments for the fund's shares.
FMR made no payments either directly or through FDC to third parties for
the calendar year ended 1996.
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the the fund and its shareholders. In particular, the Trustees noted that
the Plan does not authorize payments by the fund other than those made to
FMR under its management contract with the fund. To the extent that the
Plan gives FMR and FDC greater flexibility in connection with the
distribution of shares of the fund, additional sales of fund shares may
result. Furthermore, certain shareholder support services may be provided
more effectively under the Plan by local entities with whom shareholders
have other relationships.
The Plan was approved by shareholders of 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 fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and other financial institutions may be required to
register as dealers pursuant to state law.
The fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plan. No
preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
The fund has entered into a transfer agent agreement with UMB. Under the
terms of the agreement, UMB provides transfer agency, dividend disbursing,
and shareholder services for the fund. UMB in turn has entered into a
sub-transfer agent agreement with FSC, an affiliate of FMR. Under the terms
of the sub-agreement, FSC performs all processing activities associated
with providing these services for the fund and receives all related
transfer agency fees paid to UMB.
For providing transfer agency services, 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.
In addition, UMB receives the pro rata portion of the transfer agency fees
applicable to shareholder accounts in each Fidelity Freedom Fund, a fund of
funds managed by an FMR affiliate, according to the percentage of the
Freedom Fund's assets that is invested in the fund.
FSC pays out-of-pocket expenses associated with providing transfer agent
services. In addition, FSC bears the expense of typesetting, printing, and
mailing prospectuses, statements of additional information, and all other
reports, notices, and statements to existing shareholders, with the
exception of proxy statements.
FSC has entered into a sub-agreement with Fidelity Brokerage Services, Inc.
(FBSI), an affiliate of FMR. Under the terms of this sub-agreement, FBSI
performs certain recordkeeping, communication, and other services for 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.
The fund has also entered into a service agent agreement with UMB. Under
the terms of the agreement, UMB provides pricing and bookkeeping services
for the fund. UMB in turn has entered into a sub-service agent agreement
with FSC. Under the terms of the sub-agreement, FSC performs all processing
activities associated with providing these services, including calculating
the NAV and dividends for the fund and maintaining the fund's portfolio and
general accounting records, and receives all related pricing and
bookkeeping fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a monthly fee
based on the fund's average daily net assets throughout the month. The
annual fee rates for pricing and bookkeeping services are .0175% of the
first $500 million of average net assets and .0075% of average net assets
in excess of $500 million. The fee, not including reimbursement for
out-of-pocket expenses, is limited to a minimum of $40,000 and a maximum of
$800,000 per year.
For the fiscal years ended February 28 1997, 1996, and 1995, the fund paid
FSC pricing and bookkeeping fees, including reimbursement for related
out-of-pocket expenses, of $127,726, $128,347, and $117,152, respectively.
The fund has entered into a distribution agreement with FDC, an affiliate
of FMR organized as a Massachusetts corporation on July 18, 1960. FDC is a
broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. The
distribution agreement calls for FDC to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of the
fund, which are continuously offered at NAV. Promotional and administrative
expenses in connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity California Municipal Money Market Fund is a
fund of Fidelity California Municipal Trust II, 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 the investment adviser to the trust or a
fund, the right of the trust or fund to use the identifying name "Fidelity"
and "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the trust. Expenses with respect to the trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is 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 trust and requires
that a disclaimer be given in each contract entered into or executed by the
trust or the 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, if they have
exercised reasonable care, shall not be personally liable to any person
other than the 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. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value you own. The shares have no preemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the heading "Shareholder
and Trustee Liability" above. Shareholders representing 10% or more of the
trust or a fund may, as set forth in the 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 the entire trust, the
purpose of voting on removal of one or more Trustees.
The trust or any fund may be terminated upon the sale of its assets to, or
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 may, without prior
shareholder approval, change the form of organization of the trust by
merger, consolidation, or incorporation. If not so terminated or
reorganized, the trust and its funds will continue indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the trust to merge or consolidate into one or more trusts,
partnerships, or corporations, or cause the trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end management
investment company that will succeed to or assume the trust registration
statement. Each fund may invest all of its assets in another investment
company.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is
custodian of the assets of the fund. 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, 2001 Ross Avenue, Dallas, Texas serves as
the fund's independent accountant. The auditor examines financial
statements for the fund and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal
year ended February 28, 1997, and report of the auditor, are included in
the fund's Annual Report, which is a separate report supplied with this
SAI. The fund's financial statements, including the financial highlights,
and report of the auditor are incorporated herein by reference. For a free
additional copy of the fund's Annual Report, contact Fidelity at
1-800-544-8888.
APPENDIX
The descriptions that follow are examples of eligible ratings for the fund.
The 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. 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.
FIDELITY CALIFORNIA MUNICIPAL TRUST II:
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
Form N-1A
Item Number Prospectus Section
<TABLE>
<CAPTION>
<S> <C>
1................................................. Cover Page
...
2a................................................ Expenses
..
Contents; The Funds at a Glance; Who May Want to Invest
b,c...............................................
3a............................................... Financial Highlights
*
b.................................................
.
Performance
c,d...............................................
4a(i) Charter
..............................................
The Funds at a Glance; Investment Principles and Risks
(ii)..............................................
Investment Principles and Risks
b.................................................
.
Who May Want to Invest; Investment Principles and Risks
c.................................................
.
5a Charter
.................................................
Cover Page; The Funds at a Glance; Charter; Doing Business
b(i).............................................. with Fidelity
b(ii) Charter
............................................
Expenses; Breakdown of Expenses
b(iii)...........................................
.
c............................................... *
Charter; Breakdown of Expenses
d.................................................
.
Cover Page; Charter
e.................................................
.
Expenses
f..................................................
.
g(i)............................................. Charter
*
g(ii).............................................
5A Performance
................................................
6a(i)............................................ Charter
...
a(ii) How to Buy Shares; How to Sell Shares; Transaction Details;
............................................ Exchange Restrictions
Charter
a(iii)...........................................
Charter
b.................................................
Transaction Details; Exchange Restrictions
c................................................
*
d.................................................
Doing Business with Fidelity; How to Buy Shares; How to Sell
e................................................. Shares; Investor Services
Dividends, Capital Gains, and Taxes
f,g...............................................
7a................................................ Cover Page; Charter
..
Expenses; How to Buy Shares; Transaction Details
b.................................................
.
*
c.................................................
.
How to Buy Shares
d.................................................
.
*
e.................................................
.
Breakdown of Expenses
f..................................................
.
8................................................. How to Sell Shares, Investor Services; Transaction Details;
.. Exchange Restrictions
9................................................. *
..
</TABLE>
* Not Applicable
FIDELITY CALIFORNIA MUNICIPAL TRUST II:
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
(CONTINUED)
Form N-1A
Item Number Statement of Additional Information Section
<TABLE>
<CAPTION>
<S> <C>
10, Cover Page
11........................................
12............................................. Description of the Trust
.
13a-c....................................... Investment Policies and Limitations
*
d............................................
14a - Trustees and Officers
c........................................
15a, *
b.........................................
Trustees and Officers
c.............................................
16a(i)....................................... FMR; Portfolio Transactions
..
Trustees and Officers
a(ii)........................................
a(iii), Management Contracts
b...................................
c, Contracts with FMR Affiliates
d..........................................
*
e.............................................
Distribution and Service Plans
f............................................
*
g.............................................
Description of the Trust
h.............................................
Contracts with FMR Affiliates
i.............................................
17a, Portfolio Transactions
b,c.......................................
*
d,e.........................................
18a........................................... Description of the Trust
..
*
b.............................................
19a........................................... Additional Purchase and Redemption Information
..
Additional Purchase and Redemption Information; Valuation of
b............................................ Portfolio Securities
*
c.............................................
20............................................. Distributions and Taxes
..
21a,b........................................ Contracts with FMR Affiliates
..
*
c.............................................
22a........................................... Performance
..
*
b.............................................
23............................................. Financial Statements
..
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing, or a copy of
the Statement of Additional Information (SAI) dated August 28, 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 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 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 ,NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SCM-pro-0897
SPARTAN(REGISTERED TRADEMARK)
CALIFORNIA
MUNICIPAL
MONEY MARKET
FUND
(fund number 457, trading symbol FSPXX)
The fund seeks a high level of current income free from federal income tax
and California personal income tax. It maintains a stable $1.00 share price
by investing in high-quality, short-term municipal money market securities.
PROSPECTUS
AUGUST 28, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
PERFORMANCE How the fund has
done over time.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current tax-free income for California residents while
maintaining a stable $1.00 share price. As with any mutual fund, there is
no assurance that the fund will achieve its goal.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and California
personal income tax.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FMR Texas), a
subsidiary of FMR, chooses investments for the fund.
SIZE: As of February 28, 1997, the fund had over $1.3 billion in assets.
WHO MAY WANT TO INVEST
This non-diversified fund may be appropriate for investors in higher tax
brackets who would like to earn federal and California tax-exempt income at
current municipal money market rates while preserving the value of their
investment. The fund is managed to keep its share price stable at $1.00.
The rate of income will vary from day to day, generally reflecting
short-term interest rates.
The fund does not constitute a balanced investment plan. However, because
it emphasizes stability, it could be well-suited for a portion of your
investments.
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. Spartan
California Municipal Money
Market is in the MONEY
MARKET category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) 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
Exchange fee and wire transaction fees $5.00
Checkwriting fee, per check written $2.00
Account closeout fee $5.00
Annual account maintenance fee $12.0
(for accounts under $2,500) 0
THESE FEES ARE WAIVED if your account balance at the time of the
transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund
pays a management fee to FMR. FMR is responsible for the payment of all
other fund expenses with certain limited exceptions. Expenses are
factored into the fund's share price or dividends and are not charged
directly to shareholder accounts (see "Breakdown of Expenses" 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 the fund with the fund's
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances are used to reduce fund expenses. Including these
reductions, the total operating expenses presented in the table would have
been 0.49% for the fund.
Management fee 0.50
%
12b-1 fee None
Other expenses 0.00
%
Total fund operating expenses 0.50
%
EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses after
the number of years indicated, first assuming that you leave your account
open, and then assuming that you close your account at the end of the
period:
Account Account
open closed
After 1 year $ 5 $ 10
After 3 years $ 16 $ 21
After 5 years $ 28 $ 33
After 10 years $ 63 $ 68
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by Price
Waterhouse LLP, independent accountants. The fund's financial highlights,
financial statements, and report of the auditor are included in the fund's
Annual Report, and are incorporated by reference into (are legally a part
of) the fund's SAI. Contact Fidelity for a free copy of the Annual Report
or the SAI.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended 1997 1996F 1995 1994 1993E 1992D 1991D 1990C
February 28
Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
beginning of
period
Income from .031 .035 .030 .024 .022 .041 .054 .025
Investment
Operations
Net interest
income
Less Distributions (.031) .035 (.030) (.024) (.022) (.041) (.054) (.025)
From net interest
income
Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
end of period
Total returnB 3.18% 3.60% 3.00% 2.45% 2.24% 4.15% 5.52% 2.54%
</TABLE>
RATIOS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of $ 1,344 $ 1,307 $ 1,163 $ 1,065 $ 856 $ 918 $ 764 $ 397
period
(In millions)
Ratio of expenses .35%G .31%G .28%G .21%G .30%A, .10%G .07%G .00%G
to G
average net
assets
Ratio of expenses .34%H .31% .28% .21% .30%A .10% .07% .00%
to average net
assets after
expense
reductions
Ratio of net 3.14% 3.55% 2.96% 2.42% 2.67%A 4.05% 5.33% 5.99%A
interest income to
average net
assets
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL RETURNS WOULD HAVE BEEN LOWER
HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C NOVEMBER 27, 1989 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1990.
D YEARS ENDED APRIL 30
E MAY 1, 1992 TO FEBRUARY 28, 1993
F YEAR ENDED FEBRUARY 29
G FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
PERFORMANCE
Money market fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do not
reflect the effect of any transaction fees you may have paid. The figures
would be lower if fees were taken into account.
The fund's fiscal year runs from March 1 through February 28. The tables
below show the fund's performance over past fiscal years compared to a
measure of inflation and does not include the effect of the $5 account
closeout fee.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past Past 5 Life of
February 28, 1997 1 years fundA
year
Sp artan CA 3.18 3.01 3.68
Money Market % % %
C onsumer Price Index 3.03 2.86 n/a
% %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past Past 5 Life of
February 28, 1997 1 years fundA
year
Spa rtan CA 3.18 15.99 29.98
Money Ma rket % % %
Consumer P rice Index 3.03 15.15 n/a
% %
A FROM NOVEMBER 27, 1989 (COMMENCEMENT OF OPERATIONS)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given period,
assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time. An
AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as
actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. When a 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.
UNDERSTANDING
PERFORMANCE
SEVEN-DAY YIELD illustrates
the income earned by a
money market fund over a
recent seven-day period. TOTAL
RETURN reflects both the
reinvestment of income and
the change in a fund's share
price. Since money market
funds maintain a stable $1.00
share price, current seven-day
yields are the most common
illustration of money market
fund performance.
(checkmark)
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
SPARTAN CALIFORNIA MUNICIPAL MONEY MARKET IS A MUTUAL FUND: an investment
that pools shareholders' money and invests it toward a specified goal. The
fund is a non-diversified fund of Fidelity California Municipal Trust II,
an open-end management investment company organized as a Delaware business
trust on June 20, 1991.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the fund's
activities, review contractual arrangements with companies that provide
services to the fund, and review the fund's performance. The trustees serve
as trustees for other Fidelity funds. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY MATERIALS.
These meetings may be called to elect or remove trustees, change
fundamental policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
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)
FMR AND ITS AFFILIATES
The fund is managed by FMR, which handles the fund's business affairs. FMR
Texas, located in Irving, Texas, has primary responsibility for providing
invest ment management services.
Fidelity investment personnel may invest in securities for their own
accounts 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.
UMB Bank, n.a. (UMB) is the fund's transfer agent, and is located at 1010
Grand Avenue, Kansas City, Missouri. UMB employs Fidelity Service Company,
Inc. (FSC) to perform transfer agent servicing functions for the 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.
FMR may use its broker-dealer affiliates and other firms that sell fund
shares to carry out the fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those of
other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
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. FMR normally
invests at least 65% of the fund's total assets in state tax-free
securities, and normally invests so that at least 80% of the fund's income
distributions are free from federal income tax.
The fund complies with industry-standard requirements on the quality,
maturity, and diversification of its investments, which are designed to
help maintain a stable $1.00 share price. Of course, there is no guarantee
that the fund will maintain a stable $1.00 share price. The fund will
purchase only high-quality securities that FMR believes present minimal
credit risks and will observe maturity restrictions on securities it buys.
In general, securities with longer maturities are more vulnerable to price
changes, although they may provide higher yields. It is possible that a
major change in interest rates or a default on the fund's investments could
cause its share price (and the value of your investment) to change.
In addition, since the fund concentrates its investments in California
municipal securities, an investment in the fund may be riskier than an
investment in other types of money market funds.
The 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 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 fund earns income at current municipal money market rates. It stresses
tax-free income, preservation of capital, and liquidity and does not seek
the higher yields or capital appreciation that more aggressive investments
may provide. The fund's yield will vary from day to day and generally
reflects current short-term interest rates and other market conditions.
If you are subject to the federal alternative minimum tax, you should note
that FMR may invest all of the fund's assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
FMR normally invests the fund's assets according to its investment
strategy. The fund does not expect to invest in federally taxable
obligations, but may invest a portion of its assets in state taxable
obligations. The fund also reserves the right to hold a substantial amount
of uninvested cash or to invest more than normally permitted in taxable
obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of the fund's limitations and more detailed information
about the fund's investments are contained in the fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Fund holdings and recent investment strategies are detailed in the
fund's financial reports, which are sent to shareholders twice a year. For
a free SAI or financial report, call 1-800-544-8888.
MONEY MARKET SECURITIES are high-quality, short-term instruments issued by
municipalities, local and state governments, and other entities. These
securities may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or 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.
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 the 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 the 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.
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.
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, 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.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. These interest rate adjustments are designed to help
stabilize the security's price.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or another party. In exchange for this benefit, the fund may accept a lower
interest rate. The credit quality of the investment may be affected by the
creditworthiness of the put provider. Demand features, standby commitments,
and tender options are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities, and some other securities, may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading practices
in which payment and delivery for the security take place at a later date
than is customary for that type of security. The market value of the
security could change during this period.
CASH MANAGEMENT. The 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.
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: The fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, the fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any issuer. These limitations do not apply to U.S. Government
securities or to securities of other investment companies. The fund may
invest more than 25% of its total assets in tax-free securities that
finance similar types of projects.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements, and may make additional
investments while borrowings are outstanding.
RESTRICTIONS: The 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.
The fund seeks as high a level of current income, exempt from federal
income tax and California state personal income tax, as is consistent with
the 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.
The 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 fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to an affiliate who provides
assistance with these services.
FMR may, from time to time, agree to reimburse the fund for management fees
above a specified limit. FMR retains the ability to be repaid by the fund
if expenses fall below the specified limit prior to the end of the fiscal
year. Reimbursement arrangements, which may be terminated at any time
without notice, can decrease the fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fund pays
the fee at the annual rate of 0.50% of its average net assets. The total
management fee rate for the fiscal year ended February 1997, after
reimbursement, was 0.35%.
FMR Texas is the 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's services. FMR paid FMR Texas a fee equal to
0.25% of the fund's average net assets for the fiscal year ended February
28, 1997.
UMB is the transfer and service agent for the fund. UMB has entered into
sub-agreements with FSC under which FSC performs tranfer agency, dividend
disbursing, shareholder servicing, and accounting functions for the
fund. These services include processing shareholder transactions ,
valuing the fund's investments, and calculating the fund's share
price and dividends . FMR, and not the fund, pays for these services.
To offset shareholder service costs, FMR or its affiliates also collect the
fund's $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire
purchases and redemptions, and the $2.00 checkwriting charge.
The fund has adopted a DISTRIBUTION AND SERVICE PLAN. This plan recognizes
that FMR may use its management fee revenue, as well as past profits or its
resources from any other source, to pay FDC for expenses incurred in
connection with the distribution of fund shares. FMR directly, or through
FDC, may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services for,
the fund's shares. Currently, the Board of Trustees has not authorized such
payments.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in the fund through a brokerage account.
You may purchase or sell shares of the fund 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 the 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
THE FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. The fund is managed to keep its share price stable at $1.00.
The fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $25,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans* $500
MINIMUM BALANCE $10,000
*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: up to
$100,000.
</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 "Spartan
check payable to California Municipal
"Spartan California Money Market Fund."
Municipal Money Indicate your fund
Market Fund." Mail to account number on
the address indicated your check and mail to
on the application. the address printed on
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 Fidelity Investor Center.
to a Fidelity Investor Call 1-800-544-9797 for
Center. Call the center nearest you.
1-800-544-9797 for the
center nearest you.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wire (wire_graphic) (small solid bullet) There may be a $5.00 (small solid bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(small solid bullet) Call 1-800-544-7777 to (small solid bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify "Spartan
Bank Routing California Municipal
#021001033, Money Market Fund"
Account #00163053. and include your
Specify "Spartan account number and
California Municipal your name.
Money Market 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 $10,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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<CAPTION>
<S> <C> <C>
IF YOUR ACCOUNT BALANCE IS LESS THAN $50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION
TRANSACTIONS: $2.00 FOR EACH CHECK YOU WRITE AND $5.00 FOR EACH EXCHANGE, BANK WIRE,
AND ACCOUNT CLOSEOUT.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
$100,000.
(small solid bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: up to
$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.
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more than
one account in the fund. Call 1-800-544-6666 if you need copies of
financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of the funds, unless you place your transaction on
Fidelity's automated exchange services.
Note that exchanges out of the fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
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 services that let you transfer money into your fund
account, or between fund accounts, automatically.
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM $500
FREQUENCY Monthly or quarterly
SETTING UP Complete the
appropriate section on
the fund application.
For existing accounts,
call 1-800-544-6666
for an application.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY
FUND
MINIMUM $500
FREQUENCY Every pay period
SETTING UP Check the appropriate
box on the fund
application, or call
1-800-544-6666 for an
authorization form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
MINIMUM $500
FREQUENCY Monthly, bimonthly,
quarterly, or annually
SETTING UP To establish, call
1-800-544-6666 after
both accounts are
opened.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The 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.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The fund offers three
options:
4. 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.
5. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
6. 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 record date of the distribution. The mailing of distribution checks
will begin within seven days.
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the fund's tax implications.
Interest income that the fund earns is distributed to shareholders as
income dividends. Interest that is federally tax-free remains tax-free when
it is distributed.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
The fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax
status of the distributions paid to you in the previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. The fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
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 the fund's income
dividends was free from federal income and California taxes. 41.13% of the
fund's income dividends was subject to the federal alternative minimum tax.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Like most money market funds, the fund values the securities it owns on the
basis of amortized cost. This method minimizes the effect of changes in a
security's market value and helps the fund to maintain a stable $1.00 share
price.
THE FUND'S OFFERING PRICE (price to buy one share) is its NAV. The fund's
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.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) The fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees the fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) The fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
THE FEES FOR INDIVIDUAL TRANSACTIONS are waived if your account balance at
the time of the transaction is $50,000 or more. Otherwise, you should note
the following:
(small solid bullet) The $2.00 checkwriting charge will be deducted from
your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the amount of
your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $24.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. 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 $10,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed and the $5.00 account closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the fund without reimbursement
from the fund. 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 the fund
for shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be available for
sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, the fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) The exchange limit may be modified for accounts in
certain institutional retirement plans to conform to plan exchange limits
and Department of Labor regulations. See your plan materials for further
information.
(small solid bullet) The fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if the
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
fund reserves the right to terminate or modify the exchange privilege in
the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose fees
of up to 1.00% on purchases, 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
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 28, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus (dated
August 28, 1997). Please retain this document for future reference. The
fund's Annual Report is a separate document supplied with this SAI. To
obtain a free additional copy of the Prospectus and 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 Contract
Distribution and Service Plan
Contracts with FMR Affiliates
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
SCM-ptb-0897
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations listed below,
the investment policies and limitations described in this S tatement of
Additional Information are not fundamental and may be changed without
shareholder approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of 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 fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page 5.
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. Government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If the fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the fund does not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, the fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should the 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.
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 California legislature
that would affect the state tax treatment of the fund's distributions. If
such proposals were enacted, the availability of municipal obligations and
the value of the fund's holdings would be affected and the Trustees would
reevaluate the fund's investment objective and policies.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
FMR may determine some restricted securities and municipal lease
obligations to be illiquid.
In the absence of market quotations, illiquid investments are valued for
purposes of monitoring amortized cost valuation at fair value as determined
in good faith by a committee appointed by the Board of Trustees. If through
a change in values, net assets, or other circumstances, the fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, the fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates, but it
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. The fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and the fund may have to borrow from a bank at
a higher interest rate if an interfund loan is called or not renewed.
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 fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the fund.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. 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 fund will not hold
such obligations directly as a lessor of the property, but will purchase a
participation interest in a municipal obligation from a bank or other third
party. A participation interest gives the fund a specified, undivided
interest in the obligation in proportion to its purchased interest in the
total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
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. 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to the fund in connection with
bankruptcy proceedings), it is the fund's current policy to engage in
repurchase agreement transactions with parties whose creditworthiness has
been reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the fund might obtain
a less favorable price than prevailed when it decided to seek registration
of the security. However, in general, the fund anticipates holding
restricted securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of the fund's
assets and may be viewed as a form of leverage.
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.
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, the 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 March 1, 199 7 , the State had approximately $17. 7
billion of general obligation bonds outstanding (including $ 368
million of commercial paper notes which are intended to be refinanced by
future bond sales), and $9.7 billion remained authorized but unissued. In
addition, the State had lease-purchase obligations, payable from the
State's General Fund, of approximately $ 6.1 billion. State voters
approved a bout $ 6.4 billion of new bonds in two elections
in 1996 . 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.
1996 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.
Re venues for the Fiscal Year we re estimated to total $47.643
billion, a 3.3 percent increase over the final estimated 1995-96 revenues.
The Budget Act contain ed 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.
PROPOSED 1997-98 BUDGET. On January 9, 1997, the Governor released his
proposed budget for FY 1997-98 , which was updated in May 1997 .
Assuming continuing strength in the economy, the Governor projected General
Fund revenues of $5 2.0 billion, and propose d expenditures of
$5 1.7 billion, to leave a budget reserve in the SFEU of $5 8 0
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 further tax cuts , and sweeping changes in public
assistance programs to respond to the new federal welfare reform law. As
of late July, 1997, the Legislature and Governor had still not agreed on a
spending plan for the 1997-98 fiscal year, which began on July 1. Major
policy differences still unresolved included the details of welfare reform
legislation, possible tax cuts, state employee salaries, and other matters.
Unlike 1992, the State has adequate cash resources to continue to pay
necessary ongoing obligations, such as debt service on bonds, most employee
salaries are welfare payments, until a budget is adopted. However, some
State creditors cannot be paid until the budget is passed.
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 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 SAI. 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 to that of the United States.
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, any
increase or decrease 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 U.S. 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 Commonwealth 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, U.S. 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" or "wage credit limitation"). As a result of
amendments incorporated in the Small Business Job Protection Act of 1996
enacted by the U.S. Congress and signed into law by President Clinton on
August 20, 1996 (the "1996 Amendments"), 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 U.S. 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, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
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 Section 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 Section 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 1996 Amendments to
Section 936. 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 the fund by FMR pursuant to authority contained in the fund's
management contract. FMR has granted investment management authority to the
sub-adviser (see the section entitled "Management Contract"), 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
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 fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). 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 fund may be useful to FMR in rendering investment management
services to the fund or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the fund, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with National Financial Services
Corporation (NFSC), an indirect 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 NFSC to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
fund and review the commissions paid by the fund over representative
periods of time to determine if they are reasonable in relation to the
benefits to the fund.
For the fiscal years ended February 1997, 1996, and 1995, the fund paid no
brokerage commissions.
During the fiscal year ended February 1997, the fund paid no fees to
brokerage firms that provided research services.
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the fund is concerned. In other cases,
however, the ability of the fund to participate in volume transactions will
produce better executions and prices for the fund. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to the fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
VALUATION
FSC normally determines the fund's net asset value per share (NAV) as of
the close of the New York Stock Exchange (NYSE)(normally 4:00 p.m. Eastern
time). The valuation of portfolio securities is determined as of this times
for the purpose of computing the fund's NAV.
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 5.
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 fund may quote performance in various ways. All performance information
supplied by the fund in advertising is historical and is not intended to
indicate future returns. The fund's yield and total return fluctuate in
response to market conditions and other factors.
YIELD CALCULATIONS. To compute the 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 fund also
may calculate an effective yield by compounding the base period return over
a one-year period. In addition to the current yield, the fund may quote
yields in advertising based on any historical seven-day period. Yields for
the fund are calculated on the same basis as other money market funds, as
required by applicable regulations.
Yield information may be useful in reviewing the fund's performance and in
providing a basis for comparison with other investment alternatives.
However, the fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates the
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
The fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing the fund's yield by
the result of one minus a stated combined federal and state income tax
rate. If only a portion of the fund's yield is tax-exempt, only that
portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
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 the fund will achieve any specific tax-exempt
yield. While the fund invests principally in obligations whose interest is
exempt from federal and state income tax, other income received by the fund
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 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>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
To match these Your taxable investment would have to earn the following yield:
tax-free yields:
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>
The fund may invest a portion of its assets in obligations that are subject
to state or federal income taxes. When the fund invests in these
obligations, its tax-equivalent yield will be lower. In the table above,
the tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in
the fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration, and may omit or include the effect of the $5.00 account
closeout fee.
HISTORICAL FUND RESULTS. The following table shows the fund's 7-day yields,
tax-equivalent yields, and total returns for the period ended February 28,
1997. Total return figures include the effect of the $5.00 account closeout
fee based on an average sized account.
The tax-equivalent yield is based on a combined effective federal and state
income tax rate of 41.95% and reflects that, as of February 28, 1997, none
of the fund's income was subject to state taxes. Note that the fund may
invest in securities whose income is subject to the federal alternative
minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven-Da Tax- One Five Life of One Five Life of
y 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%
Municipal Money
Market
</TABLE>
* From November 27, 1989 (commencement of operations).
If FMR had not reimbursed certain fund expenses during these periods, the
fund's yield would have been 2.94% and total returns would have been lower.
The following table shows the income and capital elements of the fund's
cumulative total return. The table compares the fund's return to the record
of the Standard & Poor's 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 the fund. The S&P 500
and DJIA comparisons are provided to show how the 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 the fund invests in short-term fixed-income
securities, common stocks represent a different type of investment from the
fund. Common stocks generally offer greater growth potential than the fund,
but generally experience greater price volatility, which means greater
potential for loss. In addition, common stocks generally provide lower
income than fixed-income investment such as the fund. The fund has the
ability to invest in securities not included in either index, and its
investment portfolio may or may not be similar in composition to the
indexes. 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.
During the 10-year period ended February 28, 1997, a hypothetical $10,000
investment in the fund would have grown to $12,998. This was a period of
fluctuating interest rates and the figures below should not be considered
representative of the dividend income or capital gain or loss that could be
realized from an investment in the fund today. Tax consequences of
different investments have not been factored into the figures below. The
figures in the table do not include the effect of the fund's $5.00 account
closeout fee.
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
1997 $ 10,000 $ 2,998 $ 0 $ 12,998 $ 28,331 $ 31,694 $ 12,707
1996 $ 10,000 $ 2,597 $ 0 $ 12,597 $ 22,456 $ 24,7 54 $ 12, 677
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
1990* $ 10,000 $ 154 $ 0 $ 10,154 $ 9,738 $ 9,919 $ 10,167
</TABLE>
* From November 27, 1989 (commencement of operations)
** From month end closest to commencement of operations.
Explanatory Notes: With an initial investment of $10,000 in Spartan
California Municipal 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.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. 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, the fund's performance may be compared to stock,
bond, and money market mutual fund performance indices prepared by Lipper
or other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, the fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
The fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, the
fund may offer greater liquidity or higher potential returns than CDs, the
fund does not guarantee your principal or your return, and fund shares are
not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC Financial Data, Inc. of
Ashland, Massachusetts. These averages assume reinvestment of
distributions. IBC's MONEY FUND REPORT AVERAGES(trademark)/All Tax-Free,
which is reported in IBC's MONEY FUND REPORT(trademark), covers over 424
tax-free money market funds.
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.
The fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
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 fund may reference the growth and variety of money
market mutual funds and the adviser's innovation and participation in the
industry. The equity funds under management figure represents the largest
amount of equity fund assets under management by a mutual fund investment
adviser in the United States, making FMR America's leading equity (stock)
fund manager. FMR, its subsidiaries, and affiliates maintain a worldwide
information and communications network for the purpose of researching and
managing investments abroad.
In addition to performance rankings, the fund may compare its total expense
ratio to the average total expense ratio of similar funds tracked by
Lipper. The fund's total expense ratio is a significant factor in comparing
bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its 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, President's Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. Although FMR expects the same
holiday schedule to be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, the fund will not process wire
purchases and redemptions on days when the Federal Reserve Wire System is
closed.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that portfolio securities are traded in other markets on days when
the NYSE is closed, the fund's NAV may be affected on days when investors
do not have access to the fund to purchase or redeem shares. In addition,
trading in some of the fund's portfolio securities may not occur on days
when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), the fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, the fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that the fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. 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. The 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.
The fund purchases municipal securities whose interest FMR believes is free
from federal income tax. Generally, issuers or other parties have entered
into covenants requiring continuing compliance with federal tax
requirements to preserve the tax-free status of interest payments over the
life of the security. If at any time the covenants are not complied with,
or if the IRS otherwise determines that the issuer did not comply with
relevant tax requirements, interest payments from a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, the tax status of the pass-through
of tax-free income may also be based on the federal and state tax treatment
of the structure.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the 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 the 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 fund's policy of investing so that at least 80%
of its income distributions is free from federal income tax. The 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
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 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 s .
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund, and such shares are held
six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
the fund are taxable to shareholders as dividends, not as capital gains.
The fund does not anticipate distributing long-term capital gains.
As of February 28, 1997, the fund had a capital loss carryforward
aggregating approximately $591,000. This loss carryforward will expire on
February 28, 2003, and is available to offset future capital gains.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
the fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis.
The fund is treated as a separate entity from the other funds of Fidelity
California Municipal Trust II for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether the fund is suitable to their particular tax
situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the 1940 Act, control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company. Therefore, through their ownership of voting common
stock and the execution of the shareholders' voting agreement, members of
the Johnson family may be deemed, under the 1940 Act, to form a controlling
group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees , Members of the Advisory Board, and executive officers
of the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the last
five years. All persons named as Trustees and Members of the Advisory
Board also serve in similar capacities for other funds advised by FMR.
The business address of each Trustee , Member of the Advisory Board,
and officer who is an "interested person" (as defined in the Investment
company Act 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), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President and Chief Executive Officer of the Fidelity
Institutional Group (1997). Previously, Mr. Burkhead served as President
of Fidelity Management & Research Co.
RALPH F. COX (64), Trustee , is President of RABAR Enterprises
(management consulting-engineering industry, 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 USA Waste Services, Inc. (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 LucasVarity 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),
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 manufacturing, 1985-1995),
Hyster-Yale Materials Handling, Inc. (1985-1995), and Cleveland-Cliffs Inc.
(mining), and as a Trustee of First Union Real Estate Investments. In
addition, he serves as a Trustee of the Cleveland Clinic Foundation, where
he has also been a member of the Executive Committee as well as Chairman of
the Board and President, 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 (63), Trustee (1997) is the Vice President of Finance for
the University of North Carolina (16-school system, 1995). Prior to his
retirement in December 1994, Mr. McCoy was Vice Chairman of the Board of
BellSouth Corporation (telecommunications, 1984) and President of BellSouth
Enterprises (1986). He is currently a Director of Liberty Corporation
(holding company, 1984), Weeks Corporation of Atlanta (real estate, 1994),
Carolina Power and Light Company (electric utility, 1996), and the Kenan
Transport Co. (1996). Previously, he was a Director of First American
Corporation (bank holding company, 1979-1996). In addition, Mr. McCoy
serves as a member of the Board of Visitors for the University of North
Carolina at Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
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.
*ROBERT POZEN (50), Trustee (1997) and Senior Vice President, is also
President and a Director of FMR (1997); and President and a Director of FMR
Texas Inc. (1997), Fidelity Management & Research (U.K.) Inc. (1997), and
Fidelity Management & Research (Far East) Inc. (1997). Previously, Mr.
Pozen served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
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).
BOYCE GREER (41), is Vice President of Spartan California Municipal Money
Market Fund (1997), and other funds advised by FMR. He joined Fidelity in
1991.
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.
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration at
First Data Investor Services Group, Inc. (1996-1997). Prior to 1996, Mr.
Silver was Senior Vice President and Chief Financial Officer at The
Colonial Group, Inc. Mr. Silver also served as chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice President
of Fidelity's municipal bond funds (1996) and of Fidelity's money market
funds and Vice President and Associate General Counsel of FMR Texas Inc.
JOHN H. COSTELLO (50), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (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, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money market funds
(1996) and an employee of FMR (1996). Prior to joining FMR, Mr. Simpson was
Vice President and Fund Controller of Liberty Investment Services
(1987-1995).
The following table sets forth information describing the compensation of
each Trustee 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.
<TABLE>
<CAPTION>
<S> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Advisory Board Aggregate Total Compensation
Compensation from from the Fund
Spartan CA Money Complex*,A
MarketA,B
J. Gary Burkhead** $ 0 $ 0
Ralph F. Cox $ 480 $ 137,700
Phyllis Burke Davis $ 469 $ 134,700
Richard J. Flynn*** $ 462 $ 168,000
Edward C. Johnson 3d** $ 0 $ 0
E. Bradley Jones $ 469 $ 134,700
Donald J. Kirk $ 474 $ 136,200
Peter S. Lynch** $ 0 $ 0
William O. McCoy**** $ 276 $ 85,333
Gerald C. McDonough $ 503 $ 136,200
Edward H. Malone*** $ 368 $ 136,200
Marvin L. Mann $ 471 $ 134,700
Thomas R. Williams $ 479 $ 136,200
</TABLE>
* Information is for calendar year ended December 31, 1996 for 235
funds in the complex.
** Interested Trustees of the fund and Mr. Burkhead 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 the trust. 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.
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.
Under a deferred compensation plan adopted in September 1995 and amended in
November 1996 (the Plan), non-interested Trustees must defer receipt of a
portion of, and may elect to defer receipt of an additional portion of
their annual fees. Amounts deferred under the Plan are treated as though
equivalent dollar amounts had been invested in shares of a cross-section of
Fidelity Funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees under the
Plan will be directly linked to the investment performance of the Reference
Funds. Deferral of fees in accordance with the Plan will have a negligible
effect on a fund's assets, liabilities, and net income per share, and will
not obligate a fund to retain the services of any Trustee or to pay any
particular level of compensation to the Trustee. A fund may invest in the
Reference Funds 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 then-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 and are treated as though
equivalent dollar amounts had been invested in shares of the Reference
Funds. The amounts ultimately received by the Trustees in connection with
the credits to their Plan accounts will be directly linked to the
investment performance of the Reference Funds. 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 June 30 , 1997, the Trustees and officers of the fund owned, in
the aggregate, less that 1% of the fund's total outstanding shares.
As of June 30 , 1997, the following owned of record or beneficially
5% or more of the outstanding shares of the fund: National Financial
Services Corporation, Boston, MA (16. 80 %).
MANAGEMENT CONTRACT
FMR is the fund's manager 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 on April 18, 1994, pursuant to an
Agreement and Plan of Conversion approved by public shareholders on
February 16, 1994. (The terms of the fund's current contract with FMR
duplicate those of its previous contract. which was dated October 19,
1989).
MANAGEMENT SERVICES. The fund employs FMR to furnish investment advisory
and other services. Under the terms of its management contract with the
fund, FMR acts as investment adviser and, subject to the supervision of the
Board of Trustees, directs the investments of the fund in accordance with
its investment objective, policies, and limitations. FMR also provides the
fund with all necessary office facilities and personnel for servicing the
fund's investments, compensates all officers of the fund and all Trustees
who are "interested persons" of the trust or of FMR, and all personnel of
the fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the fund. These services include providing facilities
for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the fund's
records and the registration of the fund's shares under federal securities
laws and making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing reports,
evaluations, and analyses on a variety of subjects to the Trustees.
MANAGEMENT-RELATED EXPENSES. Under the terms of the fund's management
contract, FMR is responsible for payment of all operating expenses of the
fund with certain exceptions. Specific expenses payable by FMR include
expenses for typesetting, printing, and mailing proxy materials to
shareholders, legal expenses, fees of the custodian, auditor and interested
Trustees, the fund's proportionate share of insurance premiums and
Investment Company Institute dues, and the costs of registering shares
under federal securities laws and making necessary filings under state
securities laws. The fund's management contract further provides that FMR
will pay for typesetting, printing, and mailing prospectuses, statements of
additional information, notices, and reports to shareholders; however,
under the terms of the fund's transfer agent agreement, the transfer agent
bears the costs of providing these services to existing shareholders. FMR
also pays all fees associated with transfer agent, dividend disbursing, and
shareholder services and pricing and bookkeeping services.
FMR pays all other expenses of the fund with the following exceptions: fees
and expenses of the non-interested Trustees, interest, taxes, brokerage
commissions (if any), and such nonrecurring expenses as may arise,
including costs of any litigation to which the fund may be a party, and any
obligation it may have to indemnify its officers and Trustees with respect
to litigation.
MANAGEMENT FEE. For the services of FMR under the management contract, the
fund pays FMR a monthly management fee at the annual rate of .50% of its
average net assets throughout the month. The management fee paid to FMR by
the fund is reduced by an amount equal to the fees and expenses paid by the
fund to the non-interested Trustees.
For the fiscal years ended February 28, 1997, February 29, 1996, and
February 28, 1995, the fund paid FMR management fees of $4,680,314,
$4,029,487, and $3,343,640, respectively, after reduction of fees and
expenses paid by the fund to the non-interested Trustees.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase the fund's total returns and
yield, and repayment of the reimbursement by the fund will lower its total
returns and yield.
During the past three fiscal years, FMR voluntarily agreed, subject to
revision or termination, to reimburse the fund if and to the extent that
its aggregate operating expenses, including management fees, were in excess
of an annual rate of its average net assets. The table below shows the
periods of reimbursement and levels of expense limitations; the dollar
amount of management fees incurred under the fund's contract before
reimbursement; and the dollar amount of management fees reimbursed by FMR
under the expense reimbursement for each period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Periods of Aggregate Fiscal Years Management Amount of
Expense Limitation Operating Ended Fee Management
From To Expense February 28 Before Fee
Limitation Reimbursement Reimbursement
July 1, 1995 November 30, 1995 0.32% 1997 $ 6,695,623* $ 2,015,309
August 1, 1994 June 30, 1995 0.30% 1996** $ 6,275,939* $ 2,246,452
March 1, 1994 July 31, 1994 0.25% 1995 $ 5,998,081* $ 2,654,441
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
** Fiscal year ended February 29.
To defray shareholder service costs, FMR or its affiliates also collect the
fund's $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire
purchases and redemptions, and $2.00 checkwriting charge. Shareholder
transaction fees and charges collected by FMR are indicated in the table
below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Ended Exchange Fees Account Wire Fees Checkwriting
February 28 Closeout Fees Charges
Spartan California 1997 $ 4,115 $ 1,238 $ 760 $ 8,060
Money Market
1996* $ 7,095 $ 1,911 $ 1,485 $ 11,867
1995 $ 8,370 $ 2,319 $ 1,540 $ 12,864
</TABLE>
* Year ended February 29
SUB-ADVISER. 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 terms of the sub-advisory agreement, dated February 16, 1994,
which was approved by shareholders on April 18, 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 the fund, 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 PLAN
The Trustees have approved a Distribution and Service Plan on behalf of the
fund (the Plan) pursuant to Rule 12b-1 under the 1940 Act (the Rule). The
Rule provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan approved on
behalf of the fund under the Rule. The Plan, as approved by the Trustees,
allows the fund and FMR to incur certain expenses that might be considered
to constitute indirect payment by the fund of distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR is
deemed to be indirect financing by the fund of the distribution of its
shares, such payment is authorized by the Plan. The Plan specifically
recognizes that FMR may use its management fee revenue, as well as its past
profits or its other resources, to pay FDC for expenses incurred in
connection with the distribution of fund shares. In addition, the Plan
provides that FMR, directly or through FDC, may make payments to third
parties, such as banks or broker-dealers that engage in the sale of fund
shares, or provide shareholder support services. Currently, the Board of
Trustees has not authorized such payments for the fund's shares.
FMR made no payments either directly or through FDC to third parties for
the calendar year ended 199 6 .
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the the fund and its shareholders. In particular, the Trustees noted that
the Plan does not authorize payments by the fund other than those made to
FMR under its management contract with the fund. To the extent that the
Plan gives FMR and FDC greater flexibility in connection with the
distribution of shares of the fund, additional sales of fund shares may
result. Furthermore, certain shareholder support services may be provided
more effectively under the Plan by local entities with whom shareholders
have other relationships.
The Plan was approved by 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 fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and other financial institutions may be required to
register as dealers pursuant to state law.
The fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plan. No
preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
The fund has entered into a transfer agent agreement with UMB. Under the
terms of the agreement, UMB provides transfer agency, dividend disbursing,
and shareholder services for the fund. UMB in turn has entered into a
sub-transfer agent agreement with FSC , an affiliate of FMR. Under
the terms of the sub-agreement, FSC performs all processing
activities associated with providing these services for the fund and
receives all related transfer agency fees paid to UMB.
For providing transfer agency services, 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.
In addition, UMB receives the pro rata portion of the transfer
agency fees applicable to shareholder accounts in each Fidelity Freedom
Fund, a fund of funds managed by an FMR affiliate, according to the
percentage of the Freedom Fund's assets that is invested in the fund.
FSC pays out-of-pocket expenses associated with providing transfer agent
services. In addition, FSC bears the expense of typesetting, printing, and
mailing prospectuses, statements of additional information, and all other
reports, notices, and statements to existing shareholders, with the
exception of proxy statements.
The fund has also entered into a service agent agreement with UMB. Under
the terms of the agreement, UMB provides pricing and bookkeeping services
for the fund. UMB in turn has entered into a sub-service agent agreement
with FSC. Under the terms of the sub-agreement, FSC performs all processing
activities associated with providing these services, including calculating
the NAV and dividends for the fund and maintaining the fund's portfolio and
general accounting records, and receives all related pricing and
bookkeeping fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a monthly fee
based on the fund's average daily net assets throughout the month.
FMR bears the cost of transfer agency, dividend disbursing, and shareholder
services and pricing and bookkeeping services under the terms of its
management contract with the fund.
The fund has entered into a distribution agreement with FDC, an affiliate
of FMR organized as a Massachusetts corporation on July 18, 1960. FDC is a
broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. The
distribution agreement calls for FDC to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of the
fund, which are continuously offered at NAV. Promotional and administrative
expenses in connection with the offer and sale of shares are paid by
FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Spartan California Municipal Money Market Fund is a
fund of Fidelity California Municipal Trust II, an open-end management
investment company organized as a Delaware business trust on June 20, 1991.
Currently, there are two funds of the 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 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 the investment adviser to the trust or a
fund, the right of the trust or fund to use the identifying names
"Fidelity" or "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the trust. Expenses with respect to the trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is 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 trust and requires
that a disclaimer be given in each contract entered into or executed by the
trust or the 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, if they have
exercised reasonable care, shall not be personally liable to any person
other than the 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. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value you own. The shares have no preemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the heading "Shareholder
and Trustee Liability" above. Shareholders representing 10% or more of the
trust or a fund may, as set forth in the 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 the entire trust, the
purpose of voting on removal of one or more Trustees.
The trust or any fund may be terminated upon the sale of its assets to, or
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 may, without prior
shareholder approval, change the form of organization of the trust by
merger, consolidation, or incorporation. If not so terminated or
reorganized, the trust and its funds will continue indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the trust to merge or consolidate into one or more trusts,
partnerships, or corporations, or cause the trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end management
investment company that will succeed to or assume the trust registration
statement. Each fund may invest all of its assets in another investment
company.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is
custodian of the assets of the fund. 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, 2001 Ross Avenue, Dallas, Texas
serves as the fund's independent accountant. The auditor examines financial
statements for the fund and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal
year ended February 28, 1997, and report of the auditor, are included in
the fund's Annual Report, which is a separate report supplied with this
SAI. The fund's financial statements, including the financial highlights,
and report of the auditor are incorporated herein by reference. For a free
additional copy of the fund's Annual Report, contact Fidelity at
1-800-544-8888.
APPENDIX
The descriptions that follow are examples of eligible ratings for the fund.
The 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. 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.
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 for the fiscal
year ended February 28, 1997, are incorporated herein by reference to the
fund's Statement of Additional Information and were filed on April 14, 1997
for 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 for the fiscal
year ended February 28, 1997, are incorporated herein by reference to the
fund's Statement of Additional Information and were filed on April 14, 1997
for 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) 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) 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 September 14, 1995 and amended
through November 14, 1996, is incorporated herein by reference to Exhibit
7(b) of Fidelity Aberdeen Street Trust's (File No. 33-43529) Post-Effective
Amendment No. 19.
(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.
(q) Fidelity SIMPLE-IRAPlan Adoption Agreement, Company Profile Form, and
Plan Document, as currently in effect, is incorporated herein by reference
to Exhibit 14(q) of Fidelity Aberdeen Street Trust's (File No. 33-43529)
Post-Effective Amendment No. 19.
(15)(a) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
California Municipal Money Market Fund (formerly Fidelity California
Tax-Free Money Market Portfolio) is filed as Exhibit (15)(a).
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
California Municipal Money Market Fund (formerly Spartan California
Municipal Money Market Portfolio) is filed herein as Exhibit 15(b).
(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
July 31, 1997
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity California Municipal
Money Market Fund 32,460
Spartan California Municipal
Money Market Fund 9,256
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 Board 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.
Robert C. Pozen President and Director of FMR; President and Director
of FMR Texas Inc., FMR (U.K.) Inc., and FMR (Far
East) Inc.; General Counsel, Managing Director, and
Senior Vice President of FMR Corp.
J. Gary Burkhead President of FIIS; 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.
John Carlson Vice President of FMR.
Dwight D. Churchill Senior Vice President of FMR.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR
William Danoff Senior 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.
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 Senior 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.
Bruce Herring Vice President of 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 Senior Vice President of FMR and of a fund advised by
FMR; Associate Director and Senior Vice President of
Equity funds advised by FMR.
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; Associate Director and
Senior Vice President of Equity funds advised by
FMR; Vice President of High Income funds advised by
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.
Mark G. Lohr Vice President of FMR; Treasurer of FMR, FMR
(U.K.) Inc., FMR (Far East) Inc., and FMR Texas Inc.
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.
Charles Mangum Vice President of FMR.
Kevin McCarey Vice President of FMR.
Diane McLaughlin Vice President of FMR.
Neal P. Miller Vice President of 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.
Scott Orr Vice President of 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.
Kennedy P. Richardson Vice President of FMR.
Mark Rzepczynski Vice President of FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Fergus Shiel Vice President of FMR.
Carol Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by
FMR; Senior Vice President and Director of
Operations and Compliance of FMR (U.K.) Inc.
Thomas Sprague Vice President of FMR.
Robert E. Stansky Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Scott Stewart Vice President of FMR.
Cythia Straus Vice President of 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 Board 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 of FIIS; 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 C. Pozen President and Director of FMR; President and
Director of FMR Texas Inc., FMR (U.K.) Inc.,
and FMR (Far East) Inc.; General Counsel,
Managing Director, and Senior Vice President
of FMR Corp.
Robert H. Auld Vice President of FMR Texas.
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.
Mark G. Lohr Treasurer of FMR Texas, FMR (U.K.) Inc.,
FMR (Far East) Inc., and FMR; Vice President
of FMR.
Stephen G. Manning 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. 16 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and Commonwealth of Massachusetts, on the 26th day
of August 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 August 26 , 1997
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer August 26 , 1997
Richard A. Silver
/s/Robert C. Pozen Trustee August 26 , 1997
Robert C. Pozen
/s/Ralph F. Cox * Trustee August 26, 1997
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee August 26, 1997
Phyllis Burke Davis
/s/Robert M. Gates ** Trustee August 26, 1997
Robert M. Gates
/s/E. Bradley Jones * Trustee August 26, 1997
E. Bradley Jones
/s/Donald J. Kirk * Trustee August 26, 1997
Donald J. Kirk
/s/Peter S. Lynch * Trustee August 26, 1997
Peter S. Lynch
/s/Marvin L. Mann * Trustee August 26, 1997
Marvin L. Mann
/s/William O. McCoy * Trustee August 26, 1997
William O. McCoy
/s/Gerald C. McDonough * Trustee August 26, 1997
Gerald C. McDonough
/s/Thomas R. Williams * Trustee August 26, 1997
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 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 Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash Portfolios
Fidelity Advisor Series III Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series VII Fidelity Money Market Trust
Fidelity Advisor Series VIII Fidelity Mt. Vernon Street Trust
Fidelity Beacon Street Trust Fidelity Municipal Trust
Fidelity Boston Street Trust Fidelity Municipal Trust II
Fidelity California Municipal Trust Fidelity New York Municipal Trust
Fidelity California Municipal Trust II Fidelity New York Municipal Trust II
Fidelity Capital Trust Fidelity Phillips Street Trust
Fidelity Charles Street Trust Fidelity Puritan Trust
Fidelity Commonwealth Trust Fidelity Revere Street Trust
Fidelity Concord Street Trust Fidelity School Street Trust
Fidelity Congress Street Fund Fidelity Securities Fund
Fidelity Contrafund Fidelity Select Portfolios
Fidelity Corporate Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Court Street Trust Fidelity Summer Street Trust
Fidelity Court Street Trust II Fidelity Trend Fund
Fidelity Covington Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Daily Money Fund Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Union Street Trust II
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Newbury Street Trust
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund Variable Insurance Products Fund III
Fidelity Hastings Street Trust
</TABLE>
in addition to 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
Robert C. Pozen 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, or any successor thereto, any and all subsequent
Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said
Registration Statements on Form N-1A, Form N-8A, 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 on my 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 August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
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)
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 affects only 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.
/s/J. Gary Burkhead
J. Gary Burkhead, as Trustee
and not individually.
Dated: March 31, 1997
Exhibit 5(a)
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.
FIDELITY CALIFORNIA MUNICIPAL TRUST II
on behalf of Fidelity California Municipal Money Market Fund
By /s/ J. Gary Burkhead
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By /s/ J. Gary Burkhead
President
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectuses
and Statements of Additional Information in Post-Effective Amendment No. 16
to the Registration Statement on Form N-1A of Fidelity California Municipal
Trust II: Fidelity California Municipal Money Market Fund and Spartan
California Municipal Money Market Fund (the Funds) of our reports dated
April 3, 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
Dallas, Texas
August 21, 1997
Exhibit 15(a)
DISTRIBUTION AND SERVICE PLAN
of Fidelity California Municipal Trust II:
Fidelity California Municipal Money Market Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by Rule
12b-1 under the Investment Company Act of 1940 (the "Act") of Fidelity
California Municipal Money Market Fund (the "Portfolio"), a series of
shares of Fidelity California Municipal Trust II (the "Fund").
2. The Fund has entered into a General Distribution Agreement with respect
to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management & Research
Company (the "Adviser"), under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for the
Portfolio's shares of beneficial interest ("shares"). Under the agreement,
the Distributor pays the expenses of printing and distributing any
prospectuses, reports and other literature used by the Distributor,
advertising, and other promotional activities in connection with the
offering of shares of the Portfolio for sale to the public. It is
recognized that the Adviser may use its management fee revenues as well as
past profits or its resources from any other source, to make payment to the
Distributor with respect to any expenses incurred in connection with the
distribution of Portfolio shares, including the activities referred to
above.
3. The Adviser directly, or through the Distributor, may, subject to the
approval of the Trustees, make payments to securities dealers and other
third parties who engage in the sale of shares or who render shareholder
support services, including but not limited to providing office space,
equipment and telephone facilities, answering routine inquiries regarding
the Portfolio, processing shareholder transactions and providing such other
shareholder services as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this Plan
to the Adviser, Distributor or any other party, it being recognized that
the Portfolio presently pays, and will continue to pay, a management fee to
the Adviser. To the extent that any payments made by the Portfolio to the
Adviser, including payment of management fees, should be deemed to be
indirect financing of any activity primarily intended to result in the sale
of shares of the Portfolio within the context of Rule 12b-1 under the Act,
then such payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the Act),
the plan having been approved by a vote of a majority of the Trustees of
the Fund, including a majority of Trustees who are not "interested persons"
of the Fund (as defined in the Act) and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements
related to this Plan (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain in
effect from the date specified above until May 31, 1992 and from year to
year thereafter, provided, however, that such continuance is subject to
approval annually by a vote of a majority of the Trustees of the Fund,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may be
amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Portfolio to finance any
activity primarily intended to result in the sale of shares of the
Portfolio, to increase materially the amount spent by the Portfolio for
distribution, or any amendment of the Management Contract to increase the
amount to be paid by the Portfolio thereunder shall be effective only upon
approval by a vote of a majority of the outstanding voting securities of
the Portfolio, and (b) any material amendments of this Plan shall be
effective only upon approval in the manner provided in the first sentence
in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of
a majority of the outstanding voting securities of the Portfolio.
8. During the existence of this Plan, the Fund shall require the Adviser
and/or Distributor to provide the Fund, for review by the Fund's Board of
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any activity
primarily intended to result in the sale of shares of the Portfolio (making
estimates of such costs where necessary or desirable) and the purposes for
which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform any
specific type or level of distribution activities or to incur any specific
level of expenses for activities primarily intended to result in the sale
of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set forth
in the Fund's Trust Instrument, any obligations assumed by the Portfolio
pursuant to this Plan and any agreements related to this Plan shall be
limited in all cases to the Portfolio and its assets, and shall not
constitute obligations of any other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
Exhibit 15(b)
DISTRIBUTION AND SERVICE PLAN
of Fidelity California Municipal Trust II:
Spartan California Municipal Money Market Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by Rule
12b-1 under the Investment Company Act of 1940 (the "Act") of Spartan
California Municipal Money Market Fund (the "Portfolio"), a series of
shares of Fidelity California Municipal Trust II (the "Fund").
2. The Fund has entered into a General Distribution Agreement with respect
to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management & Research
Company (the "Adviser"), under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for the
Portfolio's shares of beneficial interest ("shares"). Under the agreement,
the Distributor pays the expenses of printing and distributing any
prospectuses, reports and other literature used by the Distributor,
advertising, and other promotional activities in connection with the
offering of shares of the Portfolio for sale to the public. It is
recognized that the Adviser may use its management fee revenues as well as
past profits or its resources from any other source, to make payment to the
Distributor with respect to any expenses incurred in connection with the
distribution of Portfolio shares, including the activities referred to
above.
3. The Adviser directly, or through the Distributor, may, subject to the
approval of the Trustees, make payments to securities dealers and other
third parties who engage in the sale of shares or who render shareholder
support services, including but not limited to providing office space,
equipment and telephone facilities, answering routine inquiries regarding
the Portfolio, processing shareholder transactions and providing such other
shareholder services as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this Plan
to the Adviser, Distributor or any other party, it being recognized that
the Portfolio presently pays, and will continue to pay, a management fee to
the Adviser. To the extent that any payments made by the Portfolio to the
Adviser, including payment of management fees, should be deemed to be
indirect financing of any activity primarily intended to result in the sale
of shares of the Portfolio within the context of Rule 12b-1 under the Act,
then such payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the Act),
the plan having been approved by a vote of a majority of the Trustees of
the Fund, including a majority of Trustees who are not "interested persons"
of the fund (as defined in the Act) and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements
related to this Plan (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain in
effect from the date specified above until May 31, 1994 and from year to
year thereafter, provided, however, that such continuance is subject to
approval annually by a vote of a majority of the Trustees of the Fund,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may be
amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Portfolio to finance any
activity primarily intended to result in the sale of shares of the
Portfolio, to increase materially the amount spent by the Portfolio for
distribution, or any amendment of the Management Contract to increase the
amount to be paid by the Portfolio thereunder shall be effective only upon
approval by a vote of a majority of the outstanding voting securities of
the Portfolio, and (b) any material amendments of this Plan shall be
effective only upon approval in the manner provided in the first sentence
in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of
a majority of the outstanding voting securities of the Portfolio.
8. During the existence of this Plan, the Fund shall require the Adviser
and/or Distributor to provide the Fund, for review by the Fund's Board of
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any activity
primarily intended to result in the sale of shares of the Portfolio (making
estimates of such costs where necessary or desirable) and the purposes for
which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform any
specific type or level of distribution activities or to incur any specific
level of expenses for activities primarily intended to result in the sale
of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set forth
in the Fund's Declaration of Trust or other organizational document, any
obligations assumed by the Portfolio pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
Portfolio and its assets, and shall not constitute obligations of any other
series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<TABLE> <S> <C>
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<NAME> Fidelity California Municipal Trust II
<SERIES>
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<NAME> Fidelity California Municipal Money Market Fund
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<PERIOD-END> feb-28-1997
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,204
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<NUMBER-OF-SHARES-REDEEMED> 2,736,308
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<ACCUMULATED-NII-PRIOR> 0
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<NAME> Fidelity California Municipal Trust II
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<NAME> Spartan California Municipal Money Market Fund
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<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> feb-28-1997
<PERIOD-END> feb-28-1997
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<INVESTMENTS-AT-VALUE> 1,332,720
<RECEIVABLES> 12,905
<ASSETS-OTHER> 2,206
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,347,831
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<TOTAL-LIABILITIES> 3,973
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<PAID-IN-CAPITAL-COMMON> 1,344,446
<SHARES-COMMON-STOCK> 1,344,446
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<NUMBER-OF-SHARES-REDEEMED> 1,491,837
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<PER-SHARE-NII> .031
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