1. Investment-grade bonds are bonds rated BBB/Baa or higher by S&P and/or Moody's, respectively. Such ratings indicate that a municipal or corporate bond has a relatively low risk of default.
2. Duration is a measure of a security’s price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security’s interest payments in addition to the amount of time until the security reaches maturity and also takes into account certain maturity shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A portfolio with a longer average duration generally can be expected to be more sensitive to interest rate changes than a portfolio with a shorter average duration.
3. Pre-refunded and escrowed-to-maturity bonds are also considered eligible for funding and investing for this strategy, regardless of credit rating.
4. All investment strategies, including the Breckinridge Limited Duration Municipal Strategy, involve the risk of loss of a portion of or all assets. In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties.
5. Fidelity® Strategic Disciplines (FSD) clients must generally qualify for support from a dedicated Fidelity advisor, which is based on a variety of factors (for example, a client with at least $500,000 invested in an eligible Fidelity account(s) would typically qualify). Account investment minimum is $100,000 for an FSD equity strategy, and $350,000 for an FSD bond strategy.
6. The advisory fee does not cover charges resulting from trades effected with or through broker-dealers other than Fidelity Investments affiliates, mark-ups or mark-downs by broker-dealers, transfer taxes, exchange fees, regulatory fees, odd-lot differentials, handling charges, electronic fund and wire transfer fees, or any other charges imposed by law or otherwise applicable to your account. You will also incur underlying expenses associated with the investment vehicles selected.
7. As with any investment, your investment through the Breckinridge Limited Duration Municipal Strategy could have tax consequences for you. The Breckinridge Limited Duration Municipal Strategy seeks to earn income exempt from federal income tax. Income exempt from federal income tax may be subject to state or local tax. A portion of the income you receive may be subject to federal and state income taxes and may also be subject to the federal alternative minimum tax. You may also receive taxable income attributable to the sale of municipal bonds, because certain income, including short-term capital gains and gains on the sale of bonds characterized as market discount, are generally taxable as ordinary income, while long-term capital gains are typically taxable as capital gains. The municipal market can be affected by adverse tax, legislative, or political changes and the financial condition of the issuers of municipal securities. Such changes can affect the tax treatment of municipal bonds. Investing in municipal bonds for the purpose of generating tax-exempt income may not be appropriate for investors in all tax brackets or account types. Tax laws are subject to change and the preferential tax treatment of municipal bond interest income may be removed or phased out for investors at certain income levels. You should consult your tax adviser for questions pertaining to your specific situation.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Diversification does not ensure a profit or guarantee against loss.
It is important to note that, while municipal bonds and U.S. Treasury bonds offer appealing tax advantages, these breaks come at a cost. Generally speaking, the higher your income tax bracket, the more advantageous the after-tax yield of municipal bonds may be for you. Tax-free income can be enticing to high-income investors, but tax-free municipal bonds offer a lower coupon rate than equivalent taxable bonds. Many corporate bonds, for example, offer higher coupon rates to compensate for the fact that the interest they pay is subject to income tax at a local, state, and federal level. When considering different bonds, the tax-equivalent yield is just one of a number of factors to consider (others being, for example, quality rating and term to maturity). Of course, as with any investment, your decision should take into account your personal investment objectives, needs, comfort with risk, and time horizon. U.S. Treasury bonds and municipal bonds may be susceptible to some of the following risks:
Lower yields - U.S. Treasury bonds typically pay less interest than other bonds in exchange for lower default or credit risk.
Interest rate risk - U.S. Treasury bonds and municipal bonds may be susceptible to fluctuations in interest rates, with the degree of volatility increasing with the amount of time until maturity. As rates rise, prices will typically decline.
Call risk - Some U.S. Treasury and municipal bonds carry call provisions that allow the bonds to be retired prior to stated maturity. This typically occurs when rates fall.
Inflation risk - With relatively low yields, income produced by U.S. Treasury and municipal bonds may be lower than the rate of inflation. This does not apply to Treasury Inflation-Protected Securities (TIPS), which are inflation protected.
Credit or default risk - Investors need to be aware that all bonds have the risk of default. Investors should monitor current events, as well as the ratio of national debt to gross domestic product, Treasury yields, credit ratings, and the weaknesses of the dollar for signs that default risk may be rising.
Additionally, municipal bonds can carry the following risk: The municipal market can be affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. In comparison, U.S. Treasury bonds are backed by the full faith and credit of the U.S. government. Interest income generated by U.S. territories is generally exempt from federal and state income taxes. Interest income generated by U.S. Treasury bonds and certain securities issued by possessions, agencies, and instrumentalities is generally exempt from state income tax but is generally subject to federal income and alternative minimum taxes and may be subject to state alternative minimum taxes.
Please see the Form ADV, Part 2A Brochure for more information about the material investment risks applicable to Fidelity® Strategic Discipline accounts.
Fidelity® Strategic Disciplines provides nondiscretionary financial planning and discretionary investment management for a fee. Fidelity ® Strategic Disciplines includes the Breckinridge Limited Duration Municipal Strategy. Advisory services offered by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. Strategic Advisers, FBS, and NFS are Fidelity Investments companies.
Strategic Advisers has engaged Breckinridge Capital Advisors, Inc. to provide the day-to-day discretionary portfolio management of Breckinridge Limited Duration Municipal Strategy accounts, including investment selection and trade execution, subject to Strategic Advisers’ oversight. Breckinridge is an independent registered investment adviser and is not affiliated with any Fidelity Investments company.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
