Introducing tax-smart investing

Your account will soon become eligible for tax-smart investing techniques. These techniques, which are designed to help mitigate the impact of taxes on your account and seek to enhance your after-tax returns, will be applied based on your personal situation.

Actually, we've been offering tax-smart investing techniques for more than 20 years. We currently manage more than 90,000 accounts with more than $65 billion in assets in strategies that use tax-smart investing techniques. As part of our continuing effort to find more ways to help people reach their investment goals, we're now offering this capability to a wider range of clients—all at no additional cost.

No, your advisory fee schedule will not change.

Investment Management:
We'll continue to manage your account based on your long term goals. However, going forward, we'll take your specific tax situation into consideration when making investment decisions in your account. You will also now see a display showing the impact of any tax-loss harvesting we do on your behalf on your Fidelity.com summary page, and new after-tax returns highlighted in your quarterly investment report. At the beginning of each new year, we'll send you a summary of all the tax-smart techniques that your Investment Team used in client accounts over the previous year so you have insight into their process.

Account Features:
Dividend reinvestment—All distributions in taxable accounts will be paid in cash. For retirement accounts, mutual fund distributions will be reinvested and all other distributions will be paid in cash. Dividend reinvestment activity can be found in your account's monthly statements.

Tax-smart withdrawals—See "What kinds of tax-smart techniques could be used in managing my account?" for details. Generally, partial and full withdrawals may take up to 10 business days to process.

Trade confirmations—Once your account converts to the new tax-smart account, your trade confirmations will look similar to that of other Fidelity clients.

Lot-disposal methods—We will sell the tax lots with the highest cost basis (HICO or "High Cost") first to help reduce taxable gains. When you have an investment that consists of multiple tax lots that were made on different dates and at different prices, and we're only selling part of the position, we will use the HICO lot-disposal method to sell your shares. This will be the standard method used for all clients in Fidelity managed accounts.

Wash sales²—Because we'll be managing for taxes, we need to collect 30 days of managed account tax history in order to potentially avoid selling/buying securities within a wash sale period and/or within accounts. As a result, short-term trading oversight and wash sale monitoring will be delayed for the first 30 days while we work to collect your account tax history. See the "Frequent Purchases and Redemptions" section in any Fidelity fund prospectus for more details on wash sales.

While the addition of tax-smart investment techniques represents a change to your account, most things will remain the same. Most importantly, this includes the dedicated service and unwavering focus on your financial needs that you've come to expect from Fidelity.

• Your account number and account features, including money movement
• Your managed account relationship
• Your advisory fee schedule
• The risk profile of your account mix and investment preferences
• Our primary focus is managing to your long-term goals

We expect that these changes could begin to be applied to your account over the next few months or quarters. Given that each client comes to us with unique financial goals and preferences, we'll take a customized approach when it comes to implementing these changes on your behalf.

Here's a list of the techniques we'll be considering at different times throughout the year. Remember, because we're taking a personalized approach to your account, the use of tax-smart investing techniques, and the frequency with which they're applied, will vary by client. We take your specific tax situation and long-term goals into consideration with the investment decisions we make. However, we believe that an appropriate asset allocation is of primary importance. Therefore, in order to manage risk in your portfolio appropriately, we may make trades in your account that could trigger tax consequences in the near-term. But as has always been the case for accounts that are managed in a tax-sensitive manner, our goal is to deliver strong risk-adjusted after-tax returns over the long term.

Tax-loss harvesting—We'll review your account regularly for opportunities to realize, or "harvest" tax losses in an effort to help mitigate your tax burden by offsetting other investment gains that you may have.

Manage capital gains—When selling investments in your account, we'll generally look to sell those that you've held for a longer time period first, in an effort to take advantage of lower long-term capital gains tax rates.

Investing in municipal securities—When we believe it is appropriate, we may purchase municipal bond funds that generate interest that may be exempt from federal taxes, and depending on your state of residence, state taxes as well.

Manage distributions—We'll work to manage your exposure to capital gains and income distributed by the mutual funds in which you're invested.

Tax-smart withdrawals—We'll work to keep enough cash in your account to fund your planned withdrawals. If we sell securities to fund a withdrawal, we'll seek to reduce the tax impact.

Transition management—When you bring additional eligible securities³ into your account, we'll seek to integrate those holdings into your account, if appropriate—rather than selling them, which could help you keep more of what your investments earn.

No, your current investment strategy and investment preferences will not change with the introduction of these tax-smart techniques.

Due to this more personalized approach, over time there might be a slight increase in the number of trades we make on your behalf as we work to improve your after-tax performance. However, it's important to remember that any increased trading will not result in any additional fees or commissions.⁴ We will continue to seek to maintain an appropriate asset allocation for your long-term goals, and you will continue to receive notifications when we’ve made adjustments to your account, including any changes made in connection with our efforts to enhance your after-tax returns.

We start with information you've provided to us in your Investor Profile Questionnaire, such as your Federal tax rate⁵ and your state of taxation.⁶ Based on this information we're able to make the following assumptions:

• Your state of taxation is the same state where you receive legal mail.
• An estimated value for your long-term capital gains rate⁷ will be used based on your federal income tax rate. (See chart.)
• If your federal income tax rate is 24% or higher, we have assumed that you're subject to the Medicare surtax.⁸

Please note: While it's not required, it will be beneficial if you would provide information regarding any loss carryforwards or gains/losses in accounts outside of your Fidelity^® Wealth Services account, and whether or not you are subject to the Alternative Minimum Tax (AMT).

Mapping federal marginal tax rate to long-term capital gains tax rate