Track After-Tax Performance

Fidelity provides internally-calculated after-tax returns for Fidelity's ETF and uses Morningstar-calculated after-tax returns for non-Fidelity ETFs and CEFs. After-tax returns are provided for Return After Taxes on Distributions and for Return After Taxes on Distributions and Sales of shares basis, giving you two important perspectives. Please note, all performance for CEFs is for the common shares of the fund

  • Return After Taxes on Distributions are adjusted for federal income taxes and assume you continue to hold your shares and pay taxes on distributions (e.g., dividends and capital gains distributions) but do not reflect taxes that may be incurred upon selling or exchanging the shares. These returns, however, assume you sold the shares for purposes of reflecting the deduction of fees and charges payable upon sale.
  • Return After Taxes on Distributions and Sales of Shares are adjusted for federal income taxes and assumes payment of taxes on both distributions (e.g., dividends and capital gains distributions) and on gains or losses recognized when shares are sold at the end of the applicable period. These returns also reflect deductions of fees and charges payable upon a sale of shares. All performance for CEFs is for the common shares of the fund.
  • Why are after-tax returns important?
  • How do you calculate after-tax returns?
  • Why do you report both return after taxes on distributions and return after taxes on distributions and sale of fund shares?

Why are after-tax returns important?

In taxable accounts, interest, dividends, distributions, and recognized capital gains may be included in income in the year they occur and are taxable at the applicable ordinary income and/or capital gains tax rates for that year. In tax-deferred accounts, such as IRAs and 401(k)s, earnings are taxed at the time of withdrawal at the ordinary income tax rates in effect at that time.

In tax-free accounts, such as Roth IRAs, earnings may be distributed tax-free if the distribution meets the requirements for a qualified distribution; otherwise they are taxable at ordinary income tax rates. Distributions from tax-deferred and tax-free accounts may also be subject to a 10% penalty if taken before age 59 1/2. Given the different income tax consequences for investments in different types of accounts, you should always consider the impact of current and future taxes when making investment.

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How do you calculate after-tax returns?

There are many different assumptions to use in calculating the impact of taxes on investment returns. For Fidelity's ETF, Fidelity calculates both Return After Taxes on Distributions and Return After Taxes on Distributions and Sale of Shares consistent with the SEC prescribed methodology for open-end management investment companies.

Fidelity uses after-tax returns provided by Morningstar for non-Fidelity ETFs and CEFs. The SEC after-tax calculation methodology assumes the highest individual federal income tax rates in effect at the time the distribution is paid. For example, dividends and short-term capital gains distributed in 2001 are taxed at a 39.1% rate and long-term capital gains distributions are taxed at a 20% rate, while non-qualified dividends and short-term capital gains distributed in 2004 are taxed at 35% and qualified dividends and long-term capital gain distributions are taxed at 15%. The tax rate is applied to distributions prior to reinvestment, and the after-tax portion is reinvested. State and local taxes are not considered.

In Return After Taxes on Distributions and Sale of Shares, if there would have been a capital loss on liquidation, it is factored into the calculation as a tax benefit, increasing the post-liquidation return.

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Why do you report both return after Taxes on distributions and return after taxes on distributions and sale of fund shares? What's the difference?

Both measures are relevant to taxable investors. Return After Taxes on Distributions are adjusted for federal income taxes on distributions (e.g., dividends and capital gains distributions) but do not reflect taxes that may be incurred upon selling of shares. It indicates the return after taxes for an investor who continued to hold his or her shares, but does not take into account the taxes on any unrecognized appreciation of the shares. However, it assumes the investor sold the shares for purposes of reflecting the deduction of fees and charges payable upon sale.

Return After Taxes on Distributions and Sale of shares reflect federal income taxes on distributions and taxes due when the shares are sold (including any fees charged upon liquidation).

This latter calculation recognizes that taxes cannot always be deferred indefinitely. By taking into account the tax impact of liquidating the investments, these returns provide a more complete picture of the effect that taxes may have on a return. Individual tax situations vary, and neither calculation of after-tax returns takes into account state, local, or alternative minimum taxes (AMT).

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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, the latest shareholder report or, if available, a summary prospectus containing this information. Read it carefully.

  • Fidelity Brokerage Services LLC, Member NYSE, SIPC.

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