For investors living in California and subject to the alternative minimum tax, there is a new way to have your cake and eat it too. The Fidelity California Short-Intermediate Tax-Free Bond Fund is a municipal bond fund that will provide California residents with income that’s exempt from alternative minimum taxes (AMT), as well as federal, state, and local income taxes. That’s a powerful punch, since many higher-income Californians get hit with the alternative minimum tax each year, on top of one of the highest state income tax rates in the nation. This fund is Fidelity Investments’ first state municipal bond fund that will be AMT tax-free. “The State of California has a higher percentage of residents that are subject to the alternative minimum tax than many other states, so it makes sense to have our first product [like this] out in the State of California,” says Fidelity Investments’ Doug McGinley, the fund’s portfolio manager.
The Fidelity California Short-Intermediate Tax-Free Bond Fund will focus on California municipal securities that are deemed AMT tax-exempt, mostly investment grade, typically with a dollar-weighted average maturity of two to five years, and 2.5 to 3.5 year duration, a timeframe that usually means that the portfolio should be less interest-rate sensitive than longer bond maturities can be. The Lehman Brothers California 1-7 Year Non-AMT Municipal Bond Index will be a benchmark for this fund.
An Addition to the Fidelity Advisor Line-up
For advisors who are in the market for an national intermediate municipal bond fund, Fidelity Investments has added to its Advisor line-up a the Fidelity Advisor Intermediate Municipal Income Fund. “Muni rates have been relatively attractive compared to taxable alternatives,” for investors seeking income outside of retirement accounts, says McGinley, portfolio manager for the new fund as well as its non-Advisor twin, the Fidelity Intermediate Municipal Income Fund.