U. Fund

U.FUND

What is the U.Fund?

To help you provide for the rising costs of higher education, the Massachusetts Educational Financing Authority (MEFA) offers you the U.Fund College Investing Plan. The U.Fund is flexible and affordable, and it combines significant tax advantages with the experienced investment management of Fidelity Investments.

The U.Fund is intended for individuals of all income levels with higher education goals for their children, grandchildren, or other loved ones. Whether your beneficiary attends a private college, public college, public university, graduate school, two-year community college, or vocational-technical school, anywhere in the United States, the U.Fund can help you meet the significant financial challenge of higher education that lies ahead.

How can I open a U.Fund Account?

Apply by calling 1-800-544-2776 to speak with a program representative at Fidelity or obtain an enrollment kit at www.fidelity.com/ufund. You may open more than one account, but you may open only one account for each beneficiary. Each account must be for the benefit of one named individual beneficiary in order to comply with federal tax law requirements.

Who can be the beneficiary?

You can set up an account for your child, grandchild, spouse, another relative, or even someone not related to you. The beneficiary may be of any age. You cannot set up an account to save for your own higher education expenses. You, the participant, are the only person who can change the beneficiary.

Does the U.Fund require that you attend a Massachusetts college or university?

No. Assets in a U.Fund account can be used to pay for qualified higher education expenses at accredited post-secondary schools anywhere in the United States. These include private and public colleges and universities, graduate schools, two-year community colleges and vocational-technical schools.

What if my child does not go to college?

You can name another member of the child's family as the new beneficiary of the account.

Are there minimum and maximum investments?

Massachusetts state employees who sign up to have their payments transferred directly through payroll deduction can open an account with a minimum initial investment of $50. By participation in payroll deduction or by saving with the Fidelity Automatic Account Builder (FAAB), the $30 annual maintenance fee will be waived. Otherwise, there is an initial minimum investment requirement of $1000. Federal income tax law requires that the Plan place a limit on investments. Each calendar year, MEFA will set a maximum amount that you can invest. During 2003 the maximum is $250,000.

Can my spouse and I open a joint account?

No. One person must establish each account. Due to federal tax laws, the plan will accept investments only from the person who opens the account. Only the person who invests in an account can give instructions to distribute money from the account for college or for any other reason. Corporations and trusts may not open accounts at this time, but may be able to do so in the future.

How will my account be invested?

You choose how to allocate the money among the ten investment portfolios of the Massachusetts Higher Education Savings Plan Trust (the "Trust"). You may allocate a particular contribution to no more than three Portfolios, but there is no limit on how many Portfolios your Account can be invested in. However, once a contribution is placed in a particular Portfolio, neither the contribution nor the earnings on the contribution can be transferred to another Portfolio.

What are the tax advantages of investing in the U.Fund?

There is a special federal income tax treatment for money that is used to pay for "qualified higher education expenses" as defined in the Internal Revenue Code, section 529. In general, U.Fund distributions used to pay for tuition, fees, room, board, books and equipment are considered qualified higher education expenses and are not subject to federal tax after December 31, 2001.

What expenses are involved with the U.Fund?

There are two fees payable under the participation agreement. One is an annual account fee of $30. This fee is waived for any account where automatic payments are transferred directly from the participant's bank account or through payroll deduction. The second is a daily charge against the assets of the portfolio. This fee is at an annual rate of 0.30%. In addition, each portfolio will indirectly bear it's pro rata share of the fees and expenses of the underlying Fidelity funds in which it invests. The estimated average annual expense ration is 0.70%.

What if I need the money before my child goes to college?

You can take money from your Account at any time. However, if the money is not used to pay for qualified higher education expenses, a tax equal to 10% of any investment gains distributed will apply. You will also pay federal income tax, at your tax rate, on the amount of earnings you withdraw.

How will I know how much my account is worth?

Visit www.fidelity.com and log on using your Social Security Number and PIN or you can call Fidelity at 1-800-544-2776. You will also receive an account statement at least once each quarter with a description of your account activity and the value of your account.

NOTE: For a more complete U.Fund program description, including important tax information, please review the U.Fund fact kit before investing.