The Path To Higher Interest Rates

The Path To Higher Interest Rates

July 2014

For Institutional Use Only

2

1. Assessing Risk: Current Market Conditions

2. Post QE/Higher Interest Rates

3. Money Market Regulatory Reform

4. Cash & Term Portfolio Overview

5. Question & Answers

Agenda


Assessing Risk: Current Market Conditions


Coordinated Global Monetary Policy

4Source: Bloomberg as of 6/30/14

Jun-

08

Dec-0

8

Jun-

09

Dec-0

9

Jun-

10

Dec-1

0

Jun-

11

Dec-1

1

Jun-

12

Dec-1

2

Jun-

13

Dec-1

3

Jun-

140.0

1.0

2.0

3.0

4.0

5.0

6.0

Federal Reserve European Central Bank Bank of England Bank of Japan

%


0%

5%

10%

15%

20%

25%

30%Federal Reserve Assets as a % of GDP

Federal Reserve Bank

Central Banks Resort to Non-Traditional Policy

Source: Federal Reserve, Bureau of Economic Analysis, European Central Bank, Eurostat, Bank of England, UK Office for National Statistics, Bank of Japan, Economic and Social Research Institute Japan, and Bloomberg.

For Institutional Use Only5

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%Key Central Bank Assets as a % of GDP

European Central Bank Bank of England Bank of Japan

QE1 QE2 QE3

Global Debt to GDP Trends


2008 2009 2010 2011 2012 20130

50

100

150

200

250Debt as a % of GDP

Eurozone China U.S. Japan

%

6

Source: www.tradingeconomics.com

Global Business Cycle in a Trend of Modest Improvement

7

*For developed economies, we use the classic definition of recession, involving an outright contraction in economic activity. For developing economies, such as China, we have adopted a “growth cycle” definition because they tend to exhibit strong trend performance driven by rapid factor accumulation and increases in productivity, and deviation from trend tends to matter most for asset returns. Source: Fidelity Investments (AART), as of 6/30/14.


Liquidity From QE Flows into Global Markets

Dec-0

8

May

-09

Oct-09

Mar

-10

Aug-1

0

Jan-

11

Jun-

11

Nov-1

1

Apr-1

2

Sep-1

2

Feb-1

3

Jul-1

3

Dec-1

3

May

-14

-$100

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400Bond & Equity Fund Cumulative Flows

Equity Bond

Bill

ion

Source: Strategic Insight Simfund as of 5/31/14Note: Flows include both mutual funds and ETFs

8 For Institutional Use Only

QE Has Driven Bond Yields and Valuations

Source: Bloomberg as of 6/30/149

Jun-

09

Sep-0

9

Dec-0

9

Mar

-10

Jun-

10

Sep-1

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

Jun-

12

Sep-1

2

Dec-1

2

Mar

-13

Jun-

13

Sep-1

3

Dec-1

3

Mar

-14

Jun-

140.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5 10-Year Government Bond Yields

US UK Germany Japan

Yie

ld (

%)


Quest For Yield Has Driven Corporate Spreads Lower

10Source: Barclays as of 6/30/14

Jun-

07

Dec-0

7

Jun-

08

Dec-0

8

Jun-

09

Dec-0

9

Jun-

10

Dec-1

0

Jun-

11

Dec-1

1

Jun-

12

Dec-1

2

Jun-

13

Dec-1

3

Jun-

140

100

200

300

400

500

600

700

800 Barclays Credit Index Sub-Sector OAS

Industrials Utilities Financials

Op

tio

n A

dju

ste

d S

pre

ad

(b

ps

)


QE Has Led To Higher Equity Valuation

Source: Bloomberg as of 6/30/14The performance data featured represents past performance, which is no guarantee of future results.You can not invest in an index.

11

Jun-

08

Dec-0

8

Jun-

09

Dec-0

9

Jun-

10

Dec-1

0

Jun-

11

Dec-1

1

Jun-

12

Dec-1

2

Jun-

13

Dec-1

3

Jun-

1450

65

80

95

110

125

140

155

170

S&P 500 FTSE 100 DAX Nikkei 225

Ind

ex

Va

lue

(In

de

xe

d t

o 1

00

at

6/3

0/0

8)


QE Taper Creates Emerging Market Volatility

12

Jun-

13

Jul-1

3

Aug-1

3

Sep-1

3

Oct-13

Nov-1

3

Dec-1

3

Jan-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14800

850

900

950

1000

1050

1100

MSCI Emerging Markets Index Barclays Emerging Markets USD Aggregate Index

Ind

ex

Va

lue

Source: Barclays and Bloomberg as of 6/30/14The performance data featured represents past performance, which is no guarantee of future results.You can not invest in an index.


19621967

19721977

19821987

19921997

20022007

20122017

20222027

20322037

20422047

20522057

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

0

2

4

6

8

10

12

14

16

US Borrowers/Savers12 Month Rolling Average 10-Year U.S. Treasury Yield

Ra

tio

Yie

ld (%

)Demographics are an Important Driver of Interest Rates

13

Source: Bloomberg and Haver as of 6/30/14


Roadmap To Higher U.S. Interest Rates


A Path to Higher Interest Rates

Quantitative Easing Taper QE Assessment of QE Cease Reinvestment Of Proceeds from SOMA Holdings Normalize the Size of Balance Sheet Over Time

Traditional Monetary Policy Modify Forward Guidance on the Federal Fund’s Rate Drain Excess Reserves Raise the Federal Fund’s Target Rate, IOER, RRP


Federal Reserve’s Economic Projections

Source: Bloomberg and Federal ReserveFOMC Forecast as of 06/18/2014

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

6.1

Un

em

plo

ym

en

t R

ate

(%

)

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

1.5

PC

E Y

oY

(%

)

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-161.0

1.5

2.0

2.5

3.0

3.5

4.0

1.5Re

al G

DP

Yo

Y (

%)

Actual Inflation

Inflation Forecast

Unemployment Rate ForecastActual Unemployment Rate

Actual GDPGDP Forecast

Inflation Threshold


U.S. Inflation Risks Remain Subdued

17

Aug

-07

Feb

-08

Aug

-08

Feb

-09

Aug

-09

Feb

-10

Aug

-10

Feb

-11

Aug

-11

Feb

-12

Aug

-12

Feb

-13

Aug

-13

Feb

-14

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

1.50x

1.55x

1.60x

1.65x

1.70x

1.75x

1.80x

1.85x

1.90x

1.95x

2.00x

Monetary Base Money Velocity

CPI = Consumer Price Index. LEFT: Money velocity = GDP/M2. GDP = Gross domestic product. M2 = money supply measure including currency, demand deposits, checking deposits, savings accounts, money market accounts, certificates of deposit. Monetary base = currency plus reserves in the banking sources. Source: Federal Reserve Board, Haver Analytics, Fidelity Investments (AART) through 2/28/14. RIGHT: Source: Bureau of Labor Statistics, Haver Analytics, Fidelity Investments (AART) as of 12/31/13.

U.S. Monetary Base and Velocity Key Drivers of Inflation

$ Trillions Money Velocity


Jun-

03

Nov-0

3

Apr-0

4

Sep-0

4

Feb-0

5

Jul-0

5

Dec-0

5

May

-06

Oct-06

Mar

-07

Aug-0

7

Jan-

08

Jun-

08

Nov-0

8

Apr-0

9

Sep-0

9

Feb-1

0

Jul-1

0

Dec-1

0

May

-11

Oct-11

Mar

-12

Aug-1

2

Jan-

13

Jun-

13

Nov-1

3

Apr-1

4225

300

375

450

525

600

675

Initial Claims Initial Claims, 4-Week Moving Average

Jo

ble

ss

Cla

ims

(th

ou

sa

nd

s)

Jobless Claims Heading to Pre-Recession Levels

Source: Department of Labor, Bloomberg as of 6/27/1418 For Institutional Use Only

U.S. Labor Participation Rates Continues Downward Trend

Jun-

05

Dec-0

5

Jun-

06

Dec-0

6

Jun-

07

Dec-0

7

Jun-

08

Dec-0

8

Jun-

09

Dec-0

9

Jun-

10

Dec-1

0

Jun-

11

Dec-1

1

Jun-

12

Dec-1

2

Jun-

13

Dec-1

3

Jun-

1462

63

64

65

66

67

0

1

2

3

4

5

6

7

8

9

10

11Labor Force Participation Rate Unemployment Rate

Par

tici

pat

ion

Rat

e (%

)

Un

emp

loym

ent

Rat

e (%

)

Source: Bureau of Labor Statistics, Bloomberg as of 6/30/1419 For Institutional Use Only

Employment Creation Positive, But Not Impressive

Source: Bureau of Labor Statistics, Bloomberg as of 6/30/14

Jun-

03

Dec-0

3

Jun-

04

Dec-0

4

Jun-

05

Dec-0

5

Jun-

06

Dec-0

6

Jun-

07

Dec-0

7

Jun-

08

Dec-0

8

Jun-

09

Dec-0

9

Jun-

10

Dec-1

0

Jun-

11

Dec-1

1

Jun-

12

Dec-1

2

Jun-

13

Dec-1

3

Jun-

14-1000

-800

-600

-400

-200

0

200

400

600

m/m Change in Non-Farm Payrolls 6 Month Avg of m/m Chg

Th

ou

sa

nd

s o

f E

mp

loy

ee

s


80

85

90

95

100

105

110

115

-6 -5.5-5.0-4.5-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6

Years Before/After Start of Recession

Post Recession U.S. Employment Recovery’s

21

Employment: Pre and Post Recession

Source: NBER, BLS/Haver as of 4/30/14. Data represents Civilian Employment (SA, Thous).

Most Recent Recession

Em

ploy

men

t Lev

el In

dexe

d to

100

at S

tart

of

Rec

essi

on


Lackluster GDP Growth Despite Historic Fed Policy

Mar

-07

Jun-

07

Sep-0

7

Dec-0

7

Mar

-08

Jun-

08

Sep-0

8

Dec-0

8

Mar

-09

Jun-

09

Sep-0

9

Dec-0

9

Mar

-10

Jun-

10

Sep-1

0

Dec-1

0

Mar

-11

Jun-

11

Sep-1

1

Dec-1

1

Mar

-12

Jun-

12

Sep-1

2

Dec-1

2

Mar

-13

Jun-

13

Sep-1

3

Dec-1

3

Mar

-14

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Net Exports Government Investment Consumption Total

%

Contributions to Real GDP(% change annualized)

Source: Bureau of Economic Analysis as of 6/25/1422 For Institutional Use Only

Potential Headwinds for GDP

Source: Left Chart - Bureau of Economic Analysis, Bloomberg as of 5/31/14; Right Chart – U. of Michigan Survey Research Center, Bloomberg as of 6/30/14.Note: Data represents % change year to year, SAAR, Bil.$

May

-09

Nov-0

9

May

-10

Nov-1

0

May

-11

Nov-1

1

May

-12

Nov-1

2

May

-13

Nov-1

3

May

-14

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

US Personal Consumption ExpendituresUS Personal Income

% C

ha

ng

e Y

oY

23

Jun-

09

Dec-0

9

Jun-

10

Dec-1

0

Jun-

11

Dec-1

1

Jun-

12

Dec-1

2

Jun-

13

Dec-1

3

Jun-

1450

55

60

65

70

75

80

85

90

U. of Michigan Survey of Consumer Confidence Sentiment

Ind

ex

Le

ve

l


Higher Mortgage Rates Could Dampen Recovery

Source: Bankrate.com, Mortgage Bankers Association, Bloomberg as of 6/27/14Note: 30-year mortgage rate represents the overnight national average.

3.0

3.5

4.0

4.5

5.0

5.5

6.0

0

1,000

2,000

3,000

4,000

5,000

6,000

30-Year Fixed Mortgage Rate vs. Refinance Index

30

-Ye

ar

Fix

ed

Ra

te (

%)

Re

fin

an

ce

Ind

ex

Va

lue

24For Institutional Use Only

Timeline To Higher U.S. Interest Rates


Consensus Builds for a 2015 Rate Hike

26Source: Federal Reserve as of 06/18/2014

Federal Reserve Board Rate Expectations

Appropriate Pace of Policy Firming (June 2014)

Fed Meeting Date 2015 2016 Longer Run

Jun-2014 1.13 2.50 3.75

Mar-2014 1.00 2.25 4.00

Median Target Fed Funds Rate at Year End

2014 2015 2016

2

12

3

1

13

2

1

12

3

Appropriate Timing of Policy Firming

Dec-2013 Mar-2014 Jun-2014

Nu

mb

er o

f P

arti

cip

ants


Market Expectations for First Rate Hike

27

Aug-1

3

Oct

-13

Dec-1

3

Feb-1

4

Apr-1

4

Jun-

14

Aug-1

4

Oct

-14

Dec-1

4

Feb-1

5

Apr-1

5

Jun-

15

Aug-1

5

Oct

-15

Dec-1

5

Feb-1

6

Apr-1

60.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Forward Fed Funds Futures

%

Source: Bloomberg as of 6/30/14

Sep-13

May-13


Jun-14

Regulatory Reform Update



Rule Proposal Expected

Q3/Q4 2014

Proposed Effective Date for Alternative

2Q3/Q4 2015

Proposed Effective Date for Alternative

1 2016 Q3/Q4

Jan 2013

Obama names Mary Jo White as SEC Chairman

Feb 2013

FSOC proposal comment deadline(extended from Jan 18)

Feb/Mar 2013

Mary Jo White confirmed as SEC Chairman

Aug 2013

Stein and Piwowar replace Walters and Paredes at SEC

Sept 2013

SEC comment deadline

Apr 2013

SEC rule proposal issued

2013 Key Events

Future Timeline

Money Market Fund Reform Timeline

Source: iMoneyNet and Fidelity as of 9/30/13

Cash & Term Portfolio Overview


Portfolio diversification is presented to illustrate examples of the securities that each fundhas bought and may not be representative of a fund’s current or future investments. Each fund’s investments may change at any time. Percentages may not add up to 100 due to rounding.Source: Fidelity Investments as of 6/30/2014

31

NCCMT Cash Portfolio

June 30, 2014 June 30, 2013

10%

14%

15%

8%7%

5%

7%

29%

4%

North American Banks

Asian/Australian Banks

Eurozone

Nordic/Swiss Banks

UK Banks

Asset Backed CP

Other Corp/VRDN

Government/Repo

Finance Companies

9%

18%

3%

13%

2%

14%

9%

27%

8%

Focus on High Quality Issuers


32

Foreign Bank Exposure Geographically Diversified

Source: Fidelity Investments as of 6/30/2014

FOREIGN BANK HOLDINGS: NCCMT CASH PORTFOLIO

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

0

10

20

30

40

50

60

Netherlands

Norway

Switzerland

Singapore

Germany

Canada

Japan

UK

Australia

Sweden

France

% o

f F

un

ds


33

Fund Holdings Primarily Short-Term

Source: Fidelity Investments as of 6/30/2014

NCCMT CASH PORTFOLIO MATURITY SCHEDULEJu

l-14

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

1-2

Yea

rs

0

5

10

15

20

25

30

35

Finance Companies

Asset Backed CP

UK Banks

Other Corp/VRDN

Nordic/Swiss Banks



Eurozone

Government/Repo

% o

f N

et A

sset

s


Portfolio diversification is presented to illustrate examples of the securities that each fundhas bought and may not be representative of a fund’s current or future investments. Each fund’s investments may change at any time. Percentages may not add up to 100 due to rounding.Source: Fidelity Investments as of 6/30/2014

34

NCCMT Term Portfolio

June 30, 2014 June 30, 2013

11%

12%

33%

19%

14%

10%1%



Eurozone

Nordic/Swiss Banks

UK Banks

Asset Backed CP

Other Corp/VRDN

Government/Repo

9%

20%

24%

24%

12%

6%4%1%

Focus on High Quality Issuers


Third Quarter Investment Strategy and OutlookInvestment Strategy

• Seeking to preserve principal, maintaining liquidity and achieving superior risk-adjusted performance

– Emphasize fundamental and macro research in formulating portfolio structures– Meet fund liquidity targets through repurchase agreements, Treasuries, agencies and short-dated credits– Manage weighted average maturities (WAM) and weighted average life (WAL) constraints to enhance NAV

stability and performance– Position portfolios based on our assessment of relative value across the money market yield curve within the

context of our approved credits

Outlook• Central Banks to maintain accommodative monetary policy to encourage economic growth

– The FOMC enhances forward guidance to a more qualitative assessment that includes a wide assortment of inflation, labor and financial-market indicators as criteria for changing monetary policy

– US continues tapering QE that establishes a glide path to end the program in 2014– Global growth will be led by U.S. and Germany

• Supply dynamics may keep short-term rates low in the year ahead– Money market supply is expected to contract by about $250 billion in 2014 led by reduction in repo and agencies– The Treasury’s Floating Rate Note (FRN) program is expected to issue $150 billion in 2014 with a reduction in

bill issuance of a similar magnitude– The Federal Reserve’s Fixed Rate Reverse Repo should provide a leaky floor on overnight rates as the testing

period continues to experiment with program rates and participation limits

• Market volatility may present investment opportunities as we enter Fed’s tightening window• Final rules on additional money market regulatory reform expected in 2014


36

Important Information

Not FDIC insured. May lose value. No bank guarantee.

Not NCUA or NCUSIF insured. May lose value. No credit union guarantee.

Lipper Analytical Services, Inc., is a nationally recognized organization that ranks the performance of mutual funds.

The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.

Past performance is no guarantee of future results. Investment return will fluctuate, therefore you may have a gain or loss when you sell shares.

Diversification does not ensure a profit or guarantee against a loss.

Before investing, have your client consider the funds’ investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Have your client read it carefully.

For Institutional Investor Use only.

Fidelity Investments & Pyramid Design is a registered service mark of FMR LLC.

Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917

693367.1.0


Documents

The Path To Higher Interest Rates