Fidelity Investments: Cash Segmentation & An Active Approach to Liquidity Management December 2017 Not FDIC Insured May Lose Value No Bank Guarantee Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. Agenda 1. Trump Administration Policy Implications 2. Federal Reserve Interest Rate Policy 3. Investment Objectives and Cash Segmentation 4. Understanding Conservative Ultrashort Bond Funds 5. Q&A 6. Appendix Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with any investment or transaction described herein. Fiduciaries are solely responsible for exercising independent judgment in evaluating any transaction(s) and are assumed to be capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies. Fidelity has a financial interest in any transaction(s) that fiduciaries, and if applicable, their clients, may enter into involving Fidelity s products or services. 1
Objective To increase awareness of the importance of implementing a cash segmentation strategy to optimize liquidity through the effective utilization of a broad set of investment solutions. Trump Administration Policy Implications 2
The Impact of Potential Public Policies Various policies are likely to have different implications for U.S. growth and inflation Source: Fidelity Investments as of 12/12/2016 Updating the Trump Policy Continuum Blue Dot = Current Market Expectation; Gray Dot=Market Expectation as of December 2016 Taxes Establishment Compromise Populist Corporate & Individual Tax Cuts Tax Reform Progressive Tax Cuts Spending Defense Spending, Fiscal Restraint Pub/Pvt Infra, Balanced Spending Plans Pub Infra Program, Protect Entitlements Trade/ Immigration Monetary Policy Free Trade, Immigration Reform Targeted Trade Renegotiations Trade Wars, Deportations, Building Wall Hawkish Fed Appointments Balanced Fed Appointments Dovish Fed Appointments Deregulation & Limited Government Deregulation + Bully Pulpit (Twitter) Outright State Intervention Regulation Implications Small Growth Pickup Stable Inflation Rates Higher Led by the 5yr Neutral for TIPS Strong Dollar Global Risks Rise via FX Moderate Growth Pickup Moderately Higher Inflation Rates Higher Across the Curve Modestly Positive for TIPS Sweet Spot for Risk Assets Large Growth Pickup Significantly Higher Inflation Rates Higher Led by the 30yr Very Positive for TIPS Weak Dollar Global Risks Rise via Trade Source: Fidelity Investments as of 10/2017 and 12/2016 3
4% GDP Growth Not Likely over the Long Run Real GDP Components Labor Force Productivity Real GDP Year-over-Year Growth (20-Year Average) 4.5% 4.0% Scenarios for 4% Growth 20-Year AART Projections Labor Force Growth 2.3% 1.0% 0.5% Labor Market Productivity 1.7% 3.0% 1.1% Real GDP Growth 4.0% 4.0% 1.6% 3.5% 3.0% Productivity Peak (1949-1969): 3.0% 2.5% 2.0% 1.5% 1.0% Labor Force Peak (1962-1982): 2.3% 2.3% 1.4% 0.5% 0.0% 48% of labor force growth since 2000 comes from immigration 0.9% 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Haver Analytics, Fidelity Investments (AART), as of 12/31/16. GDP and 10-Year U.S. Treasury Highly correlated 16 10-year U.S. Treasury 14 12 10 Yield (%) 8 6 4 2 0 Sep-69 Sep-71 Sep-73 Sep-75 Sep-77 Sep-79 Sep-81 Sep-83 Sep-85 Sep-87 Sep-89 Sep-91 Sep-93 Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 GDP Source: Bloomberg as of 9/30/2017. GDP as of 9/30/2017. GDP data represents annualized 20-quarter percent change. Past performance is no guarantee of future results. 4
Federal Reserve Interest Rate Policy Market Rate Hike Expectations are Well Below the Fed s Forecast 4.5% 4.0% 3.5% 3.0% September 2017 Federal Reserve Fed Funds Projections Median Fed Funds Projection 2.5% 2.0% 1.5% 1.0% Market Pricing of Short Rates in 1 Year (Constant-maturity Eurodollar Future) Post-Election Market Expectations As of October 31, 2017 Pre-Election Market Expectations As of Nov 8, 2016 0.5% 0.0% Federal Funds Target Rate Source: Federal Reserve, and Bloomberg as of 10/31/2017. 5
Fed Rate Hike Probabilities 100.0% 1 Rate Hike 2 Rate Hikes 3 Rate Hikes 4 Rate Hikes 90.0% 80.0% 0.6% 1.4% 1.0% 4.3% 14.4% 20.9% 9.2% 70.0% 40.0% 26.3% 60.0% 42.7% 50.0% 40.0% 82.2% 40.9% 37.3% 30.0% 20.0% 10.0% 49.9% 36.0% 29.0% 22.2% 0.0% Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Date of FOMC Meeting Source: Bloomberg as of 10/31/2017. Federal Reserve s Economic Projections 2.25 2.00 Inflation Forecast PCE YoY (%) 1.75 1.50 1.25 Actual Inflation 1.33 1.00 Unemployment Rate (%) 5.2 5.0 4.8 4.6 4.4 4.2 Actual Unemployment Rate Unemployment Rate Forecast 4.0 3.8 4.1 Real GDP YoY ( %) 3.0 2.8 2.6 2.4 GDP Forecast 2.3 2.2 2.0 Actual GDP 1.8 1.6 1.4 1.2 1.0 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 6
Gradual Conventional Tightening After Years of Unconventional Tightening Fed Funds Target Rate (%) 6 5 4 3 2 Conventional Tightening 5.25% Conventional Easing Unconventional Easing Unconventional Tightening Conventional Tightening 1.00% 1 0.125% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1.125% 4 3 QE1 Jan 09 5y Real Yield (%) 2 1 0 QE2 Nov 10 Considerable Time Mar 14 Fed Hikes 25 bps Dec 15 Fed Hikes 25 bps Dec 16 Fed Hikes 25 bps Jun 17-1 -2 Mid-2013 Aug 11 QE3 Sep 12 Taper Meeting by Dec 13 Meeting Mar 15 Taper Talk May 13 Fed Hikes 25 bps Mar 17 The Fed Gradually Un-Winds Their Balance Sheet Monthly Runoff Caps vs. Expected Maturities/Prepays $100,000 Treasury Cap MBS Cap Treasury Maturities MBS Prepayments $90,000 $80,000 $70,000 Millions $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Source: Federal Reserve as of 9/22/2017. 7
Investment Objectives and Cash Segmentation Segmenting Liquidity is Critical Objectives drive investment strategy Different Objectives Different Investment Priorities Operating Cash Short-Term Strategic Liquidity Long-Term Strategic Liquidity SAFETY LIQUIDITY RETURN SAFETY LIQUIDITY RETURN SAFETY LIQUIDITY RETURN Balancing safety, liquidity and returns 8
Aligning Investment Parameters Considering constraints (constraints differ with objectives, tolerance, and resources) Operating Cash Zero-Loss Tolerance Safety: Credit Quality (High grade)-durations (<3 m)/ave. Maturities (<0-6 m) Liquidity: Same-day availability or maturity Return: Market based or bank administered Measurement: Yield Short-Term Strategic Liquidity Minimal-Loss Tolerance Safety: Credit Quality (Upper medium grade) -Durations (<3 6 m)/ave. Maturities (<3 12 m) Liquidity: Maturity or next day subject to market liquidity/ volatility tolerance Return: Market based typically higher than Operating Cash Measurement: Total return Long-Term Strategic Liquidity Moderate-Loss Tolerance Safety: Credit Quality (Investmentgrade)-Durations (>6 m)/ave. Maturities (>12 m) Liquidity: Maturity or next day subject to market liquidity/ volatility tolerance Return: Market based typically higher than Short-Term Strategic Liquidity Measurement: Total return For illustration purposes only. Liquidity Management Solutions Changes to the Texas PFIA may allow for a more diverse suite of alternative products OPERATING CASH STRATEGIC LIQUIDITY Deposits LGIP s Prime MMFs Gov t MMFs Ultrashort Funds Direct Investments Pools/SMAs Prime MMFs Diversification does not ensure a profit or guarantee against a loss. See last pages for more information including risks. 9
Investment Considerations for Liquidity Management Return Prime LGIPS: No gates and fees Stable or floating NAV Prime MMFs: Subject to gates and fees NAV floats out four decimal places Conservative Ultrashort Bond Funds: Provide T+1 liquidity no gates or fees NAV floats at $10 out two decimal places No gates and fees Government LGIPS: Stable or floating NAV Government MMFs: No gates and fees Stable NAV Volatility For Illustrative purposes only Historical Performance 1.6 TexPool TexPool Prime FIMM Government* FIMM Prime* Fidelity Conservative Income Bond* 1.4 1.2 1.45 1.27 1.22 Net Yield (%) 1.0 0.8 0.6 1.04 0.97 0.4 0.2 0.0 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 *Institutional share class Note: Vertical lines represent Fed rate hikes. Source: Fidelity Investments and TexPool as of 10/31/2017. Please see the last page for important information about money market funds including risks. 10
Understanding Conservative Ultrashort Bond Funds Fidelity Conservative Income Bond Fund In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Foreign securities can be more volatile than U.S. markets due to increased risks of adverse issuer, political, regulatory, market or economic developments. Changes in government regulation, interest rates and economic downturns can have a significant effect on issuers in the financial services sector, including the price of their securities or their ability to meet their payment obligations. Prepayment of principal prior to a security's maturity can cause greater price volatility if interest rates change. The fund can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. Conservative Ultrashort Bond Funds are not money market funds and will have a fluctuating NAV. Conservative Ultra-Short Bond Funds Strategic liquidity consideration offers spread without liquidity gates & fees Transacts at a variable $10.00 NAV and are not subject to SEC liquidity gates and fees Conservative diversified investment containing upper to middle grade securities Offers next day purchases and redemptions Ultra-short bond assets exceed $100 billion with growth from the conservative segment Conservative ultra-short bonds benefit from bank regulatory reform that encourages the issuance of longer-dated wholesale funding Source: Morningstar Direct, Fidelity Investments and imoneynet as of 6/30/2017. Custom universe chosen based on similar duration length (less than 1-year) as Fidelity Conservative Income Bond Fund. 11
Yield Differential Conservative Income Bonds and Institutional Prime MMF Yields and Spread 1.60 Yield Spread Morningstar Ultrashort Bond Category Average Yield Institutional Prime MMF Yield 1.40 1.35% 1.20 1.00 1.01% % 0.80 0.60 0.40 0.20 0.00 Past performance is no guarantee of future results. You can not invest directly in an average. Returns are not meant to represent that of any Fidelity fund. Source: imoneynet and Morningstar Direct as of 10/31/2017. Considering Ultra-Short Bond Funds Total return = income + price return (gain/loss) HOLDING PERIOD BREAK-EVEN TO RECOVER PRINCIPAL LOSS ($100,000,000 INITIAL INVESTMENT) Change in NAV (basis points) Gain/(Loss) on $100M Hypothetical Conservative Ultra-Short Bond Fund Yields 1.25% 1.50% 1.75% 2.00% # of Days to Earn Equivalent Dividend Income in the Prime MMF # of Days Needed to Recover Principal Loss Assumes 30 bp Spread -10 ($100,000) 30 30 30 20 120-20 ($200,000) 60 50 50 40 240-30 ($300,000) 90 80 70 60 360-50 ($500,000) 150 120 110 90 600 This hypothetical illustration is based on $100,000,000 does not reflect actual investment results, and are not guarantees of future results. There is no direct correlation between a hypothetical investment and the anticipated performance of the fund. 12
Fidelity Conservative Income Bond Fund Has Offered Attractive Risk-Adjusted Returns MORNINGSTAR ULTRASHORT BOND FUNDS ( > $1B AUM & 3-Year Risk/Return) 2.50 Annualized Total Return (%) 2.00 1.50 1.00 0.50 0.00 Fidelity Conservative Income Bond Institutional Risk Profile Considerations Low Volatility Low NAV standard deviation Limited duration and maturity exposure Low Credit Risk High-quality securities Prohibits high-yield securities Low Liquidity Risk Liquidity structured within fund Limits structured products/ illiquidity securities -0.50 0.00 0.20 0.40 0.60 0.80 1.00 1.20 Annualized Standard Deviation Source: Morningstar Direct, Fidelity Investments as of 9/30/2017. Note: Gray bubbles represent funds that invest in mortgages (Agency MBS, Non-Agency RMBS, and CMBS) and/or below investment grade securities). Blue bubbles do not invest in mortgages. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Custom universe chosen based on similar duration length (less than 1 year) as Fidelity Conservative Income Bond Fund. Past performance is no guarantee of future results. For illustration purposes only. Conservative Income Bond Fund/Prime MMF NAV Stability Comparison 100% Fidelity Investments Money Market Funds: Prime Money Market Portfolio (2011-2017) 100% CONSERVATIVE INCOME BOND FUND (2011-2017) 90% 90% 80% 80% 70% 70% 60% 60% 50% 93.5% 50% 95.6% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% NAV-Up NAV-Down NAV-Unchanged NAV-Up NAV-Down NAV-Unchanged Past performance is no guarantee of future results. See slides 29 & 30 for standardized returns. Charts represent the percentage of days for which the historical net asset value (NAV) changed from the prior day using four decimal rounding market value methodology for the Prime Fund compared to the NAV for the Conservative Income Bond Fund ("CIB"). Data is provided per request of client and should not be construed to be a complete comparison of the Prime Fund vs the CIB Fund. CIB is not a money market fund and therefore not able to amortize costs and provide investors a stable NAV. Both products provide certain benefits and risks that will differ and should be considered before investing. Conservative Income Bond Fund and Prime MMF have differing management fee and holdings. Please see the last page for important information about money market funds including risks. 13
Q&A Appendix 14
Performance Review As of October 31, 2017 FIMM Government Institutional Class (FRGXX) 7-Day SEC Yield Annualized 7-Day SEC Yield Without Reductions Average Annual Returns as of 10/31/2017 1-Year 3-Year 5-Year 10-Year 15-Year 20-Year 25-Year Net Yield 0.96% 0.93% 0.67% 0.31% 0.19% 0.45% 1.28% 2.12% 2.64% Lipper Instl U.S. Govt MM Peer Group: Rank/Count 25/236 26/201 19/186 18/145 12/87 8/49 1/19 Percent Beaten 90% 88% 90% 88% 87% 85% 100% FIMM Prime Institutional Class (FIPXX) 7-Day SEC Yield Annualized 7-Day SEC Yield Without Reductions Average Annual Returns as of 10/31/2017 1-Year 3-Year 5-Year 10-Year 15-Year 20-Year 25-Year Net Yield 1.22% 1.18% 1.00% 0.52% 0.34% 0.67% 1.45% 2.26% 2.76% Lipper Instl MM Peer Group: Rank/Count 12/127 5/112 7/108 4/94 3/61 4/39 2/15 Percent Beaten 91% 96% 94% 97% 97% 92% 93% Current performance may be higher or lower than the performance data quoted. For month-end performance figures, please visit institutional.fidelity.com or fidelity.com. The performance data featured represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate; therefore you may have a gain or loss when you sell your shares. The yield quotation more closely reflects the current earnings of the money market fund than the total return quotation. Lipper rankings are based on fund total returns for the periods shown. Rankings do not take into account sales charges but do include reinvestment of dividends and capital gains, if any. Each fund is ranked within a universe of funds similar in investment objective. The number of funds in each category periodically changes. Multiple share classes of a fund have a common portfolio but impose different expense structures. Sources: Fidelity Investments and Lipper as of 10/31/2017 Performance Review September 30, 2017 Institutional Class CUMULATIVE ANNUALIZED Fidelity Conservative Income Bond Fund (Institutional Class) as of 9/30/2017 1-Month 3-Month YTD 1-Year 3-Year 5-Year 10-Year LOF** Gross Expense Ratio* Portfolio Returns 0.11% 0.34% 1.03% 1.31% 0.85% 0.74% N/A 0.78% 0.35% Bloomberg Barclays 3 6 Month Treasury Index 0.08% 0.29% 0.60% 0.69% 0.40% 0.29% 0.64% 0.26% Value Added 0.03% 0.05% 0.43% 0.62% 0.45% 0.45% N/A 0.52% Yields as of 9/30/2017 30-Day SEC Yield 30-Day SEC Yield Without Reductions Fidelity Conservative Income Bond Fund (Institutional Class)* 1.24% 1.13% Source: Fidelity Investments as of 9/30/2017. *Contractually capped. After reimbursement the fund s net expense ratio was 0.25%. It is not possible to invest directly in an index. All market indices are unmanaged. Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com, institutional.fidelity.com, or 401k.com. Total returns are historical and include changes in share price and reinvestment of dividends and capital gains, if any. Institutional Class shares are sold to eligible investors without a sales load or 12b-1 fee. * *Fund inception: 03/03/2011. 15
Performance Review October 31, 2017 Institutional Class CUMULATIVE ANNUALIZED Fidelity Conservative Income Bond Fund (Institutional Class) as of 10/31/2017 1-Month 3-Month YTD 1-Year 3-Year 5-Year 10-Year LOF** Gross Expense Ratio* Portfolio Returns 0.12% 0.35% 1.15% 1.32% 0.87% 0.75% N/A 0.79% 0.35% Bloomberg Barclays 3 6 Month Treasury Index 0.08% 0.28% 0.68% 0.73% 0.43% 0.30% 0.61% 0.27% Value Added 0.04% 0.07% 0.47% 0.59% 0.44% 0.45% N/A 0.52% Yields as of 10/31/2017 30-Day SEC Yield 30-Day SEC Yield Without Reductions Fidelity Conservative Income Bond Fund (Institutional Class)* 1.24% 1.14% Source: Fidelity Investments as of 10/31/2017. *Contractually capped. After reimbursement the fund s net expense ratio was 0.25%. It is not possible to invest directly in an index. All market indices are unmanaged. Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com, institutional.fidelity.com, or 401k.com. Total returns are historical and include changes in share price and reinvestment of dividends and capital gains, if any. Institutional Class shares are sold to eligible investors without a sales load or 12b-1 fee. * *Fund inception: 03/03/2011. Important Information Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. 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. Fidelity Conservative Income Bond Fund In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Foreign securities can be more volatile than U.S. markets due to increased risks of adverse issuer, political, regulatory, market or economic developments. Changes in government regulation, interest rates and economic downturns can have a significant effect on issuers in the financial services sector, including the price of their securities or their ability to meet their payment obligations. Prepayment of principal prior to a security's maturity can cause greater price volatility if interest rates change. The fund can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. Conservative Ultrashort Bond Funds are not money market funds and will have a fluctuating NAV. Fidelity Government/Treasury Money Market Funds You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund s sponsor, have no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time. Fidelity s government and U.S. Treasury money market funds will not impose a fee upon the sale of your shares, nor temporarily suspend your ability to sell shares if the fund's weekly liquid assets fall below 30% of its total assets because of market conditions or other factors. Fidelity Institutional Prime Money Market Fund You could lose money by investing in a money market fund. Because the share price of the fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the fund s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund s sponsor, have no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time. 16
Important Information Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. Interest rate increases can cause the price of a money market security to decrease. A decline in the credit quality of an issuer or a provider of credit support or a maturity-shortening structure for a security can cause the price of a money market security to decrease. Before investing, consider the funds and/or accounts investment objectives, risks, charges, and expenses. Contact Fidelity or visit institutional.fidelity.com for a prospectus or, if available, a summary prospectus containing this information, if applicable. Read it carefully. The third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or an affiliated company. Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917 For institutional use only. 821270.1.0 Not FDIC insured. May lose value. No bank guarantee. 17