Fixed Income Division

The Impact from Regulatory Reform:A New Era of Cash Management

March 2011

For institutional client use only© 2011 FMR LLC. All rights reserved

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

2

Agenda

I. Industry Overview

II. The Impact From Regulatory Reform

III. European Debt Crisis Overview

IV. Investment Process

V. Post-Crisis Observations

3

Industry Overview

Pre-Crisis Observations

Clients may have become less sensitive to investment risks inherent in cash investments

Some fund sponsors failed to maintain appropriate client investment objectives and required resources to meet those objectives

Technology/portals increased “ease of use” for MMF investors

With decades of virtually loss-free investing, investors were lured to “highest yielding” product offering

4

5

Money Market Industry Assets Under Management

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

De

c-8

6

De

c-8

7

De

c-8

8

De

c-8

9

De

c-9

0

De

c-9

1

De

c-9

2

De

c-9

3

De

c-9

4

De

c-9

5

De

c-9

6

De

c-9

7

De

c-9

8

De

c-9

9

De

c-0

0

De

c-0

1

De

c-0

2

De

c-0

3

De

c-0

4

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

De

c-1

0

($B

illi

on

s)Money Market Fund Assets Stabilize, Remain Historically High

Source: iMoneyNet and FMR as of 12/31/2010

6

Yield Differentials Drive Flows

-3

-2

-1

0

1

2

3

4

5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-3

-2

-1

0

1

2

3

4

5

Net New Cash

Flow1

Interest Rate Spread2

Money Market Fund Flows Versus Interest Rate Spread to Banks

1 Net new cash flow is a percent of previous month-end taxable retail money market fund assets and is shown as a six-month moving average 2 The interest rate spread is the difference between the taxable retail money market fund yield and the average interest rate on money market deposit accounts Sources: Investment Company Institute, iMoneyNet, and Bank Rate Monitor

7

Bank Deposits Offer Negative Real Yield in Long Run

MMF vs. MMDA Real Yields

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Yie

ld (

%)

Average MMDA Yield- Real Average MMF Yield- Real MMDA Yield- Real MMF Yield- Real

Source: iMoneyNet, BankRateMonitor, Bloomberg as of 12/31/09

8

The Impact from Regulatory Reform

9

1Estimated yield impacts represent annual reductions in annual fund yield in a normalized rate environment over time. Reductions show impact to fund that is running at or near current Rule 2a-7 limits. Yield impacts differ among rated, institutional, and retail funds. Sources: FMR and Securities and Exchange Commission

Regulatory Changes Impacting Portfolio Management

Old Rule 2a-7 Current Rule 2a-7Estimated Yield

Impact (bp)1 Implementation Date

Daily Liquidity – Taxable None 10% 0 May 28, 2010

Daily Liquidity – Municipal None None None None

Weekly Liquidity – Taxable None 30% (9 – 12) May 28, 2010

Weekly Liquidity – Municipal None 30% 0 May 28, 2010

Weighted Average Maturity (WAM)

90-days 60-days (0 – 8) June 30, 2010

Weighted Average Life (WAL)

None 120-days (1 – 3) June 30, 2010

Illiquid Securities 10% 5% (1 – 3) May 28, 2010

Second Tier Securities

5%

1% per issuer

397-day limit

3%

0.5% per issuer

45-day limit

(0 – 3) May 28, 2010

Total (11 – 29)

10

Presidents’ Working Group Report-Potential Options for Money Fund Reform

Floating the NAV of money market funds

Mandatory redemptions-in-kind

Private liquidity facilities

Insuring money market funds

Two-tiered system of money market funds of stable NAV and floating NAV funds

Regulating stable NAV funds as special purpose banks

Regulating non-2a-7 cash management products

11

Basel III – Additional Consideration for 2a-7 funds

On September 12th, the Basel committee reached agreement on key elements of the capital reform process

Capital» Minimum Tier 1 common ratio of 4.5%

» Capital conservation buffer of 2.5%, yielding 7% effective T1 common floor

» Additional countercyclical buffer of 0-2.5%

» Minimum Tier 1 leverage ratio of 3% effective 2018

» Capital requirement phase-in period from 2013 - 2018

» Hybrids phased out over 10yrs beginning 2013

Liquidity» Liquidity coverage ratio effective 2015

» Net stable funding ratio effective 2018

Source: FMR

GSE Reform- White Paper from the U.S. Treasury

The U.S. Treasury proposed three options to wind down the GSEs while agreeing to honor all outstanding GSE obligations» Option 1 would incorporate a full shutdown of the GSEs in which the only

government support for the mortgage market would be through the Federal Housing Administration (FHA), the Veterans Administration (VA) and the US Department of Agriculture (USDA)

» Under Option 2, the GSEs would be completely wound down but include a government backed mechanism to support the mortgage market in times of crisis

» Option 3 would include a reinsurance mechanism from private mortgage guarantee companies to guarantee MBS with strict underwriting standards

The Treasury’s intentions are to:» Bring private capital back to the market

» Phase in increased pricing at Fannie Mae and Freddie Mac

» Reduce conforming loan limits

» Phase in a 10% down payment requirement

» Wind down Fannie Mae and Freddie Mac’s investment portfolios

13

Regulation Creates Opportunity

Source: Morgan Stanley

Money Market Fund and Bank Regulations

Yield Curve Steep Beyond Six Months

LIBOR and Treasury Yield Curves

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1-D

ay

1-M

on

2-M

on

3-M

on

4-M

on

5-M

on

6-M

on

9-M

on

1-Y

ea

r

2-Y

ea

r

Yie

ld (

%)

LIBOR 2/28/10LIBOR 2/28/11Treasury 2/28/10Treasury 2/28/11

Source: Bloomberg as of 2/28/11

Past performance is no guarantee of future results. It is not possible to invest directly in an index. Index performance is not meant to represent that of any Fidelity mutual fund.

15

Federal Funds Target Rate and Fed Funds Futures

0.0

0.51.0

1.5

2.0

2.53.0

3.5

4.0

4.55.0

5.5

6.0

Feb

-05

Au

g-0

5

Feb

-06

Au

g-0

6

Feb

-07

Au

g-0

7

Feb

-08

Au

g-0

8

Feb

-09

Au

g-0

9

Feb

-10

Au

g-1

0

Feb

-11

Au

g-1

1

Feb

-12

Yie

ld (

%)

Fed Funds Target Rate

Fed Funds Futures

Source: Bloomberg as of 2/28/11

Recovery Underway, Fed Tightening Unlikely in 2011

16

Source: Bloomberg as of 2/28/11

3-Month LIBOR vs. 3-Month Treasuries

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Feb

-08

May

-08

Au

g-0

8

No

v-08

Feb

-09

May

-09

Au

g-0

9

No

v-09

Feb

-10

May

-10

Au

g-1

0

No

v-10

Feb

-11

Yie

ld (

%)

3-Month LIBOR

3-Month Treasuries

TED Spread High10/10/08: 449 bps

TED Spread Low: 3/16/10: 11 bps

TED Spread Current:2/28/11: 17 bps

Short-Term Credit Spreads Remain Near All-time Lows

Past performance is no guarantee of future results. It isnot possible to invest directly in an index.Index performance is not meant to represent that ofany Fidelity mutual fund.

17

European Debt Crisis Overview

First Dimension of Contagion

European Response was Significant

Permanent Liquidity Measures from the European Central Bank (ECB)» Main Refinancing Operation (MRO)

» Long-Term Refinancing Operation (LTRO)

Recent Measures by European Authorities» Expanded collateral eligibility

» Reinstituted central bank swap lines

» ECB targeted bond purchases

Sovereign Support Programs» Initial Greek package of EUR110 billion

» Financed 2/3 from EMU and 1/3 from IMF

» European Financial Stabilization Fund – EUR 750 billion» EU/EC Balance of Payments Facility – Increased to EUR110 billion

» Eurozone Loan Guarantees of EUR440 billion

» IMF Loan Facility up to EUR250 billion

Peripherals Highly Dependent on ECB Funding

Source: Morgan Stanley, Bloomberg, ECB and Central Bank of Ireland as of 2/15/2011

Sovereign Risk Remains Volatile

Source: Bloomberg as of 1/31/2011

5-Year Credit Default Swaps of PIIGS

0

200

400

600

800

1000

1200

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11

Bas

is P

oin

ts

Greece Ireland Portugal Spain Italy

Two Rounds of Bank Stress Tests

The Committee of European Banking Supervisors (CEBS) conducted the first European Bank Stress Test in July 2010

Only seven banks failed with a €3.5bn total capital shortfall» Failed banks included one German, one Greek and five Spanish banks

The market blamed the low number of failures due to a lack of rigor in macroeconomic stresses and that sovereign haircuts were applied only to trading books and not to accrual books

Hence, another stress test is scheduled with CEBS expected to be published in June» Similar to 2010, the banks tested will cover 65% of EU banking system total assets and at

least 50% of the national banking sectors in each EU member state» Haircuts for sovereign debt will still not be taken in the accrual book, but there will be better

disclosure (e.g. the sovereign holdings by maturity buckets) » The test will include a baseline and adverse scenario for the periods of 2011-12

Baseline scenario: sovereign exposures are subject to an “interest rate” stress Adverse scenario: sovereign exposures are subject to further specific sovereign rate shocks with

haircuts differentiated by the maturity of the assets

» The methodology states a more stringent approach to the definition of core tier 1 capital compared to the 2010 exercise

Risks Lie Ahead

Sovereign crises are likely to be with us for some time

They could expand into other, larger and more systemic countries including Spain, UK, Japan and even the United States

The Greek rescue package does not address solvency issues and as such only buys some time – it is important for other countries to get in order

Large sovereign crises are likely to have major systemic implications, especially given the close linkages between sovereigns and their banking systems

The transmission from sovereign to financial system crisis could be rapid given how much sovereign debt banks hold

Higher counterparty risk, swap spreads and LIBOR-OIS spreads make it more difficult for banks to fund themselves

Austerity and higher funding costs could undermine economic growth and increase the risk of double dip into recession

24

Investment Process

25

Identify and Measure Relevant Risk Parameters

Investment Risks

Significance of Risk ExposureBenefits of a Multi-Dimensional

Research Process

Credit RiskPrincipal depreciation through price volatility or default

Non-reliance on Nationally Recognized Statistical Rating Organizations

Interest Rate RiskPrincipal depreciation through rising interest rates and widening spreads

Quantitative Risk Management Framework

Liquidity Risk Lost access to cash holdingsThorough analysis of underlying liquidity provisions

Structural RiskComplex documentation contains embedded risks

Dedicated legal team with specialized securities knowledge

26For Institutional Use Only

ConsistentRisk-Adjusted

Alpha

Multi-Dimensional Investment Approach

Bottom Up Foundation» Fundamental Analysis

Fundamental foundation Relative value assessment

» Quantitative Analysis Proprietary risk modeling Security and portfolio level

» Structured Analysis Capital structure analysis Complements fundamentals

» Value Added Trading Relative value assessment Across curve and structure Macro trends/technicals

Top Down Perspectives» Macroeconomic Inputs

Federal Reserve expectations Sovereign landscape Tail risk/scenario modeling

» Sector Basis call: transparency Fundamental and relative value

» Yield Curve Breakeven analysis Slope and volatility Relative value opportunities

» Interest Rate Duration views Volatility perspectives

Bottom-up, fundamental Investment platform complementedby top-down inputs, results in a robust and durable process

Objective:

ConsistentRisk-Adjusted

Returns

201101-8963

548129.11.0 - 22

27

The recent and future regulatory environment have given rise to a new era of cash and liquidity management

Investment goals and objectives are independent of current market conditions» Capital Preservation

» Liquidity

» Returns

Cash Management is a time consuming, resource intensive multi-dimensional process» Develop a Risk vs. Return profile

» Understand all aspects of the investible universe

The guiding principle of credit research is minimal credit risk

Money market funds are more resilient than ever before

Conclusion: Post-Crisis Observations

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.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Interest rate increases can cause the price of money market securities to decrease.

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., 100 Salem Street, Smithfield, RI 02917

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

576521.2.0