Will 2015 Bring Higher U.S. Interest Rates? January 2015 For Institutional Use Only.

Will 2015 Bring Higher U.S. Interest Rates?

January 2015

For Institutional Use Only

2

1. Global Headwinds

2. U.S. Economic Tailwinds

3. Path To Higher Interest Rates

4. Implication from Money Market Regulatory Reform

5. Cash & Term Portfolio Overview

6. Question & Answers

Agenda


Global Headwinds


Global Business Cycle in a Trend of Modest Improvement

4

*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 12/31/2014.


Recent Global Central Bank Actions

For Institutional Use Only5

Central Bank Target Rate Quantitative Easing Latest News

Federal Reserve 0.00 – 0.25% Ended QE in October 2014Removes considerable language with

respect to timeframe to begin tightening monetary policy

Bank of Canada 0.75% N/ALowered target rate by 25 bps from

1.00% to 0.75% (January 2015)

Bank of England 0.50% £375 billionCommittee voted to maintain the size of the Asset Purchase Programme at

£375 billion (January 2015)

Bank of Japan 0.10% ¥80 trillion / yearIncreased annual asset purchases

from ¥60 trillion - ¥70 trillion range to ¥80 trillion (October 2014)

Norges Bank (Norway) 1.25% N/AKey policy rate lowered by 25 bps

from 1.50 % to 1.25% (December 2014)

Swiss National Bank -0.75% N/AEnds currency peg with Euro

(January 2015)

European Central Bank 0.05% €60 billion / monthAnnounces asset purchase program that will run through September 2016

(January 2015)

Source: Bloomberg as of 1/15/2015

U.S. Economic Tailwinds


Lackluster GDP Growth Despite Historic Fed Policy

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

Jun-

14

Sep-1

4-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Net Exports Government Investment Consumption Total

%

Contributions to Real GDP(% change annualized)

Source: Bureau of Economic Analysis; Last revised on 12/23/20147 For Institutional Use Only

Unemployment Rate Falls From 10% to 5.6%

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

Dec-1

40

1

2

3

4

5

6

7

8

9

10

11

62

63

64

65

66

67Unemployment Rate Labor Force Participation Rate

Un

emp

loym

ent

Rat

e (%

)

Particip

ation

Rate (%

)

Source: Bureau of Labor Statistics, Bloomberg as of 12/31/20148 For Institutional Use Only

Employment Creation Positive, But Not Impressive

Source: Bureau of Labor Statistics, Bloomberg as of 12/31/2014

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

Dec-1

4-1000

-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

9 For Institutional Use Only

Dec-0

3

May

-04

Oct-04

Mar

-05

Aug-0

5

Jan-

06

Jun-

06

Nov-0

6

Apr-0

7

Sep-0

7

Feb-0

8

Jul-0

8

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

Oct-14

225

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 at Pre-Recession Levels

Source: Department of Labor, Bloomberg as of 12/26/201410 For Institutional Use Only

Inflation Remains Subdued


Nov-0

3

May

-04

Nov-0

4

May

-05

Nov-0

5

May

-06

Nov-0

6

May

-07

Nov-0

7

May

-08

Nov-0

8

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

Nov-1

40.0

0.5

1.0

1.5

2.0

2.5

3.0

US Personal Consumption Expenditure Core Price Index

Yo

Y %

Ch

ang

e

Source: Bureau of Economic Analysis, Bloomberg as of 11/30/201411

Path To Higher U.S. Interest Rates


Taper QE – October 2014

Assessment of QE

Cease reinvestment of proceeds

from SOMA

holdings

Normalize the size of balance sheet

over time

Raise target range for the federal funds rate

Adjust the interest rate paid on excess reserve balances

Adjust the interest rate paid on reverse repo program

Path To Higher Interest Rates

13

Traditional Monetary Policy

Quantitative Easing


Consensus Builds for a 2015 Rate Hike

14Source: Federal Reserve as of 12/17/2014

Federal Reserve Board Rate Expectations

Appropriate Pace of Policy Firming (December 2014)

Fed Meeting Date 2015 2016 2017 Longer Run

Dec-2014 1.125 2.500 3.625 3.750

Sep-2014 1.375 2.875 3.750 3.750

Jun-2014 1.130 2.500 N/A 3.750

Median Target Fed Funds Rate at Year End

2014 2015 2016

1

12

3

1

14

2

15

2

Appropriate Timing of Policy Firming

Jun-2014 Sep-2014 Dec-2014

Nu

mb

er o

f P

arti

cip

ants


Actual Unemployment Rate

Federal Reserve’s Economic Projections

Source: Bloomberg and Federal ReserveActual Inflation as of 11/30/2014, Actual Unemployment Rate as of 12/31/14, and Actual GDP as of 9/30/14FOMC Forecast as of 12/17/2014

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

5.6

Un

em

plo

ym

en

t R

ate

(%

)

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

1.4PC

E Y

oY

(%

)

Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-171.0

1.5

2.0

2.5

3.0

3.5

2.7

Re

al G

DP

Yo

Y (

%)

Actual InflationInflation Forecast

Unemployment Rate Forecast

Actual GDP

GDP Forecast

Inflation Threshold


Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-170.00

0.50

1.00

1.50

2.00

2.50

3.00

1.350%

2.875%

Forward Fed Funds FuturesFOMC Median (December)

Fed

Fu

nd

s R

ate

(%)

Market Expectations Shift, Fed Dots Move Lower

16Source: Federal Reserve and Bloomberg as of 12/31/14

Sep-14 Fed Funds Futures

Jun-14 Fed Funds Futures

Dec-14 Fed Funds Futures


Regulatory Reform Update


Overview of Final SEC Rules on Money Market Mutual Funds

For Institutional Use Only18

Previously Considered Options for NCCMT Cash Portfolio

Primary alternatives

• Convert to a government money market mutual fund

• Continue as a prime money market mutual fund with VNAV and fees/gates

• Launch a government money market mutual fund to complement existing funds

Other alternatives considered

• Continue as prime money market mutual fund, but make investment guidelines more strict to

lessen NAV volatility

• De-register under federal security laws and run LGIP

• Advocate changes to state’s investment guidelines to broaden investment options

19 Fidelity Confidential Information

NCCMT Cash Portfolio Recommendation

Convert to a Government Money Market Fund

• Delivers attributes most desired by clients (stable $1 NAV with no fees/gates)

• Least disruptive option for clients and state

• Likely to result in the highest asset retention rate

• Results in a product suite with both a government and credit investment option providing

different risk/return profiles and performance history

Next steps/implementation

• Board approval in April

• Determine level of government approval required

• Communicate to clients/prospects and obtain shareholder approval

• Modify investment guidelines

• Implement investment strategy


Proposed Implementation Timeline


Q1 ‘15 April May Jun Jul Aug Sep Oct Nov Dec Q1 ‘16 Q2 ’16

Discuss recommendations with

State Treasurer

Board Meeting

Preliminary Proxy Statement filed with

SEC

Definitive Proxy Statement filed with

SEC

Mail Date/Record Date

Proxy Solicitation

Shareholder Meeting

Complete conversion to Government Fund

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 12/31/2014

23

NCCMT Cash Portfolio

December 31, 2014 December 31, 2013

9%

18%

10%

11%

8%4%

37%

4%

North American Banks

Asian/Australian Banks

Eurozone

Nordic/Swiss Banks

UK Banks

Asset Backed CP

Other Corp/VRDN

Government/Repo

Finance Companies

6%

18%

11%

6%

4%

12%

5%

38%

2%

Cash Portfolio Remains Well Diversified


24

Foreign Bank Exposure Geographically Diversified

Source: Fidelity Investments as of 12/31/2014

FOREIGN BANK HOLDINGS: NCCMT CASH PORTFOLIO

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

0

10

20

30

40

50

60

Belgium

Germany

Switzerland

Netherlands

Norway

Singapore

Canada

Australia

UK

Sweden

France

Japan

% o

f F

un

ds


25

Fund Holdings Primarily Short-Term

Source: Fidelity Investments as of 12/31/2014

NCCMT CASH PORTFOLIO MATURITY SCHEDULEJa

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

1-2

Yea

rs

0

5

10

15

20

25

30

35

40

Other Corp/VRDN

Finance Companies

Asset Backed CP

UK Banks


Eurozone

Nordic/Swiss Banks


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 12/31/2014

26

NCCMT Term Portfolio

December 31, 2014 December 31, 2013

12%

22%

30%

17%

14%

2% 3%



Eurozone

Nordic/Swiss Banks

UK Banks

Asset Backed CP

Other Corp/VRDN

Government/Repo

Finance Companies

6%

9%

32%

19%

10%

5%

20%

Term Portfolio Remains Well Diversified


First 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 investments– 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 – Take advantage of rising money market rates as potential Fed tightening gets closer

Outlook• Fed set to begin to normalize monetary policy in 2015

– Markets looking for Q2/Q3 lift off– Fed forecast for Fed Funds currently much higher than market expectations– Money market rates will exhibit more volatility in response to economic data

• Global Central Banks to maintain accommodative monetary policy to encourage economic growth– Lower interest rates to combat slower growth and lower inflation– Implement/continue quantitative easing as needed

• Supply dynamics more favorable to money market rates in 2015– Potential reductions in repo and Agency outstanding should be more than offset by a nearly $375B increase in

Treasury supply, as Treasury FRN issuance continues and longer coupons enter 2a-7 eligibility – Federal Reserve’s Reverse Repo program should establish a leaky floor on money market rates through year

end


28

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


Will 2015 Bring Higher U.S. Interest Rates? January 2015 For Institutional Use Only.

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