Strategic Advisers, Inc., Investment Manager of the Fidelity^® Charitable Gift Fund

At over $5 billion in total assets¹, the Fidelity^® Charitable Gift Fund (Gift Fund), an independent public charity, has the nation's largest donor-advised fund program. The Board of Trustees of the Gift Fund has the overall authority and responsibility for the investment management of the Gift Fund's assets. The Board of Trustees has established an Investment Committee, which focuses on ensuring that a sound and prudent investment process is in place. The Gift Fund's Board of Trustees has engaged Strategic Advisers, Inc. (SAI), a registered investment advisor and a Fidelity Investments company, to provide investment management services to the Gift Fund. SAI seeks to construct investment pools of mutual funds which provide the greatest potential for donor-advised fund balances to grow, which may ultimately result in larger grants to charities. The Gift Fund currently offers 13 investment pools with a wide range of investment objectives to help donors meet their charitable giving goals. The following is an overview of SAI, its research and investment processes, and resources.

Strategic Advisers, Inc.

SAI, a registered investment advisor and Fidelity Investments company, typically does not select individual stocks and bonds for client portfolios; rather, SAI's expertise is in selecting from Fidelity and non-Fidelity mutual funds and combining these funds in well-designed portfolios across multiple asset classes. SAI's investment team includes portfolio managers, fundamental and quantitative analysts, and asset allocation experts.

Mutual Fund Research

For over 10 years, SAI has built a vast knowledge base of information on mutual funds and portfolio managers from throughout the industry. SAI has researched funds from hundreds of fund companies, compiling fundamental observations and quantitative data, and using these inputs to formulate views on the best funds in dozens of different categories. This research platform provides the basis for all fund selections that SAI recommends.

Research Process:

At SAI, the investment process begins with a team of Fund Analysts whose sole job is to research and recommend appropriate funds. Analysts spend their time crunching numbers, scrutinizing fund holdings, meeting with fund managers, and monitoring results.

While past performance is only one facet of the fund evaluation process, and isn't a guarantee of future performance, it's often a good place to start. SAI employs a proprietary fund rating system to evaluate past returns, risk, and consistency of results, and looks for funds that have performed in the past the way we'd like them to fare in the future. During this early phase of research, SAI is likely to focus on funds that have a good record of consistently returning above-average returns relative to their peers, while not taking on excessive risk in doing so. More important than the past, though, is how the fund is positioned for the future.

To get a sense of each fund's potential future performance pattern, SAI researches the factors behind the historical performance numbers. The research process entails extensive analysis of fundamental factors such as fund management and fund company infrastructure, portfolio characteristics, strategy, and execution, with the goal to uncover funds that possess what SAI believes are the key factors for potential success.

• Knowledge and Experience. SAI looks for experienced fund managers who have managed money in different market environments. SAI gauges these qualities through regular and ongoing in-person interactions with fund management teams.
• A Well-Defined Process. SAI values a well-defined investment process that makes sense and is consistently executed, and avoids managers who have a history of changing — or abandoning — their investment styles in order to imitate what's in vogue at a given moment. Thus, SAI closely scrutinizes each manager's ability to articulate and define his or her investment style, and uses information such as historical holdings and portfolio characteristics to verify that they've maintained this strategy through time.
• Original and Insightful Research. A dedicated research team can also be a key to a fund's potential for success. In evaluating a fund company's research, SAI meets with the research analysts, reviews their systems and methodologies, and often attends investment meetings to observe firsthand their research process.
• Incentives and Resources. SAI also seeks to understand the entire fund organization and the environment in which fund managers are working. A fund company's ability to retain its talent through appropriate long-term incentives, such as ownership stakes in the firm, can be a key ingredient in a fund's long-term investment success.
• Proven Execution. In the end, it all comes down to results. SAI evaluates each fund's strategy in light of its past performance and also closely monitors performance and portfolio characteristics over time to watch for changes within any of the funds. Because of the work completed up-front in choosing a fund, SAI is not quick to terminate when an investment encounters a short-term slowdown. Instead, SAI carefully analyzes the source of the problem — often it's because the manager's style is out of favor — and also steps up its interactions with the fund company.

Pool Construction:

SAI defines each pool by a specific risk profile and set of pool characteristics. This determines what the pool should invest in, how it should perform under different market conditions, and what its potential upside and downside should be. An appropriate asset mix and benchmark is assigned to each pool, acting as a blueprint in the construction process.

• Long-Term Investment Philosophy. SAI believes that market timing, or attempting to move in and out of markets based on a forecast or prediction of market movements, has rarely achieved consistent success over time, and most often serves to raise overall risk levels. As a result, SAI avoids major short-term tactical calls and seeks to remain fully invested in its p referred funds and within the investment mandate.
• Diversification. A key element of withstanding the inevitable ups and downs of the market cycle is to build prudent diversification into the investment pools ahead of time. SAI pools tend to hold numerous fund positions, in some cases over 10, and this degree of diversification is intentional. The positions are carefully selected for their complementary, diversifying characteristics in order to build desirable risk control into the portfolio. Owning numerous funds with the same characteristics would defeat the diversification objective, so it is critical that SAI has a precise understanding of how funds fit together as an investment pool is constructed.
• Fundamental and Quantitative Tools and Analysis. Although SAI's investment process is fundamentally driven, SAI also conducts complex, data-intensive analyses to derive a greater depth of understanding and precision in assembling the Gift Fund pool allocations. These methods include both "returns-based" and "holdings-based" analyses to assess a portfolio's key characteristics. By using these combined analyses, SAI looks to pinpoint likely pool performance patterns and risks with significantly higher precision and confidence.
• Active Review Process. Other than the three "passive" pools that offer donors specific Fidelity index funds, SAI's committed objective with the "active" pools is to generate benchmark-beating performance. SAI's investment team tracks performance and investment characteristics of each pool and its h oldings to stay on top of opportunities to improve upon results, or avoid potential risks.