Money Market Reform - PowerPoint Presentation

Money Market ReformIt’s Not Just About Your 401K Money Fund Option December 9, 2015 at 12:00pmAn overview of new Money Market Regulations and considerations for DC plans regarding investment manager, record keeper and custodian. For Plan Sponsor Use Only. All the information contained in this presentation is as of date Indicated unless otherwise noted. This publication is issued by the Global Marketing department of State Street Financial Corporation and is for informational purposes only. State Street is the corporate brand of State Street Financial Corporation. It is not intended to provide legal, tax, accounting or investment advice. However, to the extent it is deemed to be a financial promotion under non-US jurisdictions, it is provided for use by institutional investors only and not for onward distribution to, or to be relied upon by, retail investors. Products and services may be provided in various countries by the subsidiaries and joint ventures of State Street. Each is authorized and regulated as required within each jurisdiction. This should not be construed as an offer or solicitation of securities or services or an endorsement thereof in any jurisdiction or in any circumstance that is otherwise unlawful or not authorized.

Agenda Introductions and Overview Kathy MacVarish, State Street Corporation Money Market ReformJim Brewster, State Street Global ServicesPerspective for Defined Contribution Plans Money Market Fund Exposure in DC Plans and Record Keeper Considerations: Brendan Curran, State Street Global AdvisorsInvestment Manager Considerations: Christine Stokes, State Street Global Advisors Custodian Considerations: Lynne Winchester, State Street Global Services Question and Answer Period Moderator: Kathy MacVarish, State Street Corporation

Biographies Kathy MacVarish is a Senior Vice President and a member of State Street Corporation’s dedicated corporate servicing team. In this role she oversees client services for custody, accounting, performance and analytics, securities lending and retirement services for strategic corporate accounts. Lynne Winchester is a Senior Vice President for State Street Corporation overseeing Service Governance and has a lead role in building solutions for Money Market Reform. James Brewster is a Vice President for State Street Corporation and leads the Regulatory Resource and Support department which is responsible for overseeing the Fund Administration division’s standard operating procedures, the communication of regulatory initiatives and implementation of regulatory guidance and controls. Brendan Curran is a Vice President of State Street Global Advisors and a Senior Investment Strategist within the Defined Contribution team. He is responsible for representing SSGA's DC investment strategies, supporting current relationships and expanding SSGA's DC initiative . Christine Stokes is a Vice President at State Street Global Advisors and Director of Client Services for the Global Cash Business . She is responsible for expanding our global cash business client service infrastructure and elevating our institutional cash clients’ experience.

Money Market Reform Timeline Form N-CR — Money market funds will be required to file Form N-CR with the Securities and Exchange Commission (“SEC”) upon the occurrence of significant events such as when a portfolio security defaults or an affiliate provides financial support.Web Disclosures — Money market funds will be required to post six months of historical data on their proprietary website including NAVs, shareflows and liquidity percentages.Form N-MFP — Money market funds will have new N-MFP disclosure requirements. This new information includes a MMF’s NAV per share (and shadow price), daily and weekly liquid assets, and shareholder flows on a weekly basis within the monthly filing of the form. Enhanced 2a-7 Diversification Tests — Money market funds will be subject to stricter diversification requirements.Stress Testing — Amendments enhance the existing stress testing requirements by requiring money market funds to periodically test their ability to maintain weekly liquid assets of at least 10% and to minimize principal volatility in response to specified hypothetical events. AUGUST 14, 2014 FINAL RULES POSTED TO FEDERAL REGISTER JULY 14, 2015 FORM N-CR Compliance date OCTOBER 14, 2015 WEBSITE DISCLOSURES Historical tracked in order to comply with the April 14, 2016 effective date Daily Shadow NAV` APRIL 14, 2016 FORM N-MFP DIVERSIFICATION TESTING STRESS TESTING WEBSITE DISCLOSURES OCTOBER 14, 2014 RULES BECAME EFFECTIVE OCTOBER 14, 2016 FLOATING NAV LIQUIDITY FEES & REDEMPTION GATES NOW! 6 MONTHS 12 MONTHS

Money Market Reform Timeline Liquidity Fees & Gates — Non-government MMF have the discretion to impose a liquidity fee of no more than 2% on redemption amounts when the weekly liquid assets, fall below the threshold of 30% of total assets, if the board of directors, determines it is in the best interests of the MMF. The amendments require a non-government MMF to impose a liquidity fee of 1% if the weekly liquid assets fall below 10% of total assets, unless the board determines that imposing such a fee is not in the best interests of the MMF. Floating NAV — Institutional prime MMFs and institutional tax-exempt MMFs may no longer use the amortized cost method of valuation and/or penny rounding method of pricing to maintain a stable NAV. Instead, FNAV MMFs are required to calculate their NAVs based on the current market-based value of their portfolio securities. Continued

While money market funds have a limited presence on the participant investment menu, plan sponsors have indirect exposure through other plan elementsMoney Market Exposures in DC Plans Approximately 40% of plans offer a Money Market fund to participants and cash options hold less than 5% of DC assets‘Direct’ ExposureMoney Market Participant OptionCash Allocation in White Labeled Options and / or Target Date Funds‘Indirect’ ExposureCustody Cash SweepSecurities Lending Cash Collateral Pool Brokerage Window Cash Sweep

Investment Managers Money Market Fund Assets ($B) Source: iMoney.net as of 11/24/1553.13%8.93%37.93%Total Money Market Fund Assets: $2.75TAsset managers have been proactively evolving their suite of cash and cash-like products to align with reforms and expected client demandQuestions to Ask Your Cash ManagerHow is my cash fund impacted by the announced reforms? If it is a prime fund, will it move to a floating NAV or maintain a stable NAV?Will your government funds impose liquidity fees and redemption gates?Why would I want to consider a prime strategy with the chance that a liquidity fee or redemption gate could be imposed?Do you offer any other options?

Record Keeper Operational changes required to monitor and implement floating NAV, fees and gates at the individual participant level have been the limiting factor for record keepers The majority of record keepers will likely not support Prime Money Market funds that have a floating NAV and / or the potential to fee and gate participant activity Record Keeper Listening Campaign Over the past quarter, SSGA spoke to 13 of the 15 largest record keepers Questions to Ask Your Record Keeper Confirm stance on Money Market fund reform (if not available, confirm timeline) If they do NOT plan to support impacted Prime funds… What is the deadline to transition away from these funds? What is the impact on the self-directed brokerage window? If they do plan to support Prime funds… Can we maintain our existing option or is there a shortlist of funds supported? How do you plan to operationally implement and monitor fees and / or gates? Similarly, how do you plan to communicate fees and / or gates to participants? Source: SSGA Defined Contribution, PSCA.org and EBRI.org as of 11/24/15

MMR Reference GuideEffective Date: October 14, 2016 Fund Type RetailInstitutionalUS Government /US TreasuryStable NAVNo mandatory Liquidity Fee or Redemption GateStable NAVNo mandatory Liquidity Fee or Redemption GatePrime Fund / Municipal or Tax Exempt Stable NAV Potential Liquidity Fee or Redemption Gate Floating NAV Potential Liquidity Fee and Redemption Gate Floating NAV Pricing to nearest basis point or 1/100th of 1% Four (4) decimal ($1.0000) if pricing to $1 Other options $10.000 or $100.00 Liquidity Fee Weekly liquid assets < 30%, board may impose a 2% fee on redemptions Weekly liquid assets < 10%, redemptions subject to 1% fee (unless board decides otherwise) Redemption Gate Weekly liquid assets < 30%, board may suspend redemptions for up to 10 days Gate cannot be in place for more than 10 days in any 90 day period Retail vs. Institutional Retail is a fund with policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. Can include IRAs, 403(b), 529 Plans, Defined Contribution Plans, and 457 Plans. Floating NAV Pricing Model The recommended model is to price at 9:00 AM, 12:00 PM, and 3:00 PM. An end of day price at 5:00 PM may be beneficial to capture certain transactions.

MMR Industry Themes / Trends on FNAVGenerally, industry appears to have settled on a pricing schedule (4 times daily, 3 same-day settlement, the last next-day settlement). Cash sweeps likely to use 2 of 3 price points per day. In / Out once per day Fund families placing more urgency on understanding shareholder demographics (retail vs. institutional), to help them understand, rationalize and drive product development needGenerally, fund families want to have product decisions finalized by Q4 2015 and are focused on finer points of fund reorganizations / closings More clients requesting one-off meetings / presentations regarding Fund Accounting / Custodian and Transfer Agent coordination / capabilities – focus has moved to client specific products and service readinessFocus on the downstream recipients of NAVs and reporting vendors (NASDAQ, iMoney, etc.)Determine who will require NAVs and timing of dissemination Board preparedness is key – focus on well documented policy, procedures, and communication protocol with all parties

CustodianAs the plan custodian, your cash sweep fund may be impacted depending on its’ investment strategy and vehicle structure For those plans that offer company stock or engage in securities lending, it is also critical to inquire with your plan custodian as to the cash vehicles used in those fund options Custodians are critical parties to consider in their capacity as custodian for your retirement plans and custodian for the investment managersQuestions to Ask Your CustodianIs the cash sweep fund a registered or unregistered fund?Do you have a money market fund in your brokerage window for cash sweep purposes? How is this fund impacted by the MM Reform changes?What is your securities lending collateral pool invested in and how is it impacted by the MM Reform changes?

ConclusionExplore exposure to money market reform; even if you do not offer a cash option to participants, other plan design decisions may be impactedEngage stakeholders early as their offerings and capabilities may have a significant impact on your go-forward choicesReaffirm the key objectives of your conservative option. If you need to consider changes, reevaluate the role of this option in the plan LiquidityYieldSafety

Thank You Christine Stokes State Street Global AdvisorsGlobal Cash Business617.664.6008Christine_Stokes@ssga.comBrendan Curran, CFAState Street Global AdvisorsDefined Contribution617.664.5580Brendan_Curran@ssga.comKathy MacVarishState Street CorporationGlobal Services / IIS 617.664.9510 kmacvarish@statestreet.com Jim Brewster State Street Corporation Regulatory Resource & Support 617.662.1541 jmbrewster@statestreet.com Lynne Winchester State Street Corporation Service Governance 617.662.9620 lwinchester@statestreet.com