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Regulatory Update: 2014 Money Fund Reform

This presentation provides an overview of the changes in the Iowa TMA regulatory policies regarding money fund reform. Topics covered include floating NAV, gates and fees, government fund changes, retail fund changes, reporting changes, time horizon, tax changes, and treasury implications.

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Regulatory Update: 2014 Money Fund Reform

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  1. Presentation to Iowa TMA Regulatory Update:2014 Money Fund Reform Jim Gilligan, CTP, FP&A Assistant Treasurer Great Plains Energy Inc. September 9, 2014 AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  2. Overview of Changes • Combination of reform • Floating NAV • Gates and fees • Gov’t fund changes • Retail fund changes • Reporting changes • Time horizon • Tax changes • Treasury implications AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  3. Floating NAV & Gates/Fees • Floating NAV is non discretionary • Gates and Fees are discretionary by the Board of the Fund • If weekly liquidity assets fall below 30% of the Fund’s total assets • Board can implement up to a 2% Fee • Suspend redemptions (lower a gate) for up to 10 business days • Only gate up to10 business days per 90 day period • Mandatory fee of 1% if weekly liquidity assets fall below 10% of total assets AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  4. Government Fund Changes • Re-defined as 99.5%* of total assets invested in: • Cash • Government securities • Repos collateralized by gov’t securities • Gates and Fees are: • At the discretion of the fund board with investor notification • Special reporting if NAV falls below $0.9975 __________________ * Was 80% AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  5. Retail Fund Changes • Retail Investor • Now defined as a natural person • Tied to Social Security Number • Not related to asset size • Share classes/structure could change • Special reporting if NAV falls below $0.9975 AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  6. Reporting Changes • Floating NAV calculated to 1/100 of a penny ($0.0001) for Prime and Muni Funds • Fund disclosure if <10% weekly liquidity • Daily reporting of: • Daily and weekly liquid assets • Net shareholder flows • Market based NAV’s • Imposition of Fees and Gates • Sponsor support of the fund • New material event disclosure (on Form N-CR) • Disclosure of Sponsor support for prior 10 yrs • Form PF- private liquidity funding to report same as N-MFP AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  7. Reporting Changes Cont’d • 5% issuer diversification limit requires affiliated entities to be treated as a single issuer • 10% limit for guarantors of demand feature providers including Asset Backed Guarantors • 15% for Muni funds • Enhanced stress testing • Removal of Credit Ratings reference re-proposed • Discretion of the board to determine appropriate securities • Tier I/Tier II restriction removed AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  8. Time Horizon • Clock starts when rules are published in Federal Register AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  9. Tax Changes • NAV Method vs. Amortized Cost • Aggregated reporting of sales • Realized gain/loss is “short term” • Not subject to “Wash Sale” Rules • For More Information: http://www.treasury.gov/resource-center/tax-policy/Documents/MMF%20Acc%27t%27g%20NPRM.pdf AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  10. Treasury Implications • Investment policy considerations • Board approval and education • Floating NAV • Gates/Fees • Accounting considerations • Revised fund due diligence • Discussions with your fund manager • Discussion with your fund sponsor/bank • Credit rating’s reform • How tax reporting will be delivered • Bank product shift- more into CDs,TD’s? • Rise of non 2a-7 products • Basel III timing and reform timing AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  11. Treasury Implications Cont’d • More discretion given to the fund board • Offshore cash not subject to Money Fund Reform…. YET • More than just money funds impacted- Money fund like products • Consider other areas: DB, DC, Securities Lending, etc. • Muni based investors need gov’t backing; limited options • CP Issuers affected; dealer placed; alternate sources of funding • Portal provider reporting changes - timing AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  12. Action Will Occur Anticipated Actions Should the SEC Rule that Prime MMFs Operate with a Floating NAV and Government MMFs Operate with a Stable NAV(Percent of Organizations Currently Investing in Prime MMFs) Source: The AFP Liquidity Survey, Association for Financial Professionals AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  13. Short-Term Investment Objective Most Important Short-Term Investment Objective, 2008-2014 (Percent of Respondents) Source: The AFP Liquidity Survey, Association for Financial Professionals AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  14. Change in Allocation of Investments Allocation of Short-Term Investments, 2009-2014 (Mean Percent Distribution) Source: The AFP Liquidity Survey, Association for Financial Professionals AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  15. Money Fund Selection Could Change Source: The AFP Liquidity Survey, Association for Financial Professionals AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

  16. For More Information Tom Hunt, CTP Director of Treasury Services Association for Financial Professionals thunt@afponline.org 301-961-8676 SEC Information: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679#.U9Pwy1h0yM- http://www.sec.gov/rules/exorders/2014/34-72658.pdf http://www.sec.gov/rules/final/2014/33-9616.pdf Treasury/IRS Information: http://www.treasury.gov/resource-center/tax-policy/Documents/MMF%20Acc%27t%27g%20NPRM.pdf AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals.

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