1. “Orderly Resolution” of Mutual Funds and Their Managers July 15, 2014

2. Overview Dodd-Frank reforms include advance resolution planning, new orderly liquidation authority These tools are unnecessary for mutual funds and their managers  Fund and manager exits are routine, notwithstanding severe market stress  Facilitated by fund structure/regulation, industry dynamics  Established exit strategies 1

3. Fund and Manager Exits Are Routine, Even in Periods of Severe Market Stress Reasons for fund and manager exits (e.g., inability to attract or maintain sufficient assets/assets under management) Historical experience 2

4. US Mutual Funds and Mutual Fund Sponsors Routinely Exit the US Mutual Fund Market* Note: Data for number of mutual funds that are merged or liquidated include US mutual funds that are funds-of- funds and those that are not. Excludes ETFs and closed-end funds. Number of fund sponsors leaving is unavailable before 2000. Source: Investment Company Institute 3 Fund and Manager Exits Are Routine, Even in Periods of Severe Market Stress (cont’d)

5. Fund Structure/Regulation Facilitate “Orderly Resolution” Each mutual fund is a separate legal entity from its manager and other funds in the same complex Fund assets held separately by eligible custodian (typically a U.S. bank) Fund manager manages the fund as agent under written contract Fund board (typically with 75% or more independent members) oversees fund management and operations, annually approves contract with fund manager 4

6. Fund Industry Competitive Dynamics Facilitate “Orderly Resolution" The mutual fund business is very dynamic; no single firm or group of firms dominate Competition/lack of concentration in the industry demonstrate that funds and fund managers are highly substitutable No need for government intervention to support activities or survival of a particular manager 5

7. Exit Strategies – Fund Mergers and Liquidations Mergers and liquidations can be expedited if necessary Fund liquidations follow an established and orderly process with no consequence to the broader financial system In extraordinary circumstances, SEC can suspend redemptions to protect fund shareholders 6

8. Exit Strategies – Sale or Merger of Advisory Business A common exit strategy, due to dynamic nature of fund industry Investment Company Act §15(f) contemplates transactions in which manager receives benefits from sale of its business; provides investor protections 7

9. Exit Strategies – Transfer of Fund Management Contract Board typically resolves issues related to fund manager’s provision of services as part of normal oversight function Board has statutory authority to terminate fund management contract and engage a new manager If needed, can be done quickly on an interim basis 8

10. Exit Strategies – Resolution of Fund Manager In the unlikely event of a fund manager solvency problem, resolution would be straightforward  Fund manager typically has small balance sheet with limited assets and liabilities  Resolution plans for asset management business lines are instructive 9