Navigating the New Treasury Investing Environment

1. Treasury Services Navigating the New Treasury Investing Environment Presented by: Kirk Black, CTP, CPA, FINRA Licensed Representative Senior Relationship Manager, Investment Management Group BNY Mellon Dirk Racine, CTP, CPA Director, Treasury Operations Telephone and Data Systems, Inc.

2. Audience • Corporate or government treasury professionals or other short-term investors? • Banks? • Others in the financial services industry?

3. Agenda • Introduction • The liquidity crisis • New regulations • Revised 2a-7 • Dodd-Frank • In search of yield—new investment strategies • Investment portals help manage risk • Case study: Dirk Racine, Telephone and Data Systems, Inc

4. Introduction • Short-term investing is a key Treasury function • Preserve principal and maintain liquidity • Maximize return as a secondary objective • Money fund favorite w/ treasury investors • Tools for investing ie-web sites and portals • Liquidity crisis changes the investing landscape • Low yields, new regulations, risk management concerns

5. Evolution of the Liquidity Crisis • Aug 2007 first signs of trouble develop when several extendible liquidity note programs exercised extensions • Around same time auctions failed with several auction rate issuers • Asset backed commercial paper market in turmoil resulting from sub prime fallout • Overall deterioration in market conditions then caused liquidity troubles with some Structured Investment Vehicles SIVs • Certain enhanced cash funds begin to see fluctuations in NAV • Mass exodus from enhanced cash funds as short-term investment • Q1 2008 Auction failures widespread/ ARS market gone • Bear Stearns – JP Morgan deal

6. Evolution of the Liquidity Crisis • September 2008 trouble escalates • Collapse of Lehman had widespread impacts • Markets freeze • Reserve Primary Fund breaks the buck • Investors panic and place heavy redemption pressure on funds • Putnam and American Beacon freeze redemptions • Federated deal • Elevated market concern over money fund liquidity

7. Fed, Treasury, and Congress Take Action Immediate action • Treasury money fund guarantee program • Fed brings liquidity to prime money funds • Fed lowers short-term rate to near zero • Unlimited FDIC • Bank bailouts and stimulus package More recent developments • Dodd-Frank • New SEC 2-a7 rules

8. The New Environment—Investor Sentiment • More conservative posture • ARS and enhanced cash gone as treasury investments • Back into money funds after initial panic but switch to govt and treasury • More due diligence on holdings • Diversification • Looking for strong parent sponsor

9. Historical Perspective of Money Market Mutual Funds • Money Market Mutual funds governed by SEC 2a-7 • Independent rating agencies/ AAA rating • Goal is safety and liquidity first and yield is secondary • These funds managed to dollar in dollar out NAV • Historically prime money funds viewed as safe havens with little due diligence by investors outside of looking to 2a-7, AAA, and yield • Only once in prior history did money fund ‘break the buck’…Community Bankers govt. fund in 1994 • Explosive growth in money funds over last decade to as high a 4 trillion at one point

10. The New Environment Enhanced SEC Regs for Money Funds • SEC responds and proposes significant changes to money fund regulations • Investment Company Insitute (ICI) works with industry leaders and white house working group • Changes proposed to address liquidity and credit risk and create better transparency • Many proposals circulate. Some viewed as radical • SEC adopts first round of new regs Feb. 2010 • Implementation throughout 2010 and 2011

11. New SEC Regs for Money Funds • Liquidity Provisions • Formerly no minimum liquidity mandates • 10% overnight, 30% weekly • Weighted average maturity (WAM) to 60 days from 90 days • Credit Provisions • 3% in second tier securities vs 5% • Second tier maturing 45 days vs 297 • Stress tests – formerly no requirement

12. What does the future hold for money funds? • Industry generally supports new SEC regulations • Liquidity provisions successfully tested • May be another round of regulations? (liquidity facility, floating NAV) • Rationalization of money fund providers – fee waivers • Impact on rating agencies • Return to prime funds • Importance to Capital Markets • Money funds expected to remain viable going forward

13. The New Environment—Dodd-Frank • Repeal of Reg Q • Reg Q prohibited payment of interest on commercial domestic deposits dating back to great depression • Dodd-Frank bill contained a provision repealing Reg Q, effectively allowing interest • Law took effect in July 2011 as banks assessing strategy • What does this mean for… • Banks’ technology around DDA platform • ECR as a product • Other short-term investments – money funds, treasuries, etc

14. The New Environment—Dodd-Frank • Unlimited FDIC Insurance • 2009 and 2010 TAGP provides unlimited FDIC • Dodd-Frank reinstates unlimited FDIC in mandatory program for 2011 and 2012 • Banks charged on net assets • Corporate cash all time high • 60% increase in corporate cash since 2009 • 2.25 trillion, 38% DDA • What happens when FDIC program goes away?

15. The New Environment—Searching for Yield • Sustained low rate environment • Deposit products – too much cash • Investors evaluating liquidity needs • Individual securities – commercial paper, govt. paper • Structured (laddered) portfolios used to boost yield • Recent institutional fund yields 20bps; structured portfolios going out at least a year 70bps or more • Limited application in treasury

16. The Use of Investment Portals Through Crisis • Dozens of money funds available on single Web-based platform • Investment portal provides prospectuses, fund fact sheets and statements by fund families • Information on all families consolidated • Facilitates quick research on funds • Investment portal provides mechanism to easily move to funds investor is comfortable with and facilitates diversification • Compliance features help investors comply with policies and control risk • Pre-trade compliance, segregation of duties, custom inventory • Exposure reporting

17. Audience Question • The following best describes my investment strategy: • I typically invest with a money fund or broker over the phone • Individual fund web-site • I use a bank sweep as my primary investment vehicle • I currently invest using an investment portal offering multiple fund families

18. Modern Investment Portals — Investment Options • Wide variety of 2a-7 funds • Relationship requirements could dictate fund choice-portal reports to funds • Other fixed income securities—commercial paper and other discount notes • New portals offer more extensive options—may enhance returns • No fees to use portal

19. Modern Investment Portals — Information & Reporting • Important given heightened focus on reporting and controls • Consolidation of information on one convenient report • Customize to unique fiscal periods • Not only accounting but performance analysis with benchmarking, compliance, maturity schedule, etc. • Employee time efficiencies realized • Compatibility with treasury workstations

20. Straight Through Processing • Investment portal promotes straight through processing (STP) from client entry to provider systems • Client enters trade via secure web-based portal • Transaction flows through portal to provider back office where completed seamlessly in automated fashion • Subsequently trade information flows to client accounting platform or treasury workstation via several automated methods • Client initiated export from portal then upload to target platform • Daily FTP transmission from portal provider received by target platform • Software bridge connecting portal to target platform real-time • STP achieved by portal promotes efficiency, reduces the risk of errors, and enhances Sarbanes-Oxley compliance 20

21. Modern Investment Portals — International Capabilities • Multinational organizations often have need to invest in several currencies • Investment portal offers funds denominated in USD, Euro, Sterling, CAD • Internet based software facilitates access for those abroad • Customized reporting shows respective individual currencies or all currencies

22. The Role of the Investment Professional • Online investing most powerful when combined with off-line expertise of investment professional • One on one proactive account coverage, notifying clients with market opportunities • Devising the appropriate strategy given your investment policy and time horizons • Helping provide info and research • Market commentary • Enhanced internal control over process

23. Summary • Liquidity crisis changes investing function • Money funds bolstered and remain as viable investment • Portal technology has facilitated great strides in efficiency • Manage risk through liquidity crisis • Save time • Improve internal controls/ enhance compliance • Achieve competitive returns when rates recover

24. Telephone and Data Systems • TDS / U.S. Cellular • 7.1 million landline & wireless customers • $940 million in corporate cash • Why LiquidityDirect at BNY Mellon (since 2005) • Ease of use / integration • Broad access to money market funds • Reporting / customization • Security / Segregation of Duties • Audit Confirmations / SOX 404 testing

25. Some Other Benefits • Access to investment expertise • Interest rates in one place, no phone calls to trade funds • Fewer wires (net buy and sell trades) • Integrate rate, balance, accrual data into daily and monthly accounting process • With omnibus account, easy to add new fund(s) • Single audit confirmation from Mellon • Access to historical data for analysis

26. Daily Process – Detail Rpt MMF data

27. Enter trades into TWS Daily Process - Workstation Import LMS data Import ERP forecast data

28. Evolving Investment Strategy • Move to U.S. insured investments (bills, notes, MMF, CDs, CP, and DDAs) • Move further out on the yield curve

29. Contact Information • Kirk Black, CTP, CPA, FINRA Licensed Representative Senior Relationship Manager, Investment Management Group (412) 234-3976 kirk.black@bnymellon.com