Where Have All the People Gone

1
Where Have All the People Gone?

• Preparing for a Pandemic

2
Where Have All the People Gone

• Moderator Steve Anderson IBM Global Business
  Services
• Jim Coppedge AIM Investment Services,
  Inc./AMVESCAP PLC
• Curtis Fields Franklin Templeton Investments
• Atanas Goranov GE Asset Management, Inc.

3
Regulatory Obligations Related to Business
Continuity

• Jim Coppedge
• General Counsel,
• AIM Investment Services and
• Associate General Counsel,
• AMVESCAP PLC

4
Agenda

• Introduction
• (How the applicable law is structured.)
• Duties of a Mutual Fund
• (How they drive the duties of the transfer
  agent.)
• Chronological Development of Regulatory Guidance
• Conclusion
• (Whats the point?)

5
Introduction

• The Federal Securities Laws seek to divide our
  operations up into the duties of
• mutual funds
• investment advisers
• brokers and dealers
• transfer agents

6
Duties of a Mutual Fund

• Section 22(e) of the Investment Company Act
  prohibits a registered investment company from
  suspending the right of redemption for more than
  seven days, except
• for any period during which the NYSE is closed
  (other than customary week-end and holiday
  closings) or during which trading on the exchange
  is restricted or

7
Duties of a Mutual Fund (cont)

• for any period during which an emergency exists
  as a result of which (A) disposal by the company
  of securities owned by it is not reasonably
  practicable or (B) it is not reasonably
  practicable for such company fairly to determine
  the value of its net assets
• The Commission shall by rules and regulations
  determine the conditions under which (i) trading
  shall be deemed to be restricted and (ii) an
  emergency shall be deemed to exist

8
Chronological Development of Regulatory Guidance

• November 1963, the SEC adopted a Rule, 22(e)-1,
  to declare that an emergency existed as a result
  of the assassination of President John F.
  Kennedy. The Rule prohibited investment
  companies from redeeming or repurchasing shares
  until the suspension of the Rule by the
  Commission.
• March 1970, the SEC provided guidance regarding
  the pricing of purchase and redemption orders
  held up in the mail as a result of a mail strike.

9
Chronological Development of Regulatory Guidance
(cont)

• July 1977, the SEC provided for the pricing of
  purchase and redemption orders as-of the
  following days NAV, where the NYSE closed due to
  a power blackout.
• February 1978, the SEC allowed funds located in
  areas which had been declared to be in a state of
  emergency as a result of a severe snow storm to
  suspend redemptions of shares for so long as such
  emergency lasts provided that sales of shares
  were also suspended.

10
Chronological Development of Regulatory Guidance
(cont)

• June 1985, SEC Release IC-14559 adopted an
  amendment to Rule 22c-1, adopted new Rule 22e-2,
  and provided additional guidance regarding a
  mutual funds obligations to price shares and
  process redemption orders. In a footnote, the
  Commission noted
• Where operational problems unrelated to an
  emergency closing result in transactions being
  processed on an "as of" basis, the adviser,
  transfer agent or another responsible party may
  be liable to the fund for any resulting dilution.

11
Chronological Development of Regulatory Guidance
(cont)

• December 1999, the SEC provided additional
  guidance regarding a mutual funds obligations to
  price shares and process redemption orders.
  Highlights included
• Section 22(e) does not permit funds to suspend
  redemptions in the absence of a determination
  made by the Commission.
• The letter introduces the idea that funds should
  anticipate and plan for such emergencies.

12
Chronological Development of Regulatory Guidance
(cont)

• April 2001, the SEC provided additional guidance
  regarding a mutual funds obligations to price
  shares and made clear that the SEC staff clearly
  expected funds to anticipate and plan for
  emergencies.
• September 2001, the SEC suspended numerous
  requirements within the Federal Securities Laws
  in consideration of the closure of the NYSE and
  other entities as a result of the attacks on the
  World Trade Center.

13
Chronological Development of Regulatory Guidance
(cont)

• January 2002, the SEC dusted off the 1970 letter
  regarding the pricing of purchase and redemption
  orders held up in the mail as a result of a mail
  strike.
• December 2003, the SEC adopted the mutual fund
  and investment adviser CCO Rules.
• Which relate to business continuity, how?

14
Chronological Development of Regulatory Guidance
(cont)

• Footnote 22 to the Release
• We believe that an adviser's fiduciary
  obligation to its clients includes the obligation
  to take steps to protect the clients' interests
  from being placed at risk as a result of the
  adviser's inability to provide advisory services
  after, for example, a natural disaster The
  clients of an adviser that is engaged in the
  active management of their assets would
  ordinarily be placed at risk if the adviser
  ceased operations.

15
Chronological Development of Regulatory Guidance
(cont)

• April 2004, the SEC approved the adoption of NASD
  Rule 3510(a) and proposed NYSE Rule 446(a), each
  setting forth a basic requirement for NASD and
  NYSE members and member organizations to create,
  maintain, review, and update written business
  continuity plans that identify procedures
  relating to an emergency or significant business
  disruption.

16
Conclusion(Whats the point?)

• There are actually three points
• You or your mutual fund clients and their
  distributors are legally required to have
  business continuity plans in place.
• You only get emergency relief if the SEC says
  you get emergency relief.
• The SEC now asks to see business continuity plans
  as a part of every examination.
• Thank you for your time.

17
Franklins Approach to Planning for a Pandemic
18
Pandemic Agenda

• Goal of this presentation
• Likelihood of a Pandemic
• Basic Business Continuity Strategy
• Why plan
• How will a pandemic differ
• Basic elements of our plan
• Crisis Management
• Business Continuity Planning
• Technology
• General Services
• Human Relations
• Corporate Communications

19
Pandemic Background
1. Goal To provide an overview of Franklins
current approach and thinking in regards to
planning for a possible Pandemic. 2. Likelihood
of a pandemic occurring The question is more
like earthquakes in California. It is not a
question of if, but rather when and how bad. Some
data points such as the 1918, 1957 1968
pandemics and SARs. But, no good data on
frequency or severity.
3. Strategy Our basic disaster planning strategy
is to shift our operations to other sites for 3
to 5 days, after which we will then need to start
to shift people to alternate sites. However,
this will not work in a pandemic situation.
20
Pandemic Background (Continued)
4. Why plan if civilization is going to collapse
We used a reasonable worst case
scenario. A scenario which we think is likely
to occur. This is not a worst case scenario
which anticipates the general breakdown of
society and services.

• 5. How will a pandemic differ from our normal
  incidents
• - Many sites are likely to be impacted
• at approximately the same time
• - Will not be able to shift people
• between sites
• Site might be impacted, but not
• incapacitated
• - Sites affected for months not hours
• Affects people directly not facilities or IT.
• Employees may choose not to come to work.
• No clear beginning or end.

21
Pandemic Plan Outline

• Our pandemic plan is broken down into
• 1. Crisis Management
• - Framework to address a pandemic
• - Tabletop exercises
• 2. Business Continuity Planning
• - Guidance to business units on how to review
  their business continuity strategies and
  workflows against a
• pandemic type scenario
• 3. Technology
• Steps to reduce the impact of a
• pandemic on our data centers
• - Increased remote work capabilities
• - Reviewing other strategies

22
Pandemic Plan Outline (Continued)

• 4. General Services
• Best practices for employee hygiene program and
  procedures for facility
• managers to follow in the event of a pandemic
• 5. Human Relations
• Global HR policy framework to provide
  recommendations to local HR
• groups to address issues that are likely to
  arise in a pandemic
• 6. Corporate Communications
• Integrated communication plan
• 7. Plan Does not currently include
• PPE such as Masks gloves, Etc.
• Antiviral Drugs such as Tamiflu
• Vaccines

23
Pandemic Closing
Questions?