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September 15, 2011 California Savings Plus Program Investment Operations Manual Operations Manual as of September 15, 2011 California Savings Plus Program Contents 1. Introduction ................................................................................................................ 2 2. Plan description ......................................................................................................... 3 3. Service Commitments ................................................................................................ 5 4. Plan Processing ....................................................................................................... 11 5. Transactional Errors ................................................................................................ 19 6. Fund Accounting ...................................................................................................... 20 7. Unit Value and NAV Methodology............................................................................ 21 8. Proxy services ......................................................................................................... 23 9. Securities Lending ................................................................................................... 24 10. Reporting ................................................................................................................. 26 11. Investment Compliance and Performance Monitoring .............................................. 31 Appendix A: Glossary of Terms Appendix B: Contacts Appendix C: Investment Options Appendix D: Accrual Schematics Appendix E: Cash, Trade and Operating Account Schematic Appendix F: Rebalancing Memo Mercer 1 Operations Manual as of September 15, 2011 California Savings Plus Program 1 Introduction The State of California Savings Plus Program (“SPP”) consists of the SPP Thrift Plan (the “401(k)”), the SPP Deferred Compensation Plan (the “457”) which has separate provisions applicable to part-time, seasonal, and temporary employees (the “PST Plan”), and the Alternate Retirement Program (the “ARP”) (collectively the “Plans”), The State of California Department of Personnel Administration (the “State”) has contracted directly with Nationwide Retirement Solutions (“NRS”) to provide administrative and record keeping services for the Plans. JPMorgan Worldwide Securities Services (“JP Morgan”) provides trust, custody, daily reconciliation and valuation for the Plans’ investment options, monthly reconciliation and reporting, investment manager interfaces, and valuations used to place and settle trades for rebalancing the Plans investment options through its agreements with NRS and SPP. Purpose The purpose of this document is to set forth the operating procedures employed in the delivery of products and services from SPP’s third-party partners in support of the Plans’ investments. Mercer 2 Operations Manual as of September 15, 2011 California Savings Plus Program 2 Plan description Plan Management California Department of Personnel Administration (“DPA”) administers a “deferred compensation plan” under Section 457 of the Internal Revenue Code (IRC), a taxdeferred savings plan established in 1985 and implemented in 1989 under Section 401(k) of the IRC, an Alternate Retirement Program (ARP) established in 2004 under Section 401(a) of the IRC, and a Part-time Seasonal, and Temporary Employees Retirement Program (PST Program) established in 1991 under Section 457 of the IRC. DPA’s authority to establish these plans is found in the California Government Code sections 19993, 19999.5, 19999.3, and 19999.2, respectively. The purpose of the 457 and 401(k) plans- collectively referred to as the “Main Plan” – is to provide savings opportunities for State employees as a supplement to their retirement income. Persons eligible to participate in the plans include State employees, appointed and elected officers of the State, California State judges, and employees of California State Universities. ARP was designed to be a retirement savings plan in lieu of retirement benefits under CalPERS during the first 24 months of State employment. The PST Program was implemented as a result of the 1990 Federal Omnibus Budget Reconciliation Act, and its purpose is to provide a retirement savings program for employees, who are not covered by CalPERS or Social Security. Staff Support SPP staff provides primary support to the Director of DPA in the administration of SPP. SPP staff makes recommendations to the Director on plan design issues, monitors contract compliance, serves as liaison to the Third Party Administrator (TPA), investment providers, investment consultants, and external tax counsel; and facilitates employee participation in SPP. Mercer 3 Operations Manual as of September 15, 2011 California Savings Plus Program Administration SPP operates an “unbundled” program structure which means that it has an open architecture that employs investment vehicles and advisory services from a variety of providers, enabling SPP to seek best-in-class providers. Currently, Nationwide Retirement Solutions (NRS serves as SPP’s TPA, providing consolidated recordkeeping services; a brokerage account; the Personal Choice Retirement Account (PCRA) through Charles Schwab & Co., Inc.; participant education and outreach services; and processing and call center functions.) In addition, JPMorgan Chase Bank, N.A. provides SPP with trustee and custodial services. Investments are obtained under separate contracts. Additional information about SPP can be found on the SPP Web site. www.sppforu.com Asset holdings The majority of assets are held in separate accounts; however, SPP also has other investment vehicles including commingled funds, mutual funds, and a variable annuity product. The Plans’ Investment Options The Plans’ investment structure includes a variety of investment options available for participant selection. The investment options include lifestyle asset allocations, index funds and actively managed funds, and a brokerage account. Mercer 4 Operations Manual as of September 15, 2011 California Savings Plus Program 3 Service Commitments Item Responsibility Frequency 1. Compile exchange, contribution and withdrawal directions from CA SPP participants NRS Daily 8:00 am ET 2. Update participant record keeping system with JPM Unit Values NRS Daily 9:00 am ET 3. Place trades for index funds; liquidity sleeves for equity funds, asset allocation funds; STIFCash; and Socially Responsible Fund NRS Daily Mercer Distribution External Managers Method Email and/or Fax Deadline 8:30 am ET 5 Operations Manual as of September 15, 2011 California Savings Plus Program Item Frequency Distribution 4. Brokerage Account Nightly NRS Transfer File Nightly Charles Schwab File uploaded to Schwab secure website All transfer requests on the transfer file to and from the Brokerage Account received by 4:00 pm ET on any day the NYSE is open will be initiated the same day. Transfers from the core funds to the sweep account must not be out of the market for longer than 1 business day. 5. Send Trade File to JPM NRS Daily JP Morgan Secure electronic transmission 8:00 am ET 6. Send Cash Summary to JPM NRS Daily JP Morgan e-mail with attachment 9:30 am ET 7. Management Reports NRS Monthly CA SPP NRS selfcertification DPA/SPP staff confirmation Monthly reports are due within 15 calendar days. 8. Demographic Reports Responsibility Monthly 9. Valuation Reports Monthly 10. Year End Valuation Reports Fiscal + Year end Fiscal + Year end Monthly 11. Reconciliation Reports 12. Errors and Omissions Report Monthly Method Deadline Quarterly reports are due within 30 calendar days. Semi-annual and annual reports due within 45 calendar days of the close of the reporting period. Ad-hoc reports will be due within a mutually agreed-upon timeframe. 13. Accounts Receivable report Mercer 6 Operations Manual as of September 15, 2011 California Savings Plus Program Item Responsibility Frequency Distribution Method Deadline 14. Share Balances Recon JP Morgan Client Service Monthly CA SPP Email On the 15th Calendar day of each month 15. Market Value Report JP Morgan Client Service Quarterly Dwight Email This report will be due within a mutually agreed-upon timeframe 16. Daily Trade and Money Market Report JP Morgan Client Service Daily NRS Email This report will be due within a mutually agreed-upon timeframe 17. Plan DDA Report Daily NRS Email This report will be due within a mutually agreed-upon timeframe 18. Top Ten Holdings Report for Active Funds Quarterly NRS Email 19. Loan Participation balance NRS adjustment Monthly JPM 20. Release wires to settle trades Daily External Email Managers Charles Schwab 4:00 pm ET Trust Accounting System 3:00 pm ET This report will be due within a mutually agreed-upon timeframe JP Morgan 21. Process cash and security JP Morgan transactions based on Trade File and Cash Summary Mercer Daily Emailed by Fund Balancing Team System generated 12:00 pm ET (Charles Schwab only) 7 Operations Manual as of September 15, 2011 California Savings Plus Program Item Frequency Distribution Method Deadline 22. The JPM accounting JP Morgan system keeps track of the NRS record keeping units for each investment option. On a daily basis the JPM’s accounting team reconciles the record keeping units held on their accounting system to the record keeping units on NRS’ record keeping system. JPM’s accounting team does this for each investment option. Once reconciled these units become the denominator for the Unit Value for each investment option Daily NRS if break is identified (ref. Section 5, Transactional Errors) Manual 3:00 pm ET 23. Reconcile third party fund shares (e.g., NT commingled funds) to shares held on trust accounting system JP Morgan Daily Manual 4:00 pm ET 24. Strike Unit Values for all Investment Options JP Morgan Daily NRS Email 7:00 pm ET 25. Send Unit Values to NRS JP Morgan Daily NRS Email 7:00 pm ET 26. Reconcile Plan account DDA. JPM reconciles transaction activity for DDA 627215700 (JPM titled) and e-mails information to Nationwide on a daily basis. JP Morgan Daily CA SPP & NRS Mercer Responsibility 8 Operations Manual as of September 15, 2011 California Savings Plus Program Item Responsibility Frequency Distribution Method Deadline 27. Report differences in Unit Values. JPM reconciles share balances (Nationwide, Northern Trust, and external manager values vs. JPM values) JP Morgan Daily NRS Email and phone Daily as soon as possible upon determination 28. Separate Accounts/ Fundof-Funds – Fund Rebalancing JP Morgan/NRS Monthly SPP Email Rebalance amounts determined on 4th business day based on prior day market values. Places rebalance trades as needed. 29. Separate Accounts/ Fundof-Funds – Performance Calculation NRS/JP Morgan Monthly CSPP participants Online and hardcopy Calculate monthly performance of SPP separate accounts/fundof-funds and verify against same information provided monthly by JP Morgan. Report the monthly performance on the web site, the VRU and applicable participant communications within 15 business days of month end. 30. Calculation of estimated investment fees for participant disclosures NRS Quarterly CSPP participants Online and hardcopy 15th business day after end of quarter 31. Fund fact sheet NRS Quarterly CSPP participants Online and hardcopy 10 days from receipt of information from managers 32. Fee Accrual Analysis JP Morgan Yearly SPP Email Once yearly an analysis of the past years actual custody and transaction fees is done. A recommendation will be made to the State of California whether to change the sitting accruals. This will be done within 60 days of receipt of the December invoices Mercer 9 Operations Manual as of September 15, 2011 California Savings Plus Program Mercer 10 Operations Manual as of September 15, 2011 California Savings Plus Program 4 Plan Processing This section addresses processes performed by JP Morgan and NRS in support of the Plans’ daily operating environment. Fees, Expenses and Accruals NRS shall remit SPP administrative fees ($1.50 per participant account per month) whenever requested by SPP and process reimbursements within 15 calendar days of month end. JP Morgan is responsible for processing investment advisor and custodian invoices. SPP shall instruct the investment advisors and custodian to remit such fees in accordance with agreed upon procedures. SPP Reimbursement The State has directed JPM to accrue 10 basis points against the market value of each investment option. If revenue sharing is provided by an investment advisor, then the expense reimbursement accrual is adjusted accordingly to ensure that 10 total basis points are accrued. JP Morgan DCD Fund Accounting accrues these amounts daily. Each month by the 15th calendar day, the DCD Operations team must wire transfer the total reimbursement amount to Nationwide Investment Service Corporation, JP Chase Columbus DDA # 614005064. Wire transfer procedures: DCD Fund Accounting uses a spreadsheet to report the reimbursement accrual amount which is sent to DCD Operations. DCD Operations authenticates the wire transfer amount on the SPP Reimbursement Accrual Spreadsheet with NRS and sends the spreadsheet to NRS for their information. The DCD Operations team places sales orders with SPP’s external fund managers to raise cash for the reimbursement. The Northern Trust ACWI EX-US Index fund has a T-2 trade notification requirement for which the notice must be received by 10:30 am ET. Mercer 11 Operations Manual as of September 15, 2011 California Savings Plus Program On settlement date the DCD Operations team will wire transfer cash to the NRS DDA, process expense transactions and unitize security sales in the Plans’ investment option accounts. NRS remits all fund reimbursements collected during a month to SPP by the 15th of the following month. Investment Manager Fees SPP will send a written direction to JP Morgan Client Service regarding separate account investment manager fee amounts to accrue daily against the accounts. JP Morgan Client Service will send SPP’s directions to DCD Fund Accounting who will accrue these amounts daily. SPP will send JP Morgan Client Service written direction to review and pay the investment manager fees upon SPP’s receipt of investment manager invoices. After receiving the direction from SPP, JP Morgan Client Service will first authenticate with the State (if necessary) after which the direction will be sent to the DCD Operations team for trading and processing. The DCD Operations team places sales orders with Northern Trust to raise cash for their fees. The Northern Trust ACWI EX-US Index fund has a T-2 trade notification requirement. Notice must be received by Northern Trust by 10:30 am ET. On settlement date the DCD Operations team will wire transfer cash to the investment manager, process expense transactions and STIF sales in the actively managed separate accounts. JP Morgan Fees The State will send a written directive to JP Morgan Client Service to accrue JP Morgan’s fees against the Plans investment option accounts. JP Morgan Client Service will send these directions to DCD Fund Accounting who will accrue these amounts daily. The State will send JP Morgan Client Service a direction to pay the JP Morgan fees upon the State’s receipt and approval of JP Morgan monthly invoices. JP Morgan Client Service will send the authenticated State direction to the DCD Operations team which will process the sales orders with Northern Trust, Hartford and Nationwide Bank to raise cash for the fees. In addition the DCD Operations team, on settlement date, will wire transfer cash to the address below and process expense transactions and unitized security sales in the investment option accounts. Chase Manhattan Bank ABA# 021000021 Acct: 9009002701 Reference Billing 5042E Mercer 12 Operations Manual as of September 15, 2011 California Savings Plus Program Once yearly an analysis of the custody, transaction and other fees will be done by JPMorgan. Based on this analysis recommendations for adjustments to the accruals will be made to the State of California. The State of California will decide whether to change the standing accruals. NRS Fees NRS fees are billed directly on a monthly basis to SPP. SPP wires fees directly to NRS. Cash/Trade File processing Trade File On each business day by 8:00 am ET NRS will send a Trade File by file transfer protocol (FTP) to JP Morgan with the following information: a) b) c) d) e) f) JPM P# Net participant cash flow Net participant record keeping units JPM calculated Unit Value A buy or sell trade type An indication of either a manual or NSCC trade method If NRS is unable to deliver the Trade File by FTP by 8:00 am ET, then they will contact the DC Operations team and advise when it will be sent. If by 9:00 am ET WSS has not received the Trade File or been contacted by NRS, then the DCD Operations team will contact NRS Production Assurance at (614) 249-5301. If NRS is unable to send the Trade File by 12:00 pm ET, then they will email the Trade File to the DCD Operations team (“Contingency Mode”). In Contingency Mode the DCD Operations team will process all cash and security transaction for the Plans manually. The DCD Operations team will make a best effort to finish processing so that all transaction activity is in the accounting system by 3:00 pm ET. It should be noted that manually processed transactions may impact the timeliness and accuracy of the daily Unit Values sent to NRS on the day(s) WSS employs Contingency Mode. NRS sends a manually emailed version of the BUYS Trustee Report to JP Morgan each morning. Cash Summary On each business day by 9:30 am ET, NRS will send a Cash Summary by e-mail to the DCD Operations team. If NRS is unable to deliver the Cash Summary by 9:30 am ET, the team will contact the DCD Operations team to advise them on when they should receive the file. A cash summary is communicated daily by NRS via email or fax. Mercer 13 Operations Manual as of September 15, 2011 California Savings Plus Program If by 9:00 am ET the DCD Operations team has not received the Cash Summary or been contacted by NRS, then the DCD Operations team will contact NRS. If NRS is unable to send the Cash Summary by 9:30 am ET, the Cash Summary will be faxed to the DCD Operations Team. If the DCD Operations team receives the Cash Summary by fax by 10:00 am ET, the team will process all cash transactions in Contingency Mode. Following processing in contingency mode, DCD Operations will make a best effort to send Schwab their wire by 12:00 ET. Reconciliation of Cash and Trade Files Once the DCD Operations team has the Cash Summary and Trade Files from NRS they will reconcile cash amounts for security purchases and sales on the Trade File to the cash amounts on the Cash Summary. Each day this reconciliation should net out to zero. The DCD Operations team will reconcile participant cash flow for all of the Plans’ investment options to the trade amounts for SPP’s mutual funds, liquidity vehicles, and separate accounts such as Dwight Asset Management. These should all balance vis-àvis investment option cash flow to the liquidity vehicle trade. If these do not reconcile, the DCD Operations team will contact NRS. If the Cash Summary to Trade File reconciliation does not net to zero, or the unitized trades don’t reconcile to the liquidity sleeve investments, then the DCD Operations team will contact NRS. Approval of Cash and Trade Files The NRS Trade File creates cash and security transactions in the WSS custody system for the Plans’ investment options. Cash transactions will be created as an inter-fund transfer with record keeping units for each of the Plans’ WSS investment option accounts. Security transactions are created as a buy or sell for each underlying manager in SPP’s investment option accounts. Security transactions, a participant driven activity, will result in a buy or sell for the underlying securities held in the WSS NAV accounts. Note that NRS Trade File does not have activity for Schwab and the Loan fund hence these transactions are created manually by the DCD Operations team. The NRS Trade File does not contain information for JPM to systemically process Schwab/Brokerage Fund and Participant Loan transaction activity. This information comes from NRS separate from their Trade File and, as such, JPM must process transactions manually to reflect this activity. NRS will assess fees to participants accounts effective the 3rd Saturday of the month. The following business day the fees will be sold through the buys/sells file. Mercer 14 Operations Manual as of September 15, 2011 California Savings Plus Program In summary: The DCD Operations team reconciles the following: a) Reconciles the Cash Summary and Trade files to zero b) Reconciles the investment option cash flow to the liquidity sleeve trades c) Ensures that cash and security transactions in the custody system reflect the Cash Summary and Trade Files DCD Ops transaction reconciliation is followed by transaction approval on the custody system. DCD Accounting checks the accounting system throughout the day. There is a hard cutoff of 3:00 pm EST for DCD Ops transactions to enter Accounting’s system. If, at 3:00 pm there are no DCD Ops transactions in the Accounting system the Accounting team calls DCD Ops. After the reconciliation is complete, the DCD Fund Accounting team approves the release of the cash and security transactions into the custody system. These transactions are swept into the accounting system and reviewed by the DCD Fund Accounting Team. Systemic transaction processing is targeted to be done by noon ET. Contingency Mode transaction processing is done on a best efforts basis. Trade Tickets On each business day, NRS faxes or emails Trade Tickets for each of the Plans’ investment options to the DCD Fund Accounting team. Trade Tickets are currently created for the liquidity sleeves, the STIF-Cash, and the variable annuity, and the STIF. The Northern Trust order forms are faxed each morning by 8:30 a.m. ET. The NW Bank and Dwight order forms are automatically emailed by BUYS early in the morning, at 7:30 a.m. ET and 8:00 a.m. ET, respectively. The Hartford order forms are faxed between 8:30 and 9:30 a.m. ET each morning. Record Keeping Unit Totals The NRS Fund Balancing Team emails the Unit Position Report, showing closing recordkeeping system unit totals, to DCD Fund Accounting on a daily basis. If the Unit Position Report totals for each investment option do not reconcile to the unit total on the WSS accounting system, then DCD Fund Accounting will contact the NRS Fund Balancing Team. All discrepancies are to be resolved prior to calculating a daily Unit Value. Failure to do so will result in a Unit Value error. Mercer 15 Operations Manual as of September 15, 2011 California Savings Plus Program Wire Transfer Processing Based on the Cash Summary, the DCD Operations team will send Fed Funds wire transfers to Schwab and the various checking accounts at JP Morgan listed on the Cash Summary. These wires will generally fund benefit payments, fees and expenses and self directed investment amounts. The DCD Operations team will also send wires to Northern Trust, Nationwide Bank, and Hartford for Neuberger Berman to fund purchases reported on the Trade File. The wire to Schwab will be sent by noon ET. All other wires will be sent each day prior to the closing of the Federal Reserve wire transfer system. If the Cash Summary shows a contribution (i.e., salary deferrals, rollover ins, exchange transactions) to the Plans, then the DCD Operations Team will transfer the funds from the Contribution DDA to the Custody Clearing Account. Contribution dollars remain in the Contribution DDA. The DCD Ops team uses this cash to settle trades placed by NRS. All incoming and outgoing wires flow through the WSS SPP Clearing Account P64282. Rebalancing On the 4th business day of the month, DC Fund Accounting will input the 3rd business day closing market values into a spreadsheet and send it to NRS for review. NRS will review the market values for reasonableness and approve the amounts in the spreadsheet and direct the DC Team to go forward with the re-balance process. The DC Team will place purchase and sale orders for all affected funds. The Northern Trust ACWI EX-US Index fund has a T-2 settlement process and those orders must be received by 10:30 am ET. On settlement date, the DC Team will process purchase and sale transactions in the investment option accounts, the unitized investment accounts, and the actively managed accounts as well as inter-fund transfers needed to rebalance the investment options. Settlement date can be as late as the 9th business day of the month. Demand Deposit Accounts NRS Plan Contribution DDA Mercer 16 Operations Manual as of September 15, 2011 California Savings Plus Program Daily the DDA titled Plan Contribution #627215700 is reconciled by JPMorgan and the report is sent via email to Nationwide. Additionally the monthly reconciliation of this account is sent to SPP by the 15th calendar day of the next month. 401K and 457 SPP Fee JPM Demand Deposit Account (“DDA”) Assessment The State will send written direction to Client Service to wire the fee assessment from the 457 #627215684 and 401K #627215676 JP Chase DDA accounts for the stated month. NRS will assess fees to participants accounts effective the 3rd Saturday of the month. The following business day the fees will be sold through the Buys/Sells file. The DCD Operations Team will then send a Fed Fund wire to the State of California, Bank of America DDA #01482-80005. Other Accounts Loan Balance The NRS Fund Balancing Team sends the Participant Loan month end share balances to JP Morgan Client Service. JP Morgan Client Service prepares the SPP Loan Participant Monthly Adjustment form to balance the JP Morgan Loan account P64266 to the NRS balance. The SPP Loan Participant Monthly Adjustment form is faxed to the DCD Operations team. The DCD Operations team processes cash and security transactions to adjust the JP Morgan balance to be in line with the NRS balance on JPM’s accounting system. Short Term Investment Fund-Cash Short Term Investment Fund-Cash (STIF-Cash) (formerly known as the Savings Pool) - STIF-Cash assets are invested in omnibus accounts with a number of financial institutions independently contracted by and with SPP. Current financial institutions are Nationwide Bank, Bank of Oklahoma, and Union Bank. The return is adjusted quarterly. NRS will maintain daily participant account balances, with interest posted on a daily effective method, compounded quarterly, based on the published quarterly rates of return as agreed upon by and between the financial institutions and SPP. JP Morgan will calculate the effective rate to be applied to participant accounts. Such calculation may involve calculating a blended rate or determining a rate based upon a given index. If the STIF-Cash providers offer varying rates, JP Morgan will calculate a blended rate by determining the weighted average yield based on the respective balances of the depositories at the beginning of each quarter. The weighted average yield will be used to construct daily unit values projected through the end of the quarter. Participants invested in STIF-Cash financial institutions are provided the same protections by the financial institutions offered to regular bank/credit union customers utilizing savings accounts (i.e., FDIC and/or NCUA insurance up to $250,000 per institution). Pursuant to SPP agreements, the institutions pledge acceptable collateral at 110% of any participant amount in excess of $250,000 held Mercer 17 Operations Manual as of September 15, 2011 California Savings Plus Program by that institution. In the event there is a change to the FDIC/NCUA insured amount, the collateral requirements will change accordingly. To facilitate and document the required level of pledge amounts, NRS will issue a monthly report to SPP and STIF-Cash financial institutions listing, by participant, account values requiring collateralization. Regardless of the number of participating STIF-Cash institutions, there will only be one “active” institution into and out of which daily transactions occur. Currently, the active institution is Nationwide Bank. Once a month, concurrent with the rebalancing of the separate accounts, funds will be transferred amongst the participating STIF-Cash financial institutions to equalize the asset balance with each financial institution. ARP Wire On the second Wednesday of each month, NRS FTP's a file to CalPERS (via SPP) containing data on the ARP participants who have elected Option 1 (transfer to CalPERS) in the group of participants whose election period ended in the prior month. NRS systematically processes a payout for those participants and creates a manual wire to CalPERS for the proceeds. Mercer 18 Operations Manual as of September 15, 2011 California Savings Plus Program 5 Transactional Errors When transactional errors (e.g. trading instructions, pricing errors, etc.) are discovered, all participants affected will be identified in a timely manner. NRS will perform a gain/loss analysis on these accounts to determine the financial impact to all affected participants. NRS will issue a corrected confirmation notice or letter to affected participants communicating the adjustment processed on their accounts for exchanges, end-result exchanges, transfers in, and PCRA transfers in and out. NRS Errors: NRS will be responsible for funding participant losses, regardless of materiality, resulting from errors caused by NRS. Plan Sponsor Errors: NRS will provide short-term cash needs for corrective actions. NRS will obtain reimbursement from SPP via the monthly invoice process. NRS will provide a monthly report detailing the funding activity for the prior month. The net amount of the funding activity will be added to the monthly invoice, as further described in Exhibit B – Budget Detail and Payment Provisions. Errors by Third Parties: In the case of an error by a third party, such as an investment provider’s pricing error, NRS will fund the shortfall and obtain reimbursement from the provider. NRS corrects all impacted transactions and provides SPP with a report of the impacted transactions, as well as a report detailing the cause of the error. Mercer 19 Operations Manual as of September 15, 2011 California Savings Plus Program 6 Fund Accounting JP Morgan Responsibilities On each business day JP Morgan DCD Fund Accounting: Reconcile cash and security positions between custody and accounting systems. Reconcile NRS Unit Position Report totals to the WSS accounting system. Reconcile the mutual fund investments held in the Plan to the transfer agent positions. Reconcile the commingled/fund positions held in the Plans’ unitized investment accounts. Reconcile shares of the unitized investment accounts to the shares owned by the Lifestyle and Active Equity investment options. Check SPP reimbursement accruals in the Plans’ investment options. Check JPM fee accrual in the Plans’ investment options. Check investment manager fees accruals in the unitized investment accounts and the actively managed separate accounts. Check the income accrual in the cash accounts unitized. Calculate net asset values (“NAVs”) for the unitized investment accounts and the actively managed separate accounts using a mutual fund based formula. Calculate Unit Values for investment options Transmit Unit Values to NRS by 7:00 pm ET. NRS Responsibilities NRS posts the Unit Values supplied by JP Morgan to the recordkeeping system on a daily basis. Mercer 20 Operations Manual as of September 15, 2011 California Savings Plus Program 7 Unit Value and NAV Methodology Unit Value DCD Fund Accounting calculates a daily price for each of the Plans’ investment options (Unit Value). Each investment option has its own WSS trust account (shown as “Pink Box” in Appendix C charts). On a daily basis, cash and security transactions are processed in each Pink Box based on Plan participant directions given to NRS. NRS’ Trade File and Cash Summary create cash and security transactions on a daily basis based on participant direction. Transactions flow from NRS into the JP Morgan custody and fund accounting systems. Security transactions in the Investment Options reflect an increase or decrease of the shares of the placeholder CUSIP in each account. DCD Fund Accounting calculates a price each day for these placeholder shares which become the numerator of the Unit Value fraction as shown below. Cash transactions are processed with record keeping units. Record keeping units are stored on the fund accounting system and reconciled each day. These units become the denominator of the Unit Value fraction. The Unit Value calculation also includes accrued expenses as shown below: Mercer 21 Operations Manual as of September 15, 2011 California Savings Plus Program Table 7.1 Factor formulae Result Formula Investment Option Value = Placeholder CUSIP shares x NAV Total Net Assets for the Investment Option Account = Unit Value = Investment Option Market Value less Accrued expenses for SPP & JPM fees Total Net Assets for the Investment Option Account divided by NRS’ Unit Position Report NAV for Unitized Investment Accounts JP Morgan calculates net asset values (NAVs) for the unitized investment accounts and the actively managed separate accounts using a mutual fund based formula as follows: Table 7.2 NAV formula Result Unit NAV = Formula [(Current day market value of securities held) less (Inv. manager fee accrual)] divided by Prior day closing shares outstanding The current day market value includes dividends, capital gains, interest, stock splits and any other corporate actions. The NAV is used to price the placeholder CUSIP in the Investment Option account. Mercer 22 Operations Manual as of September 15, 2011 California Savings Plus Program 8 Proxy services NRS will act as the agent for the SPP for proxy voting for variable annuities, mutual funds and commingled funds. Upon receipt of proxy materials from investment providers or JP Morgan, NRS will review the investment provider Board of Director’s recommended action. NRS will vote in accordance with this recommended action providing such action is in the best interest of SPP participants. Such guidance shall be provided by SPP to NRS upon NRS’ request. Each proxy vote will be reviewed and approved by an NRS representative prior to voting. Additionally, NRS will maintain a record of all proxy materials received and the final disposition of each matter. This proxy activity record will be provided to SPP in January and July, or immediately upon request. Proxies for all funds that are not variable annuities, mutual funds or commingled funds will be routed by JPM to the appropriate investment manager for voting. Separate account managers for SPP vote proxies for their accounts according to the firm’s proxy voting policies and procedures and provide quarterly reports to SPP. Mercer 23 Operations Manual as of September 15, 2011 California Savings Plus Program 9 Securities Lending Below is the list of accounts that are currently involved in the Securities Lending program: Table 9.1 Securities Lending Account List Account Account Name P 01887 STCA-CRM P 04200 STCA – COLUMBUS CIRCLE INVESTORS LARGE CAP GROWTH P 04199 STCA – WELLINGTON MANAGEMENT LARGE CAP GROWTH P 06232 STCA-ROBECO LARGE CAP VALUE P 06233 STCA-WILLIAM BLAIR SMALL CAP GROWTH P 06234 STCA – FRONTIER SMALL CAP GROWTH P 06293 STCA – MFS LARGE CAP VALUE P 31576 STCA STIF WELLS CAPITAL MANAGEMENT P 31577 STCA STIF JANUS CAPITAL MANAGEMENT P 61392 STCA THOMPSON, SIEGEL & WALMSLEY SMALL CAP VALUE P 61393 STCA PEREGINE ASSET MGMT SMALL CAP VALUE P 62774 STCA-MID CAP VALUE (T. Rowe) P 62775 STCA-MID CAP GROWTH (T. Rowe) P 89698 STCA MCKINLEY CAPITAL NON -US P 89699 STCA ALLIANCE BERNSTEIN STRATEGY Assets loaned from one or more of the investment manager accounts listed above generate securities lending revenues on a daily basis. JP Morgan shall credit accumulated securities lending revenue for the month on the 20th calendar day after month end to the appropriate investment manager account. The credited revenues are net of agreed-upon allocation to JP Morgan. Mercer 24 Operations Manual as of September 15, 2011 California Savings Plus Program As directed by written SPP instructions, JP Morgan shall transfer the net credited revenues from the investment manager accounts to the State of California Savings Plus Program Securities Lending Program account (P04746) via internal account-to-account transfer. Should the 20th calendar day fall on a weekend, the transfer shall be completed on the next business day. SPP has a standing instruction to move the funds from the State of California Savings Plus Program Securities Lending Program account (P04746) to the 457 Plan Fee Account #62752618 (a DDA) on the same day the funds are credited from the Securities lending Program. This movement will be less monthly JPM fees for account P04746. Mercer 25 Operations Manual as of September 15, 2011 California Savings Plus Program 10 Reporting NRS will prepare or make available the following reports for the 457 Plan, 401(k) Plan, the PST Program, and the ARP. All references below to SPP investments include the brokerage account. SPP may amend these report requirements. Monthly reports are due within 15 calendar days, quarterly reports are due within 30 calendar days, semiannual and annual reports due within 45 calendar days of the close of the reporting period. The ad-hoc reports will be due within a mutually agreed-upon timeframe. The following plan sponsor reports will be made available online: The Web Activity Report and the Automated Telephone Transactions Report will be presented in real-time using prior day’s close of business data. The Fund Summaries Report and the Fund Balance and Participant by Age Report utilize information which is updated weekly. Monthly Management Reports – Summary of participant activity identified by transaction type and medium used to perform transactions (Internet, VRU, or customer service representative [CSR]). Distribution Report by Plan – Summary of distributions issued during the period by distribution method (e.g. direct payments, periodic payments, rollover, purchase of service credit, etc.). The report is to include the dollar value of distribution as well as the number of distributions issued. For periodic payments the report will also include a breakdown of the number of checks issued versus Automatic Clearing House (ACHs) processed. (Separate reports for the Main Plan, PST Program and ARP.) Loan Report by Plan Type – Report to include number of loans and total dollar value of loans issued by loan type (residential vs. general purpose). (Not applicable to the PST Program or the ARP.) Mercer 26 Operations Manual as of September 15, 2011 California Savings Plus Program Administrative Fee Report – Report will include a breakdown of administrative fees assessed by plan, by tiered amount reporting the total number of accounts at a given tier and the total fee collected at each tier. (Not applicable to PST Program or ARP.) Statement of Assets by Plan by Investment Option – This section of the report will provide a summary of the market value of each investment option by Plan for the period, including the total plan assets as of the last business day of the month. Additionally the report will depict a percentage breakdown of the plan assets by assets class and asset category. (Separate reports for the Main Plan, PST Program and the ARP.) Statement of Assets by Participant Count – This section of the report will provide the number of participants invested in each investment option by plan, by money type and an unduplicated count (unique SSNs). (Separate reports for the Main Plan, PST Program and ARP.) Monthly Demographic Reports – Not applicable to PST or ARP, this report will summarize the demographic data of the participant base by unique SSN. Monthly Valuation Reports – This report will summarize the financial activity for the period, by transaction type, for each investment option, including the brokerage account, as reported by the recordkeeping system. For the 457 Plan, the 401(k) Plan, the PST Program and ARP, these reports will include the beginning balance (market value) and ending balance (market value and units) of each investment option. These reports will present the market value of each transaction type by investment option. NRS will notify SPP in a timely manner as mutually agreed upon by the parties of any previously produced monthly valuation report which has been amended due to corrective actions, transaction adjustments, etc. Monthly Trust Accounting Reports – This report is for all trust accounts holding SPP funds. The format and data provided, recommended by the trustee, will be subject to SPP approval and amendment. Monthly Reports for all Demand Deposit Accounts (DDA) for all State of California accounts held outside the Trust. Report all activity for the period including a detailed description of total deposits and total withdrawals. Quarterly Brokerage Account Summary Reports by Plan Type The report must include at a minimum the following: Mercer 27 Operations Manual as of September 15, 2011 California Savings Plus Program Participation: provide the number of accounts at the beginning of the period, accounts at the end of the period, and new accounts. Average Participant Profile: provide the average account balance, number of positions held by asset category, and average number of trades by asset class. Summary of Assets: o Sweep Account: provide the total value of assets residing in the account and the corresponding percentage that the sweep account represents of total brokerage account assets; o Net Asset Flow: provide net asset flow by asset category; and, o Investments: provide the allocation of investment activity by asset category including the top ten Equity Holdings, top ten Mutual Fund holdings, and their corresponding market value and percentage of total brokerage account assets. Fiscal and Calendar Year-End Reports – This report will summarize the data contained in the Monthly Valuation Reports. Data is provided in the same format as the monthly reports but provides data for the fiscal year ended June 30 and the calendar year ended December 31. Fiscal and Calendar Year-End Reconciliation Reports – “Trust to Recordkeeper”: These reports reconcile asset holdings, by plan and by program, as reported by the recordkeeping system, to the asset holdings as reported by the trustee system (reported in shares/units and market value). Any deviations are to be fully identified and explained by NRS. Fiscal and Calendar Year-End Reconciliation Reports – “Trust to Carrier”: These reports reconcile asset holdings, by plan and by program, as reported by the trustee’s system, to asset holdings as reported by the investment providers (reported in shares/units and market value). Any deviations are to be fully identified and explained by NRS. Fiscal and Calendar Year-End Reconciliation Reports – “Recordkeeper to Carriers”: These reports reconcile asset holdings, by plan and by program, as reported by the recordkeeping system, to asset holdings as reported by the investment providers (reported in shares/units and market value). Any deviations are to be fully identified and explained by NRS. Mercer 28 Operations Manual as of September 15, 2011 California Savings Plus Program Documentation of Disabled Veteran Business Enterprise (DVBE) Program Requirements (Std. 840) – NRS will report on its DVBE activities for the 12 months ended June 30. The report is due August 15th. This standard form can be located at http://www.pd.dgs.ca.gov/smbus/default.htm. Errors and Omissions Reports – These monthly reports provide details relating to each situation requiring NRS to provide short-term cash to fund corrective actions and/or failed negative contributions. (Separate reports for the Main Plan, PST and ARP.) Accounts Receivable Report – This report updates the status of participants for who SPP provided funding and from who NRS was directed to pursue reimbursement. (Separate reports for the Main Plan, PST and ARP.) Investment Provider Reimbursement and Other Administrative Revenue Report – This report provides the underlying details to substantiate the total amount received by NRS in revenue reimbursements by fund provider and plan type for the reporting period (e.g. the fund balance utilized by the fund company to calculate the provider reimbursement, the provider reimbursement factor and the resulting value of the reimbursement). A separate report shall be prepared to report the monthly accumulation of the daily fee accrual assessed against the NAV for selected funds. Deferral Change Report “650 Report” – This report contains all payroll deduction changes for the upcoming payroll cycle. A separate report is prepared for each payroll office in a format requested by the payroll office. This report is due by the fifth business day of the month. (Not applicable to the PST or ARP.) Call Center Reports – NRS shall prepare a weekly report indicating the number of calls to the VRU and the number of calls which request a CSR. NRS shall submit a monthly report, the cut off for which shall be the last calendar or last business day of the month. The monthly report shall also present information on a calendar year-to-date basis. Ad-Hoc Reports – As SPP may request, it is expected that such reports will pertain to activities and responsibilities undertaken by and agreed to by NRS. As such, no additional administrative costs are expected. However, if SPP deems the nature of a requested report to be extraordinary, a negotiated cost may be considered. Education and Outreach Reports – NRS will provide quarterly reports designed to measure the overall effectiveness of these efforts. The reports should include but are not limited to the following areas of analysis: new enrollees; changes in overall deferral amounts; changes in participant asset allocations; the number of group presentations, with attendance figures, and the number of individual counseling sessions made during the review period; and, a summary of feedback obtained from attendees. This quarterly education and outreach data will be included in the monthly management report referenced above. Mercer 29 Operations Manual as of September 15, 2011 California Savings Plus Program Top Ten Holdings Report – JP Morgan will prepare a report of the top ten holdings of the actively managed funds and will provide that report to NRS as soon as the information is available after the end of each calendar quarter. The report will list the top ten holdings and the percentage each holding is of the entire fund. Plan Year Foreign Holdings Report – JPMorgan will prepare a report of all foreign currency holdings as of June 30th which is the fiscal year end for the “Plan”. This is accomplished by receiving all foreign currency holdings from Northern Trust which manages the State of California ACWI EX-US fund as well as all foreign holdings within all Investment Management accounts within the custody system at JPMorgan. The ACWI EX-US holdings are proportioned among all investment options that hold the Northern Trust ACWI EX-US fund in amounts equal to the percentage of the fund held in each option. This is combined into one spreadsheet and supplied to the California DPA as soon as available after the end of the “Plan” year. Mercer 30 Operations Manual as of September 15, 2011 California Savings Plus Program 11 Investment Compliance and Performance Monitoring Mercer Mercer Sentinel provides Transaction Cost Analysis and FX Cost Analysis for SPP on an ad hoc basis. In addition, Mercer Sentinel provides Securities lending monitoring on a quarterly basis. Mercer shall provide quarterly investment performance reporting which will cover the following: Performance and market value of the underlying managers of the funds along with a rollup of each fund-of-funds performance compared to benchmarks and institutional peers. Median ranking for peer managers and an actual ranking of each fund. The rankings are to be based on institutional universes. A compliance section/summary which outlines compliance to the IPS, both quantitative (for example, 3 and 5-year performance vs. peers and benchmarks) in addition to qualitative criteria including changes in process, investment professionals, style drift, positioning within each fund of funds, and any relevant information/insights gathered. Executive summary which outlines specific recommendations regarding any aspect of the Program. Individual write-up on each of the managers, including a brief description of process, performance drivers for the quarter, statistical measures, quantitative/qualitative data on the investment managers, performance issues and recommendations. Mercer shall provide reports within 30 days after quarter end. Mercer will present the information at quarterly SPP Investment Committee meetings. Mercer 31 Operations Manual as of September 15, 2011 California Savings Plus Program Mercer shall perform compliance monitoring at the custodial level and based on the daily transactions from all the individual managers. The report entails reviewing/analyzing the daily transaction information from the custodian’s system to determine separate account investment manager’s compliance with the investment guidelines as specified in their contract with the Department and making recommendations/judgments accordingly. Mercer shall provide reports within 10 business days after receipt of data from the custodian. Mercer will solicit investment managers’ review and sign-off on compliance with the investment guidelines as specified in their contract with the Department. Solicitation will occur at least annually (more frequently if determined necessary). Mercer will provide a report including comments on any manager requested change(s) to their investment guidelines. Mercer will provide reports within 7 days after receipt of all manager information. Mercer will conduct annual Transaction Cost Analysis (TCA) for separate accounts: 1. Equity TCA – Evaluation and review of equity transaction costs (custodian driven data) across all active equity managers. Review shall cover both explicit (commission) and implicit (market impact) costs and use multiple transparent benchmarks (i.e., market database of stock trade information) to validate findings. 2. Foreign exchange (FX) TCA – Evaluation and review of FX costs (custodian driven data) for international separate accounts. Analysis will cover a 12-month period of transaction costs. Mercer shall provide reports within 50 days after receipt of data from the custodian. Mercer will conduct ongoing monitoring of all aspects of the investment process, including annual due diligence visits with managers (alternating between managers’ and Contractor’s locations), ongoing analysis of the comparable universe of strategies and products. Mercer will provide reports within 30 days after on-site due diligence visit is conducted. Mercer will conduct ongoing monitoring of all aspects of the securities lending agent(s), custodian, and transition managers, including annual due diligence visits with the services providers. Mercer will provide a report within 30 days after due diligence visit is conducted. JP Morgan Compliance reporting for the State of California is provided through the Boston offices of JP Morgan. Compliance Reporting Services has built a set of rules for each investment account according to the mandates of the Agreements between the State of California and its Investment Managers. Holdings and exception-based rules are constructed on the Mercer 32 Operations Manual as of September 15, 2011 California Savings Plus Program JPMorgan TRAC system to support the intentions of the different portfolios and to identify any possible variances from those intents. Current services include daily testing and review of potential violations via the JPMAccess Breach Register application, research and resolution of questionable violations, and provision of a quarterly summary of remaining violations for discussion with the client’s consultant, Mercer Company. The summary will be provided by Compliance Reporting to Mercer no later than the second business day of the month following the end of each quarter. Additional detail itemizing specific securities, their market value, country of origin, investment type etc. are also provided to Mercer as requested. Enhancements to compliance rule-sets may be requested by the State of California to include/exclude specific securities. Compliance Reporting Services will perform these updates and also make suggestions to assist with streamlining rule-sets. Any rules changes are documented and sent via email to the client for final approval. Compliance Reporting Services will establish a new set of rules for any new account as requested by the State of California, following the guidelines provided. New accounts will be established on the Compliance Reporting system no later than 20 Business Days after guidelines have been provided. In addition to opening new accounts for reporting, Compliance also removes closed accounts from the reporting systems as instructed by the client. On a quarterly basis, Compliance Reporting will provide SPP a report of service statistics and a listing of all current compliance-eligible accounts. Mercer 33 Operations Manual as of September 15, 2011 California Savings Plus Program 12 JPMorgan Class Action Processing JPMorgan maintains a dedicated class action unit in our Dallas, Texas operations center. This group of seven experienced professionals handle all class action claims processing for U.S. domestic accounts. The receipt of notice and process of filing claims includes research to determine valid holders, completion and submission of proof of claims, handling of any rejects and, ultimately, crediting of settlement funds received. Our class action service includes the following steps: 1). Proof of Claim Filing Procedures JPMorgan receives the majority of its notices via direct mail from the claims administrators and also subscribes to ISS’s Securities Class Action Service (SCAS). This service includes a monthly on-line securities class action newsletter with links to a comprehensive, fully searchable SCAS database. This database features comprehensive coverage of all securities class action cases and provides JPMorgan with e-mail alerts for changes in case status. Upon receiving notice of a pending class action settlement, JPMorgan will research trade and holdings information and identify the holders of the affected security during the class period. If we identify holdings for clients who are not part of the Securities Class Action Filing Service, we will send a copy of the notice of settlement and proof of claim form to those clients, with instruction for them to complete the proof of claim form if they desire to participate in the settlement. Please note that JPMorgan does not forward notice or proof of claim to those clients for whom we are actively filing. In order to obtain a share of settlement proceeds, three basic requirements must be met: Mercer 34 Operations Manual as of September 15, 2011 California Savings Plus Program the proof of claim form must be completed supporting documentation verifying trade info must be supplied the claim form must be signed. JPMorgan prioritizes all pending actions by filing deadline date, compiles the required documentation and submits a proof of claim per beneficial owner to the court-appointed claims administrator by the deadline date. The proof of claim is verified and then reviewed by the court-appointed claims administrator against the settlement criteria to determine whether the holdings or transactions are eligible to participate in the settlement. The class action file at JPMorgan remains open until settlement proceeds are received and distributed to clients or the claims are rejected because they do not meet the settlement criteria set by the court. 2). Rejections Claims may be refused by the courts or court-appointed claims administrator because they do not meet the settlement specifications set by the court or because the proof of claim is insufficient. JPMorgan processes these rejections as follows: Rejections for cause: When a court determines that a beneficial owner is ineligible to participate in the settlement, it typically sends JPMorgan a notice advising of the rejection and of the deadline and instructions for filing of appeals. JPMorgan advises clients that the claim has been rejected by the court. Rejections for proof: When JPMorgan receives notices of rejection for insufficient proof, the staff prioritizes the items by deadline date, compiles the additional proof or documents required by the court and re-submits the claim. JPMorgan does not refer these rejects to clients as the court will reconsider the proof of claim with the additional information. Because reject notices are sent by regular mail, and the deadlines given to file additional proof or appeal the court’s finding are short, JPMorgan often receives reject notices very close to the deadline dates. In addition, rejections for cause often do not state the reason for the court’s finding, and they rarely disclose the settlement criteria the court used to determine entitlements. This information is sometimes available from the claims administrator or the issuer. Rejections for cause are most often attributed to lack of a “recognized loss” according to the Plan of Allocation as described in the Notice of Settlement. 3). Distribution of Settlement Upon receipt of the settlement proceeds from the claims administrator, JPMorgan will effect a payment to the client’s account. Once payment is received the class action Mercer 35 Operations Manual as of September 15, 2011 California Savings Plus Program database is updated to reflect the receipt of payment (or securities) and the closure of the claim. 4). Monitoring and Reporting JPMorgan monitors all class action activity on an ongoing basis and provides quarterly reporting that includes the following information: Claim Status Case Number Class Period Opt-Out Deadline Claim Deadline Settlement Proceeds (cash or stock) Currently, class action reporting is available in hard copy or via e-mail, although JPMorgan is in the process of enhancing its reporting flexibility to include additional electronic means of delivery. Mercer 36 Operations Manual as of September 15, 2011 California Savings Plus Program 13 JPMorgan WSS AutoFX and Agent FX Process JPMorgan offers clients the flexibility to determine how FX deals are executed. Deals can be executed directly with the desk (3rd party basis), as part of the WSS custody standing instruction platform (AutoFX), through J.P.Morgan’s proprietary e-dealing platform (Morgan Direct) or any one of the leading third-party multi-bank FX portals, including but not limited to FXAll and FXConnect. Regardless of the method of execution chosen by Clients, JPMorgan is committed to providing full transparency and best execution. AutoFX AutoFX is the complete outsourced FX solution that automates everything from trade initiation to settlement and confirmation. Clients can chose to automate all FX transactions with AutoFX, or alternatively maintain direct execution of nominated currencies and accounts and automate all remaining currencies through AutoFX where Clients or their managers may have less focus, knowledge and/or expertise. Deals are automatically processed on the back of securities trades, income, dividends, corporate actions and tax reclaim activity and settled through J.P.Morgan’s FX infrastructure. As the process is automated, JPMorgan offers Clients the ability to establish a benchmark for the pricing and execution of all foreign exchange trades that meets their Best Execution requirements. AutoFX will enable Clients to remove certain FX risks, as JPMorgan assumes operational, settlement, replacement and reputational risks on behalf of its clients. Clients can also maximize cost efficiencies as FX dealing and settlement is outsourced to JPMorgan, thereby saving associated and duplicated infrastructure costs. Additionally, AutoFX automatically captures FX requirements, leading to 100% STP, Mercer 37 Operations Manual as of September 15, 2011 California Savings Plus Program thereby dramatically reducing costs associated with human error. AutoFX includes Agent only currencies with restrictions that permit onshore trading only. Income FX JPM's Income group oversees the operational process associated with the payments of foreign dividends and tax reclaims. This process includes reconciling dividend and interest payments from the local sub custodian across each individual holder of the security and allocating the proceeds to the underlying client account. As an added operational benefit, JPM Income offers Autocredit across 43 markets. Autocredit is the conditional advance of income and interest on unconfirmed funds based upon market announcements and information made available prior to pay date. For clients with Income FX SSI's, the FX is triggered and executed via a fully automated process once the Autocredit process runs. The FX is executed on pay date for same day value, irrespective of confirmed or unconfirmed fund status. If there’s a reversal or adjustment of the original payment, JPM will apply the pay date exchange rate regardless of the reconciliation date and assume full responsibility for any rate exposure. Due to specific market issues some currencies are not included in the Autocredit process. The main difference with Non Autocredit is the client account is paid based on confirmed funds only (i.e., once funds are received and reconciliation is completed with the sub custodian). The FX is also executed only upon receipt of confirmed funds. This typically occurs on or after pay date. Corporate Action FX JPM’s Corporate Action group oversees a process similar to Income as it pertains to foreign payments tied to various corporate action events. The corporate action process also includes reconciling payments received from the local subcustodian and allocating the cash positions across the underlying client account however this process is done on confirmed funds only. Once the reconciliation process is complete, they system recognizes clients who have FX SSI’s in place and automatically generates the instruction to the FX desk. This generally takes place on either pay date or pay date +1 depending on the market. Agent FX Agent FX represents JP Morgan’s process of executing FX transactions in highly regulated and restricted markets. “Restricted Markets” or “Agent Markets” require their currencies to be traded within the country (onshore). JPMorgan has established AgentFX as a best practice in consideration of the risks associated with each market. For Agent currencies, the rate will be obtained from our onshore subcustodian when the deal is booked locally and proactively monitored by JPMorgan Foreign Exchange desk in London, who are in from 12am to 10pm London time, to ensure best execution from our subcustodians/agents. Rates achieved will be dependent upon the currencies concerned, size of the deal, and market volatility at the time of booking the deal. In order to meet local requirements related to foreign exchange activity and other local regulations related to trade settlement and cash management, the FX execution timing is Mercer 38 Operations Manual as of September 15, 2011 California Savings Plus Program tied to the underlying securities trade settlement status ie., matched or settled for FX’s relating to purchases, sales and income. Given the vast currency, cash management and reporting restrictions in many restricted markets, the FX is only executed after the securities trade has matched in the market. Due to the different market settlement cycles FX execution timings can vary as security trades match anywhere from T1 or greater (relating to purchase trades). FX execution relating to the repatriation of local funds associated with a sale of a security trade will occur only upon confirmation of cleared funds. Depending on the local cash clearing process repatriations are executed earliest on SD or SD+1 and greater depending on local requirements i.e. tax impacts etc. The foreign exchange repatriations relating to specific tax, corporate actions, and/or dividend proceeds also require varying levels of direct linkage between the original income & the FX which is monitored by the sub custodian. Cash flow is restricted and overdrafts are illegal for foreign investors as such these markets are not part of the WSS Autocredit Product as the FX execution is only done upon confirmation & reconciliation of each client’s local payment proceeds- FX execution is typically on paydate +1 or greater. Summary of AutoFX Benefits: Risk Reduction - removes fail risk and linked reputation risk (and any associated costs) particularly in emerging markets with short settlement cycles and high overdraft rates. Also removes operational and replacement risk Error Reduction - eliminates/minimizes the need for manual FX instructions and therefore the associated opportunity for human error Efficiency & Cost Reduction - AutoFX provides the ideal vehicle for straight through processing, required to conduct investment activities, saving time and resource. It effectively outsources the FX infrastructure, eliminates unnecessary overdrafts and therefore reduces the number of currencies to be managed Confirmations - generates and delivers FX confirmations immediately upon execution of individual trades, or with daily reporting on FX trading activity for single or multiple account relationships, using a variety of methods (SWIFT, automated fax) To utilize AutoFX, Clients authorize and direct JPMorgan Worldwide Securities Services via standing settlement instructions (SSI’s), individually on a trade by trade basis, or through a stand-alone instruction (MT380 or fax). Mercer 39 Operations Manual as of September 15, 2011 California Savings Plus Program Appendix A Glossary of Terms Term Definition DCD Client Service Support JP Morgan unit that provides Client service and operational support for SPP and NRS DCD Fund Accounting JP Morgan unit that calculates daily Unit Values and NAVs DCD Operations JP Morgan unit that provides Daily interface with NRS, DCD Fund Accounting, SPP Client Service and investment managers. Responsible for all transaction processing DPA California Department of Personnel Administration JP Morgan Client Coverage Main point of contact for SPP and NRS JP Morgan Client Service Client service for SPP and NRS JPM WSS Worldwide Securities Services is the trust and custody business of JP Morgan NRS Nationwide Retirement Solutions NSCC National Securities Clearing Corporation, Mercer 40 Operations Manual as of September 15, 2011 California Savings Plus Program Appendix B Contacts Table B.1. JP Morgan Contacts Name Role Phone Fax Email Marion Scida Vice President (469) 477-1634 (469) 477-1904 [email protected] Jamshid Irshad Asst. Vice President (469) 477-2306 (469) 477-1904 [email protected] DCD Operations DCD Fund Accounting General E-Mail [email protected] Matt Reiben (469) 477-2214 (214) 451-6096 [email protected] Client Service/Coverage Jeffrey Autero Client Service Account Manager (212) 623-8756 (212) 623-3154 [email protected] Vito Milillo Client Service Account Manager (212) 623-8705 (212) 623-3154 [email protected] Kevin Isawa Coverage Officer (415) 315-7989 (415) 315-8235 [email protected] 41 Operations Manual as of September 15, 2011 California Savings Plus Program Table B.2. NRS Contacts Name Role Phone Fax Email Cynthia G. Dragics Relationship Manager (614) 854-8529 (614) 854-5115 [email protected] Stephanie Smith Program Director (916) 324-0513 (916) 939-2751 [email protected] Jeff Godorhazy Director of Accounting (614) 249-4356 (614) 677-2223 [email protected] Table B.3. Mercer Investment Consulting (Monitoring Services) Contacts Name Role Phone Fax Email David Williams Mercer Investment Consulting (206) 214- 3707 (206) 382 0627 [email protected] Paul Sachs Mercer Sentinel (215) 246-1297 (215) 246 1399 [email protected] Taaha Haq Mercer Sentinel (312) 902-7684 (312) 902 7626 [email protected] Table B.4. RV Kuhns & Associates Inc. (Plan Design and Search Services) Contacts Name Role Phone Fax Email Michael Ford Co-Lead (503) 221-4200 (503) 802-6908 [email protected] Marcia Beard Co-Lead (503) 221-4200 (503) 802-6901 [email protected] Table B.5. CA SPP contact information Name Role Phone Fax Email Michelle Berklacich Administrator (916) 324-0536 (916) 327-1885 [email protected] Alan Staton Deputy Administrator (916) 327-8984 (916) 327-1885 [email protected] Carrie Pierce Program Advisor – Investment Officer (916) 324-9355 (916) 327-1885 [email protected] Anastacio Santiago Program Advisor – Compliance Officer (916) 322-9500 (916) 327-1885 [email protected] 42 Operations Manual as of September 15, 2011 California Savings Plus Program Manager Contacts Table B.6. Alliance Bernstein L.P. Investment category/service Name Phone/ Fax Email International Value Bob Harleman T (310) 286-6089 F (415) 217-8133 [email protected] Investment category/service Name Phone/ Fax Email Short Term Investment-Cash Kristopher Neuhold T (405) 936-3926 F (405) 936-3965 [email protected] Table B.7. Bank of Oklahoma Table B.8. Columbus Circle Investors Investment category/service Name Phone/ Fax Email Large Cap Growth Stephen Weeks T (203) 353-6000 [email protected] Table B.9. Cramer Rosenthal McGlynn, LLC Investment category/service Name Phone/ Fax Email Mid Cap Blend Addison West T (212) 326-5318 [email protected] Table B.10. Wells Capital Management, LLC Investment category/service Name Phone/ Fax Email Short Term Investment Michael P. Rodgers T (415) 396-6911 F (415) 975-6214 [email protected] Table B.11. Frontier Capital Management 43 Operations Manual as of September 15, 2011 California Savings Plus Program Investment category/service Name Phone/ Fax Email Small Cap Growth Leigh Anne Yoo T (617) 443-1621 F (617) 267-0864 [email protected] Table B.12. Hartford Life Investment category/service Name Phone/ Fax Email Socially Responsible (Neuberger Berman) Kathleen Donahue T (860) 843-9402 F (866) 521-9643 [email protected] Table B.13. McKinley Capital Management, LLC Investment category/service Name Phone/ Fax Email International Growth Equity John Reynolds T (203) 202-2103 F (203) 202-1607 [email protected] Table B.14. MFS Institutional Advisors Inc. Investment category/service Name Phone/ Fax Email Large Cap Value Carolyn Lucey T (617) 954-5980 F (617) 210-8814 [email protected] Name Phone/ Fax Email Table B.15. Nationwide Bank Investment category/service 44 Operations Manual as of September 15, 2011 California Savings Plus Program Investment category/service Name Phone/ Fax Email Short Term Investment-Cash Mark Donati T (614) 249-9619 F (614) 249-7435 [email protected] Table B.16. Northern Trust Investments, N. A. Investment category/service Name Phone/ Fax Email Bond Index, Mid Cap Index, Large Cap Index, International Index, Small Cap Index, TIPS Index Daniel Hynes T (312) 444-7160 F (312) 444-4517 [email protected] Table B.17. Peregrine Capital Management, Inc. Investment category/service Name Phone/ Fax Email Small Cap Value Stefanie M. Adams T (612) 343-7660 F (612) 343-7631 [email protected] Table B.18. Robeco Investment Management Investment category/service Name Phone/ Fax Email Large Cap Value Sandy Sinor T (213) 687-1656 F (213) 687-1522 [email protected] Table B.19. Schwab via Nationwide Retirement Solutions Investment category/service Name Phone/ Fax Email Brokerage Account Ken Nichols T (602) 355-3359 F (602) 355-4859 [email protected] Phone/ Fax Email Table B.20. Thompson, Siegel & Walmsley LLC Investment category/service Name 45 Operations Manual as of September 15, 2011 California Savings Plus Program Investment category/service Name Phone/ Fax Email Small Cap Value Shelton Horsley T (804) 353-4500 F (804) 213-4958 [email protected] Table B.21. T. Rowe Price Associates, Inc. Investment category/service Name Phone/ Fax Email Mid Cap Growth Mid Cap Value David B. Orlando T (415) 772-1103 F (415) 772-1111 [email protected] Investment category/service Name Phone/ Fax Email Short Term Investment-Cash Cindy Dekruyf T (323) 278-6449 F (800) 738-2329 [email protected] Table B.22. Union Bank of California Table B.23. Wellington Management Company LLP Investment category/service Name Phone/ Fax Email Large Cap Growth Sue Bonfeld T (415)-627-1820 F (415)-627-1801 [email protected] Name Phone/ Fax Email Table B.24. William Blair Investment category/service 46 Operations Manual as of September 15, 2011 California Savings Plus Program Investment category/service Name Phone/ Fax Email Small Cap Growth Gabe Ayoroa T (312) 364-8217 [email protected] F (312) 577-0908 Table B.25. Janus Capital management Investment category/service Name Phone/ Fax Email Short Term Ken Paieski T (303)619-5568 [email protected] F (303) 394-7697 47 Operations Manual as of September 15, 2011 California Savings Plus Program Appendix C Investment Options Chart C.1. Investment Options – As of September 15, 2011 e following tables show details of SPP’s Investment Option Accounts: Table C.2. Active Equity Options Large Cap Equity – P65872 Underlying Manager(s) NTGI S&P 500 Index MFS Large Cap Value Columbus Circle Large Cap Growth Robeco Large Cap Value Wellington Large Cap Growth Allocation % 40% 15% 15% 15% 15% 100% Vehicle type Account CUSIP/Placeholder Collective fund (liquidity vehicle) Separate account Separate account Separate account Separate account P64268 P06293 P04200 P06232 P04199 629998550 59399J608 124996323 770995850 949994776 Mid Cap Equity – P65873 48 Operations Manual as of September 15, 2011 Underlying Manager(s) NTGI S&P 400 Index T. Rowe Mid Cap Value T. Rowe Mid Cap Growth CRM California Savings Plus Program Allocation % 10% 29% 32% 29% 100% Vehicle type Account CUSIP/Placeholder Collective fund (liquidity vehicle) Separate account Separate account Separate account P65081 P62774 P62775 P01887 629998790 779990027 872992482 126990332 Vehicle type Account CUSIP/Placeholder Collective fund (liquidity vehicle) Separate account Separate account Separate account Separate account P65080 P61392 P61393 P06233 P06234 629992488 872990221 713990042 416528800 359994878 Vehicle type Account CUSIP/Placeholder Collective fund (liquidity vehicle) Separate account Separate account P89697 P89699 P89698 629992850 018996546 857998520 Vehicle type Account CUSIP/Placeholder Collective fund (liquidity vehicle) Mutual fund Mutual fund P64269 P06235 P06887 629998758 04399J604 779996511 Small Cap Equity – P65874 Underlying Manager(s) NTGI Russell 2000 Index TSW Small Cap Value Peregrine Small Cap Value William Blair Small Cap Growth Frontier Small Cap Growth Allocation % 10% 22.5% 22.5% 22.5% 22.5% 100% International Equity – P62773 Underlying Manager(s) NTGI MSCI ACWI EX-US Index AllianceBernstein International Value McKinley International Growth Allocation % 10% 45.0% 45.0% 100% Table C.3. Bond Fund and STIF Options Bond Fund – P65871 Underlying Manager(s) NTGI Aggregate Bond Fund Artio Bond Fund T. Rowe Price Bond Fund Allocation % 20.00% 40.00% 40.00% 100% 49 Operations Manual as of September 15, 2011 California Savings Plus Program STIF Fund – P66547 Underlying Manager(s) STIF Cash FDIC Providers STIF Cash Govt MM Funds Allocation % 50% 50% 100% Vehicle type Account CUSIP/Placeholder Cash Cash P05488 P05489 905993697 092996370 Account CUSIP/Placeholder Collective fund P64269 629998758 Vehicle type Account CUSIP/Placeholder Collective fund P64268 629998550 Vehicle type Account CUSIP/Placeholder Collective fund P65081 629998790 Vehicle type Account CUSIP/Placeholder Table C.4. Index Fund and Stand-Alone Options Bond Index – P65866 Underlying Manager(s) NTGI Market Duration Bond Index Allocation % 100% Vehicle type Large Cap Equity Index – P65867 Underlying Manager(s) NTGI S&P 500 Index Allocation % 100% Mid Cap Equity Index – P65868 Underlying Manager(s) NTGI S&P 400 Index Allocation % 100% Small Cap Equity Index – P65869 Underlying Manager(s) NTGI Russell 2000 Index Allocation % 100% Collective fund P65080 629992488 International Index – P65870 Underlying Manager(s) NTGI MSCI ACWI EX-US Index Allocation % 100% Vehicle type Account CUSIP/Placeholder Separate account P89697 629992850 Short Term Investment (Stable Value) – P65875 50 Operations Manual as of September 15, 2011 Underlying Manager(s) Wells Capital Management Janus Capital Management California Savings Plus Program Allocation % 50% 50% Vehicle type Account CUSIP/Placeholder Separate account Separate account P31576 P31577 949996524 470995846 Vehicle type Account CUSIP/Placeholder Variable Annuity P64280 416998243 Socially Responsible Investment- P64280 Underlying Manager(s) Hartford Allocation % 100% Table C.5. Plan Features Accounts Brokerage Window – P64265 Underlying Manager(s) Various -- aggregate balances only Allocation % n/a Vehicle type Account CUSIP/Placeholder n/a P64265 806995114 Vehicle type Account CUSIP/Placeholder n/a P64266 89299V500 Vehicle type Account CUSIP/Placeholder P31576 P31577 949996524 470995846 Loan Account – P64266 Underlying Manager(s) Various -- aggregate balances only Allocation % n/a PST Account – P64281 Underlying Manager(s) Wells Capital Management Janus Capital Management Allocation % 50% Separate account 50% Separate account 51 Operations Manual as of September 15, 2011 California Savings Plus Program Table C.6. – Lifestyle Asset Allocation Options Conservative – P65861 Underlying Managers/Accounts NTGI Market Duration Bond Index NTGI S&P 500 Index NTGI S&P 400 Index NTGI Russell 2000 Index NTGI MSCI ACWI EX-US Index Diversified Real Return Fund STIF Low Duration – Wells STIF Low Duration - Janus STIF Cash – FDIC Providers STIF Cash – Gov’t MM Providers Allocation % Account CUSIP/Placeholder 33 .00% 5.20% 1.60% 1.20% 8.00% 10.00% 15.50% 15.50% 5.00% 5.00% 100% P64269 P64268 P65081 P65080 P89697 P14201 P31576 P31577 P05488 P05489 629998758 629998550 629998790 629992488 629992850 629996356 949996524 470995846 905993697 092996370 Allocation % Account CUSIP/Placeholder 35 .00% 11.05% P64269 P64268 629998758 629998550 3.40% 2.55% 17.00% 10.00% 8.00% 8.00% 2.50% 2.50% 100% P65081 P65080 P89697 P14201 P31576 P31577 P05488 P05489 629998790 629992488 629992850 629996356 949996524 470995846 905993697 092996370 Moderately Conservative – P65862 Underlying Managers/Accounts NTGI Market Duration Bond Index NTGI S&P 500 Index NTGI S&P 400 Index NTGI Russell 2000 Index NTGI MSCI ACWI EX-US Index Diversified Real Return Fund STIF Low Duration – Wells STIF Low Duration - Janus STIF Cash – FDIC Providers STIF Cash – Gov’t MM Providers 52 Operations Manual as of September 15, 2011 California Savings Plus Program Moderate – P65863 Underlying Managers/Accounts NTGI Market Duration Bond Index NTGI S&P 500 Index NTGI S&P 400 Index NTGI Russell 2000 Index NTGI MSCI ACWI EX-US Index Diversified Real Return Fund STIF Low Duration – Wells STIF Low Duration - Janus Allocation % Account CUSIP/Placeholder 29.00% 15.60% 4.80% 3.60% 24.00% 15.00% 4.00% 4.00% 100% P64269 P64268 P65081 P65080 P89697 P14201 P31576 P31577 629998758 629998550 629998790 629992488 629992850 629996356 949996524 470995846 Moderately Aggressive – P65864 Underlying Managers/Accounts NTGI Market Duration Bond Index NTGI S&P 500 Index NTGI S&P 400 Index NTGI Russell 2000 Index NTGI MSCI ACWI EX-US Index Diversified Real Return Fund Allocation % Account CUSIP/Placeholder 16.00% 20.80% 6.40% 4.80% 32.00% 20.00% 100% P64269 P64268 P65081 P65080 P89697 P14201 629998758 629998550 629998790 629992488 629992850 629996356 Allocation % Account CUSIP/Placeholder 29.25% 9.00% 6.75% 45.00% 10.00% 100% P64268 P65081 P65080 P89697 P14201 629998550 629998790 629992488 629992850 629996356 Aggressive – P65865 Underlying Managers/Accounts NTGI S&P 500 Index NTGI S&P 400 Index NTGI Russell 2000 Index NTGI MSCI ACWI EX-US Index Diversified Real Return Fund 53 Operations Manual as of September 15, 2011 California Savings Plus Program Appendix D Accrual Schematics Chart D.1. Accrual Schematic – As of September 15, 2011 STCA SPP Expense Accrual Schematic – September 2011 P65861 Target Risk – Conservative Accrual Type Amount STCA Reim. 10 bp JPM see sched. P 65866 Market Duration Bond Accrual Type Amount STCA Reim. 10 bp JPM see sched. P 64281 PST Account Accrual Type STCA Reim. JPM P66547 STIF Cash Accrual Type STCA Reim. JPM Amount 10 bp see sched. P65862 Target Risk – Mod. Cons. Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65867 Large Cap Equity Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65871 Market Duration Bond Accrual Type Amount STCA Reim. 10 bp JPM see sched. Amount 7.5 bp see sched. P65863 Target Risk – Moderate Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65868 Mid Cap Equity Index Accrual Type Amount STCA Reim. 10 bp JPM see sched. P64280 SRI Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65864 Target Risk – Mod. Agg. Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65865 Target Risk – Aggressive Accrual Type Amount STCA Reim. 10 bp JPM see sched. P 65869 Small Cap Equity Index Accrual Type Amount STCA Reim. 10 bp JPM see sched. P 65870 Non-US Equity Index Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65875 P14200 Short Term Investment Accrual Type Amount STCA Reim. 10 bp JPM see sched. Diversified Real Return Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65872 Active Core – Large Cap Accrual Type Amount STCA Reim. 10 bp JPM see sched. P65873 Active Core – Mid Cap Accrual Type Amount STCA Reim. 10 bp JPM see sched. P 65874 Active Core – Small Cap Accrual Type Amount STCA Reim. 10 bp JPM see sched. P 62773 Active Core – Int’l. Eq. Accrual Type Amount STCA Reim. 10 bp JPM see sched. P64265 Brokerage Window See Page 3 for Asset Allocation % Detail P64266 Loan Account: Holds JPM Dummy CUSIP – 89299V500 Participant Loan P 64269 – Market Duration Bond Accrual Type Amount JPM see sched. P64268 – S&P 500 Index Fund Accrual Type Amount JPM see sched. P65081 – S&P 400 Index F und Accrual Type Amount JPM see sched. P65080 – Russell 2000 Index Accrual Type Amount JPM see sched. P89697 – Intl Index Fund Accrual Type Amount JPM see sched. P 31576 – Wells Accrual Type JPM IM P05488 – STIF Cash-FDIC Accrual Type Amount JPM see sched. P05489 – STIF Cash-Govt MM Accrual Type Amount JPM see sched. P06235 – Artio Bond Fund Accrual Type Amount JPM see sched. P06887 – T. Rowe Bond Fund Accrual Type Amount JPM see sched. Low Duration Amount see sched. see sched P 31577 – Janus Low Duration Accrual Type Amount JPM see sched. IM see sched P14201 – Div ersified Real Return Accrual Type Amount JPM see sched. 54 Operations Manual as of September 15, 2011 California Savings Plus Program Appendix E Cash, Trade and Operating Account Schematic Chart E.1. Cash, Trade and Operating Account Schematic – As of September 15, 2011 STCA Cash, Trade and Operating Account Schematic – September 2011 P65861 Target Risk – Conservative Holds NAV a/c CUSIPS Bond – 629998758 100.00 Large – 629998550 Mid – 629998790 Small– 629992488 Intl- 629992850 LD Wells – 949996524 LD Janus – 470995846 DRR-629996356 STIF-FDIC-905993697 STIF-Govt -092996370 % P65862 Target Risk – Mod Conservative Holds NAV a/c CUSIPS % Bond – 629998758 100.00 Large – 629998550 Mid – 629998790 Small– 629992488 Intl- 629992850 LD Wells – 949996524 LD Janus – 470995846 DRR-629996356 STIF-FDIC-905993697 STIF-Govt -092996370 P65863 Target Risk – Moderate Holds NAV a/c CUSIPS Bond – 629998758 Large– 629998550 Mid – 629998790 Small– 629992488 Intl– 629992850 DRR – 629996356 LD Wells – 949996524 LD Janus - 470995846 % 100.00 P65864 Target Risk – Mod. Aggressive Holds NAV a/c CUSIPS % Bond – 629998758 Large– 629998550 100 Mid– 629998790 Small– 629992488 Intl– 629992850 DRR – 629996356 P65865 Target Risk – Aggressive Holds NAV a/c CUSIPS Large– 629998550 Mid– 629998790 Small– 629992488 Intl– 629992850 DRR – 629996356 % 100.00 P65875 P 65866 Market Duration Bond Index Holds NAV a/c CUSIP Bond – 629998758 100% P 14200 Diversified Real Return Holds NAV a/c CUSIP DRR – 629996356 100% P65871-Market Duration Bond Holds NAV a/c CUSIPS Bond – 629998758 100% Artio – 04399J604 T. Rowe – 779996511 P65867 Large Cap Equity Index Holds NAV A/c CUSIP Large – 629998550 100% P 64281 PST Account Holds NAV a/c CUSIP LD Wells – 949996524 LD Janus – 470995846 P65872 Active Core – Large Cap Holds NAV a/c CUSIPS Large – 629998550 100% MFS – 59399J608 Robeco – 770995850 Wellington – 9499994776 Col. Circle – 124996323 P65868 Mid Cap Equity Index Holds NAV a/c CUSIP Mid – 629998790 100% 100% P 65869 Small Cap Equity Index Holds NAV a/c CUSIP Small – 629992488 100% P66547 STIF Cash Holds NAV a/c CUSIPS FDIC Providers - 905993697 Govt MM Funds– 092996370 100% P65873 Active Core – Mid Cap Holds NAV a/c CUSIPS Mid – 629998790 100% T. Rowe – 779990027 T. Rowe – 872992482 CRM – 126990332 P 65870 Non-US Equity Index Holds NAV a/c CUSIP Intl – 629992850 100% P64265 Brokerage Window Holds JPM Dummy CUSIP Schwab – 806995114 P 65874 Active Core – Small Cap Holds NAV a/c CUSIPS Small – 629992488 100% TSW – 872990221 Peregrine – 713990042 William Blair – 969997865 Frontier - 359994878 Short Term Investment Holds NAV a/c CUSIP LD Wells –949996524 100% LD Janus – 470995846 P64280 SRI Holds Street CUSIP Neuberger Berman 416998243 100% P 62773 Active Core – Int’l. Eq. Holds NAV a/c CUSIPS Intl – 629992850 100% Bernstein – 018996546 McKinley – 857998520 See Page 3 for Asset Allocation % Detail P64266 Loan Account: Holds JPM Dummy CUSIP – 89299V500 Participant Loan 55 Operations Manual as of September 15, 2011 California Savings Plus Program STCA SPP Investment Option Asset Allocation Schematic – September 2011 P 64269 – Market Duration Bond Index Holds JPM Dummy CUSIP NTRS Bond Index – 629990623 NAV a/c CUSIP 629998758 P64268 – S&P 500 Index Fund Holds JPM Dummy CUSIP NTRS S&P 500 Index – 629999012 NAV a/c CUSIP 629998550 P65081 – S&P 400 Index F und Holds JPM Dummy CUSIP NTRS Mid Cap Index – 629990607 NAV a/c CUSIP 629998790 P65080 – Russell 2000 Index F und Holds JPM Dummy CUSIP NTRS Small Cap Index – 629990599 NAV a/c CUSIP 629992488 P06235 – Bond Index Fund Holds Street Cusip Artio Total Return Bond – 481378Z91 NAV a/c CUSIP 04399J604 P06887 – Bond Index Fund Holds Street Cusip T. Rowe Inst. Core Plus Bond – 77958B303 NAV a/c CUSIP 779996511 P 31576 – Wells Capital Low Duration Fund Holds GICS, BONDS and STIF CUSIPS NAV a/c CUSIP 949996524 P89697 – ACWI-EX US Fd Holds JPM Dummy CUSIP NTRS International Index – 629994260 NAV a/c CUSIP 629992850 P14201 – Diversified Real Return Holds Street/JPM Dummy CUSIP Alliance Bernstein– 018907501 Wellington – 94966R709 NTRS TIPS Index – 629991431 NAV a/c CUSIP 629996356 P05488 – STIF Cash FDIC Holds JPM Dummy CUSIP Union Bank – 857994750 Bank of OK – 857993695 Nationwide Bank – 857992168 NAV a/c CUSIP 905993697 P 31577 – Janus Low Duration Fund Holds GICS, BONDS and STIF CUSIPS NAV a/c CUSIP 470995846 P05489 – STIF Cash Govt Money Market Funds Holds Street CUSIPS Blackrock Fed – 09248U700 RBC Govt Fund – 74926P696 NAV a/c CUSIP-092996370 P64282 Clearing Account 56 Operations Manual as of September 15, 2011 California Savings Plus Program Appendix F Rebalancing Memo To: Carrie Pierce, California Savings Plus Program Date: December 13, 2007 From: Kelly Tracey, Paul G. Sachs Subject: Michelle Berklacich, Troy Saharic, David Williams The California Savings Plus Program (“the Program”) asked the Mercer Sentinel® Group (“Mercer Sentinel”) to review the needs of the Program with regard to liquidity management and rebalancing, and to formulate policies for each of these activities. In this memo, Mercer Sentinel presents its recommendations, including general and specific liquidity and rebalancing policies. The general liquidity and rebalancing policies establish a consistent and objective processing framework for the overall Program. The specific liquidity and rebalancing policies present detailed recommendations for each investment option, including which specific liquidity vehicles will be used and how rebalancing is to be implemented. 57 Operations Manual as of September 15, 2011 California Savings Plus Program Background & Recommendations Within an investment option comprised of multiple separate accounts and/or fund vehicles, identifying one component to serve as the primary vehicle through which funds are contributed and disbursed reduces transaction costs and mitigates operational risk. We refer to this component as the ‘liquidity vehicle.’ The liquidity vehicle is typically either a daily valued index fund vehicle that is aligned with the intended asset class exposure for an investment option, or the largest liquid active component within the investment option. The goal of an effective liquidity management structure is to minimize transaction costs associated with market trading and to maximize the intended asset class exposure. Appendix A (attached) depicts Mercer Sentinel’s recommended liquidity vehicles for each investment option. Rebalancing asset and manager allocations is necessary to control risk. Without rebalancing, allocations drift off-target and upset the balance between risk and reward. Rigorous adherence to a formal rebalancing policy eliminates the need to make discretionary asset allocation decisions, which is particularly important in volatile markets when emotions may obscure objectivity. Implementing a formal rebalancing policy will also provide the Program with fiduciary protection when potentially “unpopular” reallocations are required during adverse market conditions. Mercer Sentinel recommends testing monthly to ensure that the Program’s fund options are not diverging from their intended benchmarks. Since the Total Risk Funds are constructed solely using index funds, dispersion from the composite benchmark is likely to be more apparent to plan participants than if the Total Risk Funds were constructed using active funds. Investing in index funds implies less tolerance for dispersion away from the benchmark, so we believe monthly rebalancing will be the best approach to minimize dispersion. As envisioned, if rebalancing is necessary, the Recordkeeper/Custodian1 would handle the rebalancing and alert the investment managers of cash movements three days prior to actual activity. The recommended policy dictates that the Recordkeeper/Custodian would rebalance halfway back to the target allocation from the tolerance limit. Appendix A depicts the 1 To implement a rebalancing policy, it is assumed that Funds will require one of their agents to perform the actual rebalancing calculations. This agent may be the Fund’s recordkeeper, custodian, or an additional party. For the purposes of this memo, we will use the term ‘Recordkeeper/Custodian’ to represent the Program’s agent. 58 Operations Manual as of September 15, 2011 California Savings Plus Program tolerance ranges and rebalancing rules for Investment Options 1 – 5 and 14 – 17. As we are all well aware, implementation by the Recordkeeper/Custodian will require standing instructions issued by the Program and accepted by the Recordkeeper/Custodian. Policy Overview Liquidity Policy As envisioned in the Program’s structure, each investment option will include a liquidity vehicle in the form of a highly liquid, daily valued index fund. Rather than maintain a large cash position (which creates performance drag) or force individual separate account managers to trade on a daily basis in the open market (which increases transaction costs and operational risk), daily participant cash flows will be effected within the liquidity vehicle. The goal is to avoid situations where an active manager may have to buy securities one day to accommodate participant contributions, and then sell those same positions three days later to accommodate participant redemptions. When selecting the liquidity vehicle for each investment option, Mercer Sentinel considered each investment option’s structure and mandate. Mercer Sentinel used the following guidelines as a general approach for the Program when determining the liquidity vehicle: For single asset class funds (e.g., Active Core Options): The index fund is the liquidity vehicle for participants’ cash flows. For multiple asset class funds (e.g., Target Risk Funds): The liquidity vehicle is the most liquid fund (that is, the component with the most liquid underlying securities). If the liquidity characteristics are similar, the fund with the largest allocation is the most appropriate liquidity vehicle. When selecting a liquidity vehicle, the most important factor to consider is liquidity of the underlying securities, followed by allocation size. For example, in the first two Target Risk Funds, the Duration Bond Index is a better choice as a liquidity vehicle than the Stable Value Fund, even though the target allocation for the Stable Value Fund is much larger than that of the Duration Bond Index. The Stable Value Fund is not constructed to accommodate daily cash flows, whereas the underlying assets of the 59 Operations Manual as of September 15, 2011 California Savings Plus Program Duration Bond Index have more favorable liquidity characteristics. In the Moderate and Moderately Aggressive Target Risk Funds, the S&P 500 Index is the best choice as a liquidity vehicle since the options are more weighted towards equity than fixed income. As part of this analysis, we also considered adding a money market fund (MMF) to the allocation in the Target Risk Funds for the sole purpose of providing a liquidity vehicle. MMFs can provide excellent short-term liquidity. However, the opportunity costs of adding a MMF are far greater than using an already existing index fund. Adding a MMF would distort the asset allocation of the MMF, introducing a significant cash drag to the portfolio. By using already existing index funds as the liquidity vehicles, the Target Risk Fund portfolios will maintain better exposure to their intended benchmarks. Rebalancing Policy Over time, as some asset classes outperform and others under-perform relative to their benchmarks, portfolio investment allocations naturally drift from their target allocations. Rebalancing, by moving funds from the asset classes that are performing well to those that are not, will realign the portfolio to better reflect the target allocation. Rebalancing reduces tracking error, a measure of how closely portfolio returns follow the returns of the portfolio benchmark, by tightening the distribution of returns around the target return. While this approach dampens strongly positive returns, there are also fewer strongly negative returns. Hence, rebalancing reduces risk. Mercer Sentinel devised a tolerance band around each manager account within each investment option. Typically, we would recommend tolerance ranges of 0.5 – 5% for equities and fixed income. To determine the exact range, we considered the asset class type, volatility, and transaction costs associated with the asset class. Less volatile asset classes and fewer funds contribute to a wider tolerance range, because those factors generally lead to less drift from the strategic allocation. In addition, high transaction costs factor in to a wider tolerance range because if rebalancing occurs too frequently, it will lower the cost effectiveness of rebalancing. A high investor risk tolerance also contributes to a wider tolerance range because a higher risk tolerance suggests less frequent rebalancing, which indicates further dispersion away from the strategic allocation and more exposure to market fluctuations. Rebalancing Implementation Process 60 Operations Manual as of September 15, 2011 California Savings Plus Program Implementation of the rebalancing policy will require a clear process agreed between the Program and the Recordkeeper/Custodian. The Recordkeeper/Custodian will test each investment option on the fourth trading day of each new month, using the prior trading day’s closing values. This intended schedule is designed to permit the cash flows from monthly participant payroll funding to clear before the rebalancing testing occurs, thereby streamlining the process. If the portfolio allocation is found to be outside the permitted tolerance range, the Recordkeeper/Custodian will alert the affected investment managers to expect a cash contribution (redemption) in their account three days following, when rebalancing occurs. The Recordkeeper/Custodian should send prompt notification to the investment manager as soon as the funds are in the account. Note: While the rebalancing computation is targeted for the fourth business day, implementation instructions may be issued on the fourth or fifth business day, thereby allowing for time for potential schedule impediments. Ideally, the Recordkeeper/Custodian should rebalance to a level where the Program incurs the lowest total transaction costs while staying within an acceptable risk tolerance. Studies by Seth J. Masters of AllianceBernstein Institutional Investment Management and Dr. Louis Finney of Mercer Investment Consulting, Inc., indicate this is achieved by rebalancing halfway back to the target allocation from the tolerance limit. By rebalancing only halfway, this reduces transaction costs incurred while still reducing tracking error risk by a material amount. By only rebalancing halfway to the target allocation, we lessen the risk that the benefits of rebalancing will be eroded by transaction costs. The high level summary of the rebalancing process is this: funds are moved from those components that have exceeded their upper tolerance limits to components that are most under funded. (Conversely, where a component has exceeded its lower tolerance limit, funds are moved from components that are most over funded.) A detailed description of the process is provided in the Appendix. Rebalancing Examples The examples below depict possible rebalancing situations, with the selected liquidity vehicles highlighted in blue. The Test Column represents the allocation after the Recordkeeper/Custodian performs the monthly rebalancing tests. In the examples below, at least one of the investment funds is out of the tolerance range so that a rebalancing is necessary. It is important to note that although some of the allocations have changed, it is only necessary to rebalance the investment funds that 61 Operations Manual as of September 15, 2011 California Savings Plus Program are out of their tolerance range. The Rebalance Result column depicts the ending allocation after rebalancing has occurred, where all of the resulting allocations are within the tolerance range. Example A Target Allocation % Need To Rebalance Move Result % Limit Test 10.0 1.5 14.25 -3.50 10.75 McKinley (Growth) 45.0 5.0 41.00 +3.50 44.50 AllianceBernstein (Value) 45.0 5.0 44.75 0.0 44.75 International Equity Fund Northern Trust MSCI ACWI EXUS Index Total: 100.0 100.00 Example B In this example, the MSCI ACWI EX-US Index needs to lose 1.25% and the R2000 Index needs to gain 1%. Note that the R2000 Index is subsequently increased to absorb the .25% of the MSCI ACWI EX-US Index not absorbed by the first calculation of rebalancing. Initial Target Target Risk: Moderately Conservative Fund Allocation % Limit Test Need To Rebalance Final Move Calculation Rebalance Result NT Market Duration Bond Index * 20.00 3.0 19.00 0.0 19.00 19.00 Northern Trust S&P 500 Index 19.50 3.0 21.00 0.0 21.00 21.00 Northern Trust S&P 400 Index 6.00 5.0 4.50 1.0 6.00 3.00 0.0 Northern Trust R2000 Index +1.00 6.00 4.00 6.00 4.25 Northern Trust MSCI ACWI EX-US Index 10.00 1.5 12.00 -1.25 10.75 10.75 Stable Value Fund 40.00 5.0 39.00 0.0 39.00 99.75 39.00 Total: 100.0 -.25 62 100.00 Operations Manual as of September 15, 2011 California Savings Plus Program The important thing to note about Example B is that, after the initial reallocation calculation (which essentially took from the one with too much and added to the one with too little), there is still an amount to be re-allocated. This remaining portion (a surplus) is spread proportionately over the components that are at their lower rebalance target. (A deficit would be spread proportionately over the components at their upper rebalance target.) Appendix to the Liquidity and Rebalancing Policy (Revision of December 2007) Overview of Rebalancing Process The goal of a rebalancing process is to move assets from over-weighted mandates to underweighted mandates in a systematic fashion. As noted in the memo, rebalancing to levels that are halfway back to the strategic target allocation is deemed to be the most effective approach given transaction costs. One problem that is frequently encountered in actual rebalancing exercises is that, after the initial large scale shifts are identified (the “primary mandate shifts”), there remains a smaller residual amount that needs to be distributed. The question to be addressed is “What is the most appropriate systematic way to redistribute this residual?” Theoretically, the residual would be distributed among the mandates based upon the investor’s risk preferences for each mandate. In the real world, few (if any) investors have identified risk preferences by mandate, and identifying these preferences would be an expensive process with no clear demonstrable benefit for plan participants or beneficiaries. Accordingly, we must look to more practical approaches to addressing distribution of the residual. There are many possible solutions for arriving at a redistribution plan, including: a) finding the least transfers to accommodate the change, b) allocating the money to the largest mandate not affected by the primary shifts, c) distributing the residual in equal portions to the non-primary mandates … and the list could go on. 63 Operations Manual as of September 15, 2011 California Savings Plus Program Our recommended approach distributes the residual to the non-primary mandates on a weighted basis according to how far each is from its strategic allocation. The effect is to move most mandates closer to their strategic target, rather than to introduce a perturbation of a single mandate. The accompanying spreadsheet demonstrates one possible approach for this redistribution. The spreadsheet is not intended as a redistribution calculator. Mercer has not reviewed this model for accuracy, nor have we stress tested it for varying scenarios. Mercer does not believe that a model constructed in Excel can appropriately consider all possible combinations or permutations of account values. Accordingly, using this spreadsheet as a redistribution calculator would be a risky endeavor. This spreadsheet is intended solely as an example of one approach for calculating a central tendency solution and not as a model on which to base actions. Mercer cannot accept any responsibility for any actions based on its output. Sample Rebalancing Process Discussion Rebalancing occurs at the Fund Option level, where a Fund Option is an investment choice that a Program participant can elect. For clarity, the following diagram shows the terms graphically (assuming a strategic allocation of 40% with a tolerance limit of +/3%): Chart F.1 Rebalancing process 64 Operations Manual as of September 15, 2011 Upper Band 43% 41.5% Allocation Upper Rebalance Target 40% 38.5% Lower Band California Savings Plus Program Lower Rebalance Target 37% Following are the logical steps in the actual rebalancing process. Please note that the following illustration assumes that a component has exceeded the Upper Band. Opposite instructions would be implemented in cases where the component has exceeded the Lower Band of tolerance. Step 1 Test: Are any of the components allocations above their respective Upper Bands? No. Stop: the Fund Option is within tolerance. Yes. Continue process. Step 2 Identify all components that are above their Upper Bands. These will be source accounts, providing funding to other components within the Fund Option. Step 3 Identify all components that are below their Lower Rebalance Targets. These will be target accounts, receiving funding from the over-allocated components within the Fund Option. 65 Operations Manual as of September 15, 2011 California Savings Plus Program Step 4 Identify the component that is furthest below its Lower Rebalance Target. This will be the first recipient of funding. Funds should be allocated to this account up to the point where it reaches its Lower Rebalance Target. Test: Are there remaining assets to be redistributed? No. Stop: the Fund Option is within tolerance. Yes. Repeat Steps 3 and 4 until all components have at least reached their Lower Rebalance Targets. Note: It is possible to redistribute sufficient funds from the source account to raise all other components to their Lower Rebalance Targets, yet still have the source account over its Upper Rebalance Target. Step 5 Test: Are there remaining assets to be redistributed while all other components are at or above their Lower Rebalance Targets? No. Stop: the Fund Option is within tolerance. Yes. Proceed to Step 6. Step 6 Calculate the amount needed to be redistributed. Distribute this to all components that are at their below their Target Allocations in proportion to their difference from that Allocation value. Test: Are there remaining assets to be redistributed? No. Stop: the Fund Option is within tolerance. Yes. There has been an error implementing Step 5. Go back and re-check work. 66 Operations Manual as of September 15, 2011 California Savings Plus Program Neither this memo nor the accompanying spreadsheet is intended by Mercer to be tax, legal or investment advice. Mercer gives no representations or warranties as to the accuracy of this information and accepts no responsibility or liability for your or your vendors’ reliance thereon. This memo and spreadsheet are the intellectual property of Mercer and are intended for your and your recordkeeper’s/custodian’s exclusive use. 67 Operations Manual as of September 15, 2011 California Savings Plus Program Table F.1. Rebalancing guidelines Strategi c Target Tol erance Range Al l ocati on % + / - Northern Trust Mark et Duration Bond Index * 33.00% Northern Trust S&P 500 Index 5.20% Northern Trust S&P 400 Index Northern Trust RU 2000 Index Investment Opti on/Managers Rel ati ve Lower Li mi t Upper Li mi t Lower Target Upper Target 3.00% 30.00% 36.00% 31.50% 34.50% 9% 1.00% 4.20% 6.20% 4.70% 5.70% 19% 1.60% 0.50% 1.10% 2.10% 1.35% 1.85% 31% 1.20% 0.50% 0.70% 1.70% 0.95% 1.45% 42% Northern Trust MSCI ACW ex-US Index 8.00% 0.50% 7.50% 8.50% 7.75% 8.25% 6% Diversified Real Return Fund 10.00% 3.00% 7.00% 13.00% 8.50% 11.50% 30% Short Term Investment Fund (Low Duration) 31.00% 2.00% 29.00% 33.00% 30.00% 32.00% 6% Short Term Investment Fund - Cash FDIC 5.00% 1.00% 4.00% 6.00% 4.50% 5.50% 20% Short Term Investment Fund - Cash Govt MM 5.00% 1.00% 4.00% 6.00% 4.50% 5.50% 20% Northern Trust Mark et Duration Bond Index * 35.00% 3.00% 32.00% 38.00% 33.50% 36.50% 9% Northern Trust S&P 500 Index 11.05% 3.00% 8.05% 14.05% 9.55% 12.55% 27% Northern Trust S&P 400 Index 3.40% 1.00% 2.40% 4.40% 2.90% 3.90% 29% Northern Trust RU 2000 Index 2.55% 1.00% 1.55% 3.55% 2.05% 3.05% 39% Northern Trust MSCI ACW ex-US Index 17.00% 1.50% 15.50% 18.50% 16.25% 17.75% 9% Diversified Real Return Fund 10.00% 3.00% 7.00% 13.00% 8.50% 11.50% 30% Short Term Investment Fund (Low Duration) 16.00% 2.00% 14.00% 18.00% 15.00% 17.00% 13% Short Term Investment Fund - Cash FDIC 2.50% 1.00% 1.50% 3.50% 2.00% 3.00% 40% Short Term Investment Fund - Cash Govt MM 2.50% 1.00% 1.50% 3.50% 2.00% 3.00% 40% Northern Trust Market Duration Bond Index 29.00% 2.50% 26.50% 31.50% 27.75% 30.25% 9% Northern Trust S&P 500 Index * 15.60% 4.00% 11.60% 19.60% 13.60% 17.60% 26% Northern Trust S&P 400 Index 4.80% 1.50% 3.30% 6.30% 4.05% 5.55% 31% Northern Trust RU 2000 Index 3.60% 1.00% 2.60% 4.60% 3.10% 4.10% 28% Northern Trust MSCI ACW ex-US Index 24.00% 3.00% 21.00% 27.00% 22.50% 25.50% 13% Diversified Real Return Fund 15.00% 3.00% 12.00% 18.00% 13.50% 16.50% 20% Short Term Investment Fund (Low Duration) 8.00% 2.00% 6.00% 10.00% 7.00% 9.00% 25% Northern Trust Market Duration Bond Index 16.00% 2.50% 13.50% 18.50% 14.75% 17.25% 16% Northern Trust S&P 500 Index * 20.80% 5.00% 15.80% 25.80% 18.30% 23.30% 24% Northern Trust S&P 400 Index 6.40% 1.50% 4.90% 7.90% 5.65% 7.15% 23% Northern Trust RU 2000 Index 4.80% 1.50% 3.30% 6.30% 4.05% 5.55% 31% Northern Trust MSCI ACW ex-US Index 32.00% 3.50% 28.50% 35.50% 30.25% 33.75% 11% Diversified Real Return Fund 20.00% 3.00% 17.00% 23.00% 18.50% 21.50% 15% Northern Trust S&P 500 Index * 29.25% 5.00% 24.25% 34.25% 26.75% 31.75% 17% Northern Trust S&P 400 Index 9.00% 2.00% 7.00% 11.00% 8.00% 10.00% 22% Northern Trust RU 2000 Index 6.75% 1.50% 5.25% 8.25% 6.00% 7.50% 22% Northern Trust MSCI ACW ex-US Index 45.00% 4.50% 40.50% 49.50% 42.75% 47.25% 10% Diversified Real Return Fund 10.00% 3.00% 7.00% 13.00% 8.50% 11.50% 30% Range Target Risk Fund: Conservative Target Risk Fund: M oderately Conservative Target Risk Fund: M oderate Target Risk Fund: M oderately Aggressive Target Risk Fund: Aggressive 68 Operations Manual as of September 15, 2011 California Savings Plus Program STIF Cash Fund Government M oney M arket Providers 50.00% 5.00% 45.00% 55.00% 47.50% 52.50% 10% Black Rock (Gov MM) * 15.00% ^ 2.00% 13.00% 17.00% 14.00% 16.00% 13% RBC (Gov MM) 35.00% ^ 4.00% 31.00% 39.00% 33.00% 37.00% 11% 10% FDIC Providers 50.00% 5.00% 45.00% 55.00% 47.50% 52.50% ≤$305M ≤$305M $50M $305M $50M $305M ≥$50M & ≤$150M ≥$50M & ≤$150M $50M $150M $50M $150M ≥$50M ≥$50M $50M Remainder $50M Remainder Northern Trust Mark et Duration Bond Index * 20.00% 1.50% 18.50% 21.50% 19.25% 20.75% 8% T.Rowe (Core Plus1) 40.00% 4.00% 36.00% 44.00% 38.00% 42.00% 10% Artio (Core Plus2) 40.00% 4.00% 36.00% 44.00% 38.00% 42.00% 10% S&P 500 Index * 40.00% 3.00% 37.00% 43.00% 38.50% 41.50% 8% MFS (LCV1) 15.00% 2.00% 13.00% 17.00% 14.00% 16.00% 13% Robeco (LCV2) 15.00% 2.00% 13.00% 17.00% 14.00% 16.00% 13% Wellington (LCG1) 15.00% 2.00% 13.00% 17.00% 14.00% 16.00% 13% Columbus Circle (LCG2) 15.00% 2.00% 13.00% 17.00% 14.00% 16.00% 13% S&P 400 Index * 10.00% 1.50% 8.50% 11.50% 9.25% 10.75% 15% T.Rowe (MCV) 29.00% 4.00% 25.00% 33.00% 27.00% 31.00% 14% CRM (MCC) 29.00% 4.00% 25.00% 33.00% 27.00% 31.00% 14% TBD (MCG) 32.00% 5.00% 27.00% 37.00% 29.50% 34.50% 16% R2000 Core Index * 10.00% 1.50% 8.50% 11.50% 9.25% 10.75% 15% TSW (SCV1) 22.50% 3.50% 19.00% 26.00% 20.75% 24.25% 16% Peregrine (SCV2) 22.50% 3.50% 19.00% 26.00% 20.75% 24.25% 16% Frontier (SCG1) 22.50% 3.50% 19.00% 26.00% 20.75% 24.25% 16% William Blair (SCG2) 22.50% 3.50% 19.00% 26.00% 20.75% 24.25% 16% MSCI EAFE Index * 10.00% 1.50% 8.50% 11.50% 9.25% 10.75% 15% Bernstein (Value) 45.00% 5.00% 40.00% 50.00% 42.50% 47.50% 11% McKinley (Growth) 45.00% 5.00% 40.00% 50.00% 42.50% 47.50% 11% Northern Trust Collective TIPS Index Fund * 35.00% 3.00% 32.00% 38.00% 33.50% 36.50% 9% Wellington Diversified Inflation Hedges 50.00% 3.50% 46.50% 53.50% 48.25% 51.75% 7% AllianceBernstein Global Real Estate Investment Fund 15.00% 3.50% 11.50% 18.50% 13.25% 16.75% 23% UBOC (FDIC) -- $305m Nationwide -- $150m BOK (FDIC) ^ Percent (%) of total STIF-Cash Fund value Active Core: Bond Fund Active Core: Large Cap Equity Fund Active Core: M id Cap Equity Fund Active Core: Small Cap Equity Fund Active Core: International Equity Fund Real Return: Diversified Real Return Fund 69 Operations Manual as of September 15, 2011 Table F.2. Rebalancing timeframe Schedule / Calendar Business Day 4 California Savings Plus Program replace MF ref with VA Business Day 5 Business Day 6 Business Day 7 Business Day 8 TRADE DATE (T) Business Day 9 SETTLEMENT DATE Sep Acct Managers Recordkeeper / Custodian Actions 1. Calculation Using Business Day 3 values 3. Order Entry Begins 4. Trade Processing 5. Settlement 6. Entry To Custody/ Recordkeeping System 2. Separate Account Notification All affected separate account managers International trades to raise cash 3.1 Notification on T-2 3.2 Notification on T-1 3.3 Order Entry (before (Before 10:30 am EST) (Before 10:30 am EST) 3:30pm EST) All Mutual and All NT Intl Funds All NT Domestic Funds Commingled Funds Domestic trades to raise cash Actions 1 Calculation of rebalance activities 2 Notification to separate account managers 3 Order entry 4 Trade processing 5 Settlement 6 Entry to recordkeeping & custodial systems 70 Operations Manual as of September 15, 2011 California Savings Plus Program 71 Operations Manual as of September 15, 2011 California Savings Plus Program Mercer (US) Inc. 10 South Wacker Drive, Suite 1700 Chicago, IL 60606 312 902 7500 72