REQUEST FOR PROPOSALSFOR
LARGE CAP VALUE EQUITY MANAGEMENT
Alabama Prepaid Affordable College Tuition Program(PACT)
January 10, 2006
Kay Ivey, State TreasurerAlabama State Capitol
600 Dexter AvenueMontgomery, Alabama 36104
Section IGENERAL INFORMATION
Release Date: January 10, 2006Proposal Due Date: February 15, 2006
1. Purpose This Request for Proposal (RFP) has been issued by State Treasurer Kay Ivey (Treasurer), at the direction of the Prepaid Affordable College Tuition (PACT) Trust Fund Board of Directors (Board). The Treasurer solicits proposals from qualified professional firms interested in providing active large cap value domestic equity investment management services (“the Manager”) to the Prepaid Affordable College Tuition (“PACT”) Trust Fund.
This Request for Proposals (hereinafter “RFP”) is issued in accordance with the requirements of Section 41-16-72(4), Code of Alabama (1975). This RFP is not an offer to contract but seeks the submission of proposals from qualified, professional firms that may form the basis for negotiation of an Investment Management Agreement with one or more Investment Managers. The Board reserves the right to reject any or all proposals and to solicit additional proposals if that is determined to be in the best interests of the PACT Program.
The PACT investment consultant, Callan Associates, will be receiving and analyzing all responses from this manager search. All candidate firms should have their information in the Callan manager database. There is no charge associated with this process. Please contact Christine Chao at 415-291-4012 to receive information about this process.
It is the intent of the Treasurer to do business with Alabama firms that pay Alabama taxes and employ Alabama citizens. When all factors are equal, corporations located in Alabama will be given preference.
The Treasurer shall post the RFP on the treasury website www.treasury.alabama.gov.
2. Program Information PACT is a qualified 529 prepaid college savings program. Prepaid contracts are sold to purchasers to pay in advance the basic four years of college tuition and qualified fees for beneficiaries. The PACT Trust Fund holds the program assets which include payments made by purchasers and earnings.
The Trust Fund has assets, as of September 30, 2005, of approximately $676 million. The current allocation to large cap equity is 42% with approximately $92 million in large cap value. Callan Associates assists the PACT Board with asset allocation, investment policy and manager selection and monitoring.
Information about the PACT program, including the current Investment Policy, is available at the Treasurer’s website which is www.treasury.alabama.gov.
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3. Scope of Services (a) The Manager shall develop a large cap value equity investment portfolio of
statutorily acceptable securities. It is expected that the initial funding will be approximately $90 million. The Board shall establish the portion of assets to be managed and may, from time-to-time, change such portions.
(b) The Manager shall have independent discretionary authority with respect to the investment of that portion of the assets managed by the Manager, subject to the Code of Alabama, Investment Guidelines and such other written limitations as the Board may impose upon the Manager. A copy of the Investment Guidelines is attached. If the respondent opposes to any language in the guidelines, this should be addressed in the proposal.
(c) The Manager shall provide reporting, to include monthly valuation, monthly performance reports, and significant changes in corporate structure, and other data to the Consultant.
(d) The Manager shall document all investment transactions with the Custodian in accord with usual and customary standards of practice, and confirm all executed transactions for custodial account records.
4, Minimum QualificationsIn order to be considered for selection as a Manager, the Proposer must provide Exhibit C as documented proof that the following minimum qualifications listed below are met.
Company is duly registered with the Securities & Exchange Commission pursuant to the Investment Advisors Act of 1940, as amended, and the registration is current.
Company is qualified with the Secretary of State to conduct business in the State of Alabama. (To download the form for a “Certificate of Existence”, access www.sos.state.al.us, corporations division, or call 334-242-5324 to request the form.)
The portfolio manager assigned to the account has managed large cap value equity portfolios for at least three (3) years, as of September 30, 2005.
Company has managed large cap value equity portfolios for at least three (3) years, as of September 30, 2005.
Company does manage at least $350,000,000 in large cap value equity portfolios as of September 30, 2005.
Company and its personnel have all authorizations, permits, licenses, and certifications as may be required under federal, state or local law to perform the services specified in this RFP at the time it submits a response to the RFP.
Company will carry errors and omissions insurance or comparable instrument to cover negligent acts or omissions.
Company does comply with all applicable AIMR performance presentation standards.
Company maintains sufficient procedures and capabilities to ensure the timely and accurate backup and full recovery for all computers and other data storage systems related to the PACT account.
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Company has a company policy and practice of equal employment opportunity and non-discrimination based on race, creed or gender.
5. Fees Managers shall be entitled to receive quarterly compensation. Fees shall be payable based upon the fair market value on the last business day of each quarter as reported by the PACT Trust Fund Custodian. The proposal must state the fees charged for this service assuming a $90 million mandate. Please show breakpoints in the fee schedule.
6. Proposal Required Information Proposals should be as thorough and detailed as possible so that capabilities to provide the required services can be properly evaluated.
To be considered, responses to this RFP must include a cover page, Exhibit C, Section II of this RFP, a statement of fees, and Disclosure Statement. All proposals submitted in response to this RFP must include a completed Disclosure Statement as required by Section 41-16-80, et seq., Code of Alabama (1975). Copies of the Disclosure Statement, and information, may be downloaded from the Alabama Attorney General’s web site at www.ago.state.al.us/ag_items.cfm.
7. Submission of Proposals Proposals must be received at the following address no later than the close of business on February 15, 2006 at 5:00 p.m. Please provide the original plus two (2) additional copies to Bud Pellecchia. The address is as follows:
Bud Pellecchia Callan Associates Inc.200 Park AvenueSuite 230Florham Park, NJ 07932
It is the responsibility of the Proposer to ensure that its proposal is timely delivered and received in the proper office on or before the deadline for responding to this RFP. All proposals received will be subject to public disclosure in accordance with Alabama public records laws.
All questions concerning this RFP should be directed to Bud Pellecchia at Callan Associates as follows:Phone: 973-593-8050Email: [email protected]
8. Evaluation and Selection All proposals timely received will be reviewed and evaluated by the Investment Consultant. The Consultant will recommend proposals to the Investment Committee that most closely meet the requirements of the RFP.
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After the review and evaluation of the proposals, the Board may conduct interviews. Finalists chosen for interviews, if necessary, will be notified. The Board reserves the right to request a best and final offer for fees from finalists.
The Board will select the Manager(s) the Board determines, in their sole discretion, to be fully qualified and best suited among those submitting proposals on the basis of the evaluation factors, including fees, to best meet the needs of the PACT Program. All proposals received in response to this RFP may be rejected and the Board may solicit additional proposals.
Upon identification of the selected Manager, if any, the Board may initiate negotiations for contract terms and conditions. The contract will incorporate reference to the requirements of the RFP and the Manager’s proposal as negotiated. It is expected that the term of the contract be for a period of five (5) years.
The Treasurer shall post the RFP and the notice of award on the Treasury website www.treasury.alabama.gov. It is expected that the notice of award shall be posted by March 30, 2006, and will remain posted for at least two weeks. Interested parties may monitor the progress and status of this RFP process on the Treasurer’s website.
9. Investment Management AgreementAll duties of the Manager shall be set forth in the Investment Management Agreement between the selected firm and the Board. A sample Investment Management Agreement is attached as Exhibit A for informational purposes only, and is subject to changes and revisions. If the Respondent opposes any language in the sample agreement, this should be addressed in the Proposal. The Investment Policy and Manager Guidelines are also attached (Exhibit B) and if exceptions are anticipated, they must be addressed in the proposal.State law prohibits the Treasurer from agreeing to (1) indemnify the Bank; (2) waive the right for jury trial; (3) grant a security interest; or (4) binding arbitration. Additionally, it is mandatory that Alabama laws apply to the performance of the contract and that jurisdiction and venue be in Montgomery, Alabama for state and federal courts.
10. Public Information
All responses received will be subject to the Alabama Open Records Act, §36-12-40, Code of Alabama and may be subject to public disclosure upon request. The Open Records Act is remedial and should therefore be liberally construed in favor of the public. The Alabama Trade Secrets Act is §8-27-1 through §8-27-6, Code of Alabama. Responders are cautioned to be familiar with these statutes. The burden is on the one asserting the trade secret to show that the information sought to be protected meets the definition of a Trade Secret as defined in the Act. Any RFP response submitted that contains confidential information must be conspicuously marked on the outside as containing confidential information, and each page upon which confidential information appears must be conspicuously marked as such. Identification of the entire bid proposal as confidential is not acceptable unless the Firm
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enumerates the specific grounds or applicable laws which support treatment of the entire material as protected from disclosure according to the foregoing statutes or other applicable Alabama law.
The owner of the confidential information shall indemnify and hold the State harmless from all costs or expenses, including but not limited to attorney fees and expenses related to litigation concerning disclosure of said information and documents.
Section IIPROPOSAL
2.1 CORPORATE INFORMATION
A. Corporate Information - Provide an overview of your firm, including the following:Corporate profile, including the financial condition of the firm, overall business objectives, strategic plans for growth, and ownership. Are there any changes pending in this profile?1. Information on all “related” or “affiliated” firms;2. List all office locations and the functions performed at each location; 3. List all investment management services offered by the firm (i.e. Domestic Equity,
Foreign Equity, Domestic Fixed Income, etc). Does the firm provide any other product or service other than portfolio management? Please list.
4. Provide details of any past or pending litigation relating to your firm, individual personnel, or to the management of client assets.
5. Provide details of any SEC, state regulatory, self-regulatory organization, or professional organization action taken against your firm or any of its owners, principals, or personnel.
6. Provide details of all SEC fidelity bonds, errors and omissions coverage, and any other fiduciary insurance, which your firm carries.
7. Describe all arrangements or understandings (written or oral) between your firm and any advisor, broker, law firm, or other individual or entity in connection with the solicitation or referral of clients between the firms.
8. Has your firm adopted policies consistent with AIMR trade management/soft dollar guidelines? If so, provide details.
9. Provide details of any claims, disputes, litigation or other legal proceedings where your firm is involved with the State of Alabama or any of its agencies, or has been involved, in the three preceding years.
B. Personnel1. Attach an organizational chart and biographies of key personnel assigned to this
account, including length of experience and expected retention. Key personnel include investment officers, portfolio managers, and analysts.
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2. Complete the following chart:FirmTotal
Large Cap Value Equity
Total Full-time Employees
Portfolio ManagersResearch AnalystsMarket Strategists/EconomistsOther ResearchCustomer ServiceMarketing/SalesTradingAccount Supervision/PerformanceAdministration/Office ManagementOther __________________TOTAL
3. Provide the number of key employees added/lost over the last 3 years and explain any departures.
#Added #Lost #Large Cap Value Employees(added/lost)
2005 /2004 /2003 /
C. Clients1. Provide the organization name, address, contact name and phone number of at least
three clients for whom similar services as described in this RFP are provided.2. Provide a representative list of large cap value equity clients.
2.2 INVESTMENT MANAGEMENT.
A. Investment Philosophy and Style1. Describe the guidelines and risk control measures employed relative to your
benchmark. Include your benchmark.2. What decision factors add growth in the performance of your portfolio? Provide
attribution analysis for 1 and 3 year periods ending September 30, 2005.3. Describe your investment philosophy and style. Include a discussion of the following:
a. Universe of securities consideredb. Diversification/number of securities held in each portfolioc. Investment time horizon/portfolio turnover policy
4. Compare your U. S. Large Cap Value Equity Composite with your benchmark as of September 30, 2005.
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Avg Account BenchmarkAvg Market CapMed Market CapAvg Price EarningsAvg P/B5 Yr Earn. GrowthDividend YieldPortfolio Turnover
5. How much discretion is given each portfolio manager to buy/sell securities or to construct a portfolio?
6. Describe any quantitative/qualitative factors used in a buy decision. In a sell decision.7. What is the main source of research used in the portfolio management process? If
applicable, describe your reliance on in-house research in the context of personnel skills and experience.
B. Assets and Account Management1. Will the PACT Trust Fund account be managed by an individual or team of portfolio
managers? 2. Provide the minimum, maximum, and average number of accounts managed by large
cap value equity portfolio managers. What is your firm’s policy regarding this number?
3. Account SizeLargest Large Cap Value Separate Account $__________Smallest Large Cap Value Separate Account $__________Average Large Cap Value Separate Account $__________
4. What is the minimum account size for a separate account? $__________
5. Total Firm Assets Under Management as of September 30, 2005.
$ Equity $ Other $ Fixed $ TotalPublicCorporateEndow/FoundTaft-HartleyOtherTOTAL
6. Large Cap Value Assets Under Management as of September 30, 2005.
Tax- Exempt Taxable OtherTOTAL
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7. Provide a breakdown of large cap value Separate Accounts by asset size as of September 30, 2005.
Size of Account $ Total Assets # AccountsUnder $10 million$10 to $50 million$50 to $100 millionOver $100 million
8. Provide the following information regarding Client Gains (separate accounts).
$ Total Assets # Accounts $ Large Cap Value
# LC Value Accounts
200520042003
9. Provide the following information regarding Client Departures (separate accounts).
$ Total Assets # Accounts $ Large CapValue
# LC Value Accounts
200520042003
C. Performance. All performance data presented should be subjected to a Level 1 verification of results and composite. Level 2 verification of performance results and composite is preferable. Performance will be evaluated using the S&P 500 and Russell 1000 Value Index.
1. Provide performance data for your Active Domestic Large Cap Value Composite.
% 12MO % 1Q % 2Q % 3Q % 4Q # Accts
Assets 12/31
Dispersion (Standard Deviation)
20052004200320022001
2. Provide trailing performance data for your Active Domestic Large Cap Value Composite for the periods 1 year, 3 years, 5 years and 10 years ending September 30, 2005.
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3. Provide the following statistics when fully invested for 3-year period ending September 30, 2005:
Beta ____________________ Source _________________ Benchmark ___________R2 ____________________ Source _________________ Benchmark ___________Alpha ____________________ Source _________________ Benchmark ___________Tracking Error______________ Source _________________ Benchmark ___________Information Ratio ___________ Source _________________ Benchmark ___________
4. Describe the composite used to compute performance results reported in answering #1, #2, and #3 above.
5. Discuss turnover in the portfolios you currently manage and your tolerance for volatility.
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EXHIBIT A
SAMPLE INVESTMENT MANAGEMENT AGREEMENT
This Investment Management Agreement (the “Agreement”) is made and entered into between the Board of the Prepaid Affordable College Tuition Program (the “Board”) and _______ (the “Manager”), on the 1st day of _________ 2006. Manager acknowledges that this Agreement is not effective until it has received all requisite state government approvals. Manager shall not begin performing work under this Agreement until notified to do so by Board. Manager is not entitled to compensation for work performed prior to the confirmed effective date of the Agreement."
WITNESSETH
WHEREAS, the Board is charged with the oversight of the PACT Trust Fund by Section 16-33C-5 of the Code of Alabama; and,
WHEREAS, the Board has determined that it is in the best interest of the PACT Trust Fund to engage qualified professionals as authorized under Section 16-33C-5 (7) to manage ________________ of the Trust Fund in strict compliance with this Agreement, the Investment Policy of the Board; and all applicable federal and Alabama laws; and,
WHEREAS, the State Merit System does not provide an appropriate job classification to perform the services described in this Agreement at this time; and
WHEREAS, the Manager has presented with the requisite expertise, ability and professional skill necessary to perform the services of a ____________ Investment Manager; now,
THEREFORE, for good and valuable consideration and in consideration of the services to be performed and payments to be made, together with the mutual terms, covenants and conditions hereinafter set forth, and promises hereinafter stipulated, the parties mutually agree as follows:
Section 1. Definitions. When used in this Agreement, the words and terms defined below shall have the following meanings:
(a) “Board” means the Board of Trustees of the Prepaid Affordable College Tuition Program.
(b) “Trust Fund” means the PACT trust fund created in Section 16-33C-6 (b) of the Code of Alabama
(c) “Permitted Investments” means the investments that may be made with assets of the PACT Trust Fund authorized by Section 16-33C-5 (3) of the Code of Alabama that constitute legal investments for public funds in the state,
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including legal investments for the State Treasurer and the Alabama Trust Fund and as provided in the Investment Policy.
(d) “Investment Policy” means the Investment Policies and Guidelines Statement of the Trust Fund adopted by the Board of Trustees on August 25, 2004 and as may be amended from time to time. Changes to the investment policy will be binding on the Manager upon receipt of notice specified in Section 24 hereof. A complete copy of the Investment Policy is available on the Treasurer’s website and incorporated by reference as if fully set out herein. The Manager shall execute the Investment Manager Acknowledgement included in the Investment Policy as a condition precedent to the validity of this Agreement.
Section 2. Representations and Warranties: The Manager shall furnish, within ten days of the date of this contract, a certificate of good standing to do business in Alabama, or such other evidence from the Office of the Alabama Secretary of State, attesting to its qualifications to do business in the State of Alabama.
The Manager represents and warrants as follows:(a) That it is duly registered with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940 as amended, and that such registration is currently effective.
(b) That it is qualified with the Alabama Secretary of State to conduct business in the State of Alabama.
(c) That it currently carries, and will maintain in full force and effect errors and omissions insurance covering negligent acts or omissions, which adequately covers it under this Agreement.
(d) That it is a stable organization that offers appropriate incentives to investment professionals with one goal being to minimize professional turnover.
(e) That its policy and practice is for equal employment opportunity and non-discrimination based on race, creed or gender.
(f) It is lawfully organized and constituted under all federal, state, and local laws, under ordinances of other authorities of its domicile, and is otherwise in full compliance with all legal requirements of its domicile as is necessary to perform is obligations under this Agreement.
(g) It possesses the legal authority and capacity to enter into and perform this Agreement.
(h) It has been duly authorized to operate and to do business in all places where it will be required to conduct business under this Agreement; that it has obtained, at no cost to the Board, all necessary licenses and permits required in
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connection with this Agreement, and that it will fully comply with all laws, decrees, labor standards, and regulations of its domicile, and wherever performance occurs, as is necessary to and during the performance of this Agreement.
(i) It has no present interest, nor shall it acquire any interest, which would conflict in any manner with its duties and obligations under this Agreement, provided that nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of the Manager to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business or to render services of any kind to any other corporation, firm, individual, or association.
(j) All investments shall constitute Permitted Investments as defined in Section 1(c) of this Agreement and shall be made pursuant to the Investment Policy as defined in Section 1(d) of this Agreement.
(k) It has in place and will maintain sufficient procedures and capabilities to ensure the timely and accurate backup and full recovery for all computers and other data storage systems related to this Agreement.
(l) That all representations of the Manager contained it its proposal dated *** **, 2005 to the Treasurer are incorporated by reference as a part hereof the same as if fully set out herein.
Section 3. Effective Date and Term: The effective date of this contract is ________ 1, 2005, and it will continue in effect until ___________ 31, 2010, or when terminated according to Section 10 of this Agreement, whichever shall first occur.
Section 4. Manager Services.
(a) The Manager shall serve as a ________________ Manager for the Trust Fund and shall develop investment portfolios and make recommendations to the Board relating to the direction and management of the investment and reinvestment of that portion of the Trust Fund assets managed by the Manager and any additions thereto. The services of the Manager shall be rendered in accordance with the Investment Policy of the Board and all applicable Alabama statutes and constitutional provisions. The Manager shall have only such duties with respect to the Trust Fund as are set forth in this Agreement and the Investment Policy.
(b) The Manager shall have independent discretionary authority with respect to investment of the ___________ portion of the Trust Fund subject to the Investment Policy and such other written limitations as the Board may impose. The Board shall establish the portion to be managed and from time to time may modify such portion.
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(c) The Manager shall provide performance and other data pertaining to the Trust Fund that can be used by the Board and any consultants retained by the Board to evaluate the Manager’s services. This data shall be furnished to the Consultant quarterly or more often if requested by the Board or its Chairman.
(d) The Manager shall provide quarterly management reports in its customary format or such other frequency or format as may be reasonably required by the Board. The Manager shall include in these reports all financial and performance information and data as specified in the Investment Policy.
(e) The Manager shall keep and maintain comprehensive records of all transactions relating to the Trust Fund assets under its management, and such records shall be made available at all reasonable times to the Board and persons designated by the Board. .
(f) The Manager shall document all investment transactions with the Custodian in accord with usual and customary standards of practice, the terms of this Agreement and to confirm all executed transactions for custodial account records.
(g) The Manager shall utilize specific brokers or dealers as may be directed by the Board, provided that such direction shall be for the exclusive purpose of providing benefits to account participants and beneficiaries and shall not violate federal or state laws related to “prohibited transactions” or “parties-in-interest.”
(h) The Manager shall make decisions on proxy voting unless such decisions are expressly reserved to the Board or a named fiduciary of the Board. The Manager will promptly and timely furnish the Board any information or documents which concern lawsuits involving assets under its management or securities presently or formerly held in the Trust Fund, or the issuers thereof, including actions involving bankruptcy. Time is of the essence for all legal controversies and disputes.
Section 5. Ownership of Data: The Board shall own all materials and data produced by or on behalf of the Board under this Agreement.
Section 6. Taxes: The Manager, including its agents and assignees are solely responsible for, and shall pay all federal, state, or local taxes that become payable as a result of this Agreement; and, shall hold harmless, defend and indemnify the Board, it’s officers, and the State of Alabama in regard thereto.
Section 7. Standard of Performance: (a) The Manager shall discharge its duties under this Agreement in accord with the Investment Policy including but not limited to recognition and performance of its role as a fiduciary of the Trust Fund.
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(b) The Manager shall discharge its duties under this Agreement and will use reasonable care in performing its obligations under this Agreement.
(c) Manager will be liable for actual damages to the extent they result from Manager’s negligent, reckless, willful misconduct, fraud, or deception in performing its duties as set out in this Agreement
Section 8. Public Access /Confidentiality: All documents, papers, letters, or other materials relating to this Agreement that are made or received by the Manager in conjunction with this Agreement, and which are required by law to be maintained, shall be made available for public access and for audit purposes for the period of time so designated by law and by the Board during and after termination of this Agreement. In all other circumstances, all information furnished by either party to the other shall be treated as confidential and shall not be disclosed to third parties except as required by law or upon the written agreement signed by each party to this Agreement.
Section 9. Compensation and Expenses: The Manager shall be entitled to receive quarterly compensation for its services as follows:
Investment Per Annum First $25,000,000 Basis PointsOver $25,000,000 Basis Points
(a) Fees shall be payable based upon the fair market value on the last business day of each quarter as reported by the Custodian appointed in accordance with Section 26 of this Agreement. The fee for the initial period shall be prorated. If the Manager shall serve for less than the whole of any quarter period, its compensation as determined herein, shall be calculated and shall be payable on a pro rata basis for the period of the calendar quarter for which it has served as Manager. No cash or securities due to or held for the Trust Fund shall be paid or delivered to the Manager except in payment of the fees properly payable to the Manager pursuant to specific terms of this Agreement.
(b) The Manager shall submit quarterly invoices for the fees agreed upon in this Agreement to the Custodian who shall promptly pay the Manager from the income earned on the Trust Fund_______________ under the Manager’s control. The Custodian is authorized to deduct such fees and to remit payment to the Manager before the Custodian pays the net income to the Trust Fund. The Manager shall provide a detailed accounting of its fees paid under this provision to the Director of College Savings Programs on a quarterly basis and at such other times and in such form as the Director of College Savings Programs may require.
Section 10. Termination, Resignation, or Removal: The Manager may resign at any time by giving thirty (30) days written notice to the Board. The Board may remove the Manager and terminate this Agreement at any time by giving thirty (30) days written
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notice to the Manager. However, the contract may be terminated immediately in case of a breach of the contract by the Manager or notice of a prospective sale or merger of Manager. Upon termination, resignation, or removal the Manager shall fully account for the administration of the Trust Fund assets up to the effective date of the termination, resignation, or removal. The Manager shall be entitled to receive its fees for the period through and including the effective date of the termination, resignation, or removal. There shall be no sale or purchase of securities during the 30-day notice period of this paragraph except upon the written authorization of the Board.
Section 11. Disposition of Files: The Manager shall immediately upon request turn over and deliver to the Board copies of all data, reports, files, documents, and other tangible materials held by the Manager that contain data or other information relating to the Trust Fund upon termination of this Agreement. The Manager shall not directly or indirectly preserve or maintain any copies, images or other intangible embodiments of such data or other information in computer memory or other electronic applications or devices, or through any other information storage media of any kind or description except as may be required by applicable federal or State of Alabama laws, rules and regulations.
Section 12. Amendment: Any amendment to this Agreement shall be in writing executed by both parties with the same formality of this Agreement and in strict compliance with all applicable federal or State of Alabama laws.
Section 13. Assignment: This Agreement is not assignable in any part, manner or circumstance. Any attempted assignment is simultaneously void and shall constitute the simultaneous termination of this Agreement.
Section 14. Indemnification:
(a) The Manager is designated and shall act as an independent contractor and not as an employee of the Board in the performance of all the tasks and duties of this Agreement. The Manager shall indemnify, defend, and hold harmless the Board, its members, officers, and the State of Alabama from all claims, suits, judgments, or damages including litigation costs and reasonable attorneys’ fees The Manager is entitled to prompt and timely notice of any third party claims for which indemnity is sought and shall be given the opportunity to participate in the defense of such claims.
(b) No individual employee or agent of the State of Alabama shall be subject to or have any personal liability for the terms and conditions of this Agreement. The Manager, and on behalf of its assigns and successors, hereby waives, for all purposes, any claims now apparent or which may hereafter arise against any agent or employee of the State of Alabama for personal liability of said agent or employee on behalf of the State of Alabama including its various agencies, boards, commissions, and departments.
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Section 15. Jurisdiction and Venue: The validity, interpretation, and performance of this Agreement shall be controlled and construed under the laws of the State of Alabama. Jurisdiction and venue shall be in Montgomery County, Alabama for any action brought which relates to this Agreement. The sole remedy available to Manager for settlement of any and all disputes arising under the terms of this Agreement shall be limited to the filing of a claim with the Board of Adjustment for the State of Alabama. Any claims against Manager will be resolved in federal or state court in Montgomery, Alabama pursuant to Alabama law. Manager and Board agree that for any and all disputes arising under the Agreement, when considering settlement of such disputes, to utilize appropriate forms of non-binding alternative dispute resolution including, but not limited to, mediation by and through the Attorney General’s Office of Administrative Hearings or where appropriate, private mediators.
Section 16. Waiver. The failure of either party to object to, or to take affirmative action with respect to any conduct or performance of the other that is, or may be, in violation of the terms of this Agreement shall not constitute a waiver of the violation or breach, or of any future violation or breach.
Section 17. Quality and Timeliness of Services: The Manager has ultimate responsibility for insuring and guaranteeing the quality and timeliness of the services to be performed under this Agreement, notwithstanding any prior approval requirements which may be reserved to the Board under this Agreement
Section 18. Audits: The Board reserves the right to designate persons to conduct periodic audits of the Manager’s procedures and activities at the Board’s expense.
Section 19. Intent: Time is of essence in undertaking the provisions of this Agreement.
Section 20. Expenses: The Board shall not be responsible for the payment or reimbursement of any expenses, including travel, incurred by the Manager.
Section 21. Captions: The captions or headings in this Agreement are for convenience only and in no way define, limit, or describe the scope or intent of any provisions or sections of this Agreement.
Section 22. Publication: The Board is the only entity authorized to issue information for public knowledge or news releases for publication concerning the terms or performance of this Agreement.
Section 23. Merit System Exclusion: The Manager is an independent contractor and nothing contained herein shall constitute or designate the Manager, or any of its agents or employees, as agents or employees of the State of Alabama or the Board. The Manager, it agents or employees shall not receive any fringe benefits afforded merit system, appointed, or other regular, full or part-time employees of the State of Alabama.
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Section 24. Notices: All notices, requests, demands or other instruments which may be, or are required to be, given by either party to this Agreement, shall be in writing and shall be deemed given if hand delivered with a signed receipt for the Board, or sent by facsimile, and confirmed as received for the Board, or served by an law enforcement officer or process server appointed by a valid court order, or by electronic communication (“e-mail”) with a received electronic receipt for the Board or, if mailed on the fifth business day following deposit of such notice in the U. S. Mail, postage prepaid, by certified or registered mail, return receipt requested, to the other person at the address listed below, or at such other address which either party may so notify the other of in writing.
Notices sent to Manager will be addressed to:
(Voice(Facsimile)(E-mail)
Notices sent to the Board will be addressed to:
The Honorable Kay IveyAlabama State TreasurerState Capitol Building Room S-106600 Dexter AvenueP.O. Box 302510 Montgomery, AL 36130-2510334-242-7500(Voice) 334-242-7592(facsimile)
With a copy to the Office of General Counsel
J. Michael Manasco, General CounselState Capitol Building S-106600 Dexter AvenueP.O. Box 302510Montgomery, AL 36130-2510334-353-0050 (Voice) 334-353-0056 (Facsimile)[email protected]
Section 25. Personnel: The Manager represents that it has or will secure, at its own expense, all personnel required to perform the services to be preformed pursuant to this Agreement. Such personnel shall not be employees of, or have any contractual relationship with, the Board. The Manager shall perform all services required hereunder. The Manager and its personnel shall be fully qualified and shall hold such authorizations,
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permits, licenses, and certifications required to perform such services under federal, state, and local law, or as may reasonably be required by the Board. .
Section 26. Custodian: The Board shall appoint a Custodian to take and have possession of the assets in the Trust Fund. The Manager shall not be the Custodian. The Manager shall promptly furnish copies of confirmations of all executed transactions to the Custodian for all assets managed by the Manager.
Section 27. Non-Exclusive Contract. The Board recognizes that the Manager acts as adviser or manager to other clients and may give advice, and take action, with respect to any of those other clients that may differ from the advice given, or the timing or nature of action taken, with respect to the Trust Fund. The Manager has no obligation to purchase or sell for the Trust Fund, or to recommend for purchase or sale by the Trust Fund, any security that the Manager, its principals, affiliates, or employees may purchase or sell for themselves or for other clients.
Section 28. Beneficiary of Agreement: The execution and performance of this Agreement is for the benefit of the Trust Fund and not for any other person or entity.
Section 29. Severability: If any provision of this Agreement shall be held to be void or inoperative by a court of competent jurisdiction, such provision shall be deemed severed from the remaining provisions of this Agreement, and the remaining provisions shall remain in full force and effect.
Section 30. Entire Agreement This Agreement constitutes the entire understanding of the parties and supersedes any prior express or implied written or oral agreements between them.
Section 31. Not a Debt of the State: This Agreement shall not be construed as a debt of the State of Alabama as prohibited by Section 213, Alabama Constitution 1901, as amended by Amendment 26.
IN WITNESS WHEREOF the Board and the Manager have executed this instrument as of the day and year first below written.
BOARD OF TRUSTEES OF THE PACT TRUST FUND
By: ______________________________ DATE: ______________Kay Ivey, State Treasurer and Its Chairperson
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INVESTMENT MANAGER
By: ____________________________ DATE: _____________
Its ______________________________
APPROVED:
_________________________________ DATE: ________________Bob Riley, Governor, State of Alabama
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Exhibit B
Investment Policy & Guidelines Statement
Alabama Prepaid Affordable College Tuition (PACT)Trust Fund
August, 2005As Amended November 30, 2005
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Introduction
Purpose
The Board of Trustees (“Board”) of the Alabama Prepaid Affordable College Tuition (PACT) Trust Fund (“Fund”), on the advice and with concurrence of the Fund’s Staff and Consultant, hereby adopts this Investment Policy Statement (“Statement”) for the Fund and is hereby incorporated into all existing and any future Investment Manager Agreements.
The purpose of this Statement is to foster an effective working relationship with the Fund’s investment managers through a discipline of good communication. The Statement is intended to provide the Board with a foundation from which to understand specific management styles and strategies, so that the Board can effectively evaluate the performance of the investment managers and oversee the management of the Fund in a prudent manner.
This statement of investment policy is not intended to remain static. At least, annually, the Board will review this Statement and, if deemed advisable, recommend changes. Recommendations from investment managers for improving policies, procedures and operations are always welcome.
This document sets forth the following:
1. The general policies, procedures, investment policies and objectives which the Board judges to be appropriate and prudent to implement its strategic planning for the investment of Fund assets; the performance criteria and policy guide for the future measurement and evaluation of the investment managers of Fund assets.
2. The investment policies and objectives and performance criteria for the investment manager(s).
3. A guideline for the Board’s ongoing supervision of the investment of Fund assets to ensure that the Fund’s investments remain invested in accordance with this Statement.
4. Accounting and Reporting Guidelines for the purpose of measuring the performance of all investment managers.
5. Directed Brokerage Policy.6. Proxy Voting Policy.
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General Policies and Procedures
Duties and Responsibilities
Board of TrusteesThe Board of Trustees has the responsibility for establishing and maintaining investment policy that guides the investment of the Fund. The Board is responsible for selecting Investment Managers and Consultants to carry out the Board’s investment objectives and policies and for monitoring their performance. The Board shall discharge its duties with care, skill, prudence and diligence under circumstances then prevailing, which a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. The Board shall accomplish these goals, in part, by diversifying the investments of the Fund with the goal of minimizing the risk of large losses, unless under specific circumstances it is clearly not prudent to do so.
StaffStaff will prepare recommendations for Board action on issues affecting the Fund. Staff will also interact with the Fund's consultants on a day-to-day basis and assist them in reporting back to the full Board on a regular basis.
ConsultantsThe Board may retain an objective, third-party performance measurement consultant to monitor the performance of the Fund and the individual managers relative to the objectives and benchmarks set forth in this statement. The performance measurement consultant will provide quarterly reports and will meet with the Board and management as needed, to provide analysis and interpretation of performance. The Board will be entitled to rely on such consultant. The Consultants will assist the Board in formulating and administering investment policy, analyzing existing investments, selecting new investment managers and educating the staff and Board on investment issues.
Investment ManagersAssets will be allocated to professional investment managers in accordance with manager structure policy. The individual managers will be judged according to benchmarks that reflect the objectives and characteristics of the strategic role their portfolio is to fulfill.
In recognition of their roles as fiduciaries of the Fund, the investment managers assume the following responsibilities:
Concerning their investment programs investment managers are expected:
To invest with the same care, skill, prudence and due diligence under the circumstances then prevailing, that an experienced, professional investment manager
_____________________________________________________________________ 22
acting in a like capacity and fully familiar with such matters, would use in the investment of like assets with like aims.
To exercise investment discretion (including holding cash equivalents as an alternative) within the policy objectives and guidelines set forth herein. Such discretion includes decisions to buy, hold or sell securities in amounts and proportions reflective of the manager’s current investment strategy and that are compatible with the policy objectives and guidelines.
To avoid all conflicts of interest when using Fund assets to pay brokerage expenses and to ensure that all trading expenditures are made for the benefit of the Fund. To monitor trading costs and obtain best execution in view of relevant information at the lowest possible cost to the Fund.
To comply with all appropriate objectives and guidelines pertaining to their role, asset class, and vehicle type.
CustodianThe Board may appoint an independent custodian to hold the PACT assets and to ensure their safekeeping. The appointment of an independent custodian is an effective way to safeguard the physical and legal integrity of the assets. The custodian should not be able to absolve itself of its responsibility by entrusting to a third party all or some of the assets in its safekeeping. The Board may also appoint the custodian to provide additional services such as securities lending, cash management, investment accounting and reporting, and performance measurement.
Securities LendingSecurities lending is permitted as an opportunity to earn additional income. The policies and guidelines governing securities lending shall be with the master custodian, unless contracted otherwise.
The objective of securities lending is to earn income through a conservatively operated and well-controlled program. There is no absolute return expectation; rather, income is expected commensurate with the market demand for the securities made available by the Fund and the return earned on the investment of cash collateral. Cash collateral received will be invested in a high-quality investment program that emphasizes the return of principal, maintains required daily liquidity, and ensures diversification across approved investment types. Those objectives are pursued within the parameters governing the program as outlined in the securities lending agreements with agent banks. Each agent bank is required to act as a fiduciary with respect to the Fund, and to have systemic and procedural controls in place to ensure adherence to guidelines for operating the securities lending program on behalf of the Fund. The results of the securities lending program are reported to the Board on a regular basis.
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Procedures for Manager Selection
Investment managers employed by the PACT Board will be selected through a thorough search and review process, which will include all or some of the following steps:
Formulation of specific manager search criteria that establishes the qualifications for the manager’s role in the strategic plan.
Identification of qualified candidates from Board members, staff, State Purchasing and/or the manager search database maintained by the Fund’s investment consultant.
Conduct due diligence on each candidate that will include performance screening, qualitative screening and/or onsite visits.
Selection and interview of finalist candidates based on final results of the due diligence process.
Evaluation of any potential conflicts of interest.
In general, the Board will evaluate investment manager candidates using the following qualities/expectations. The absence of any one of these qualities will not necessarily disqualify any candidate nor will the presence of all of these qualities assure selection of any candidate. Final selection is at the discretion of the Board: The characteristics of the Managers(s) are to be:
A bank, an insurance company, or an investment advisor registered under the Investment Advisers Act of 1940.
A stable organization with minimal professional turnover. A company policy and practice of equal employment opportunity and non-discrimination
based on race, creed or gender. A philosophy and investment strategy that is clearly articulated and has been consistently
applied over time. An investment process including buy and sell disciplines that are explicitly defined and
rigorously executed. A track record of at least three years established by the manager or management team that
will be responsible for the Fund portfolio with the key people in the organization having at least five years of experience managing assets in a similar style. Ability to provide historical time-weighted quarterly returns gross & net of fees for a composite of similar accounts along with a published fee schedule.
Investment performance that consistently exceeded the median of a database of managers with similar style. However, superior recent performance should not be a major selection factor.
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Total Fund
Strategic Asset Allocation
One role of the Board is to reasonably attempt to maximize the benefits to be gained from the investment process. With this in mind, a strategic asset allocation has been established based on the principle that individual asset classes have different investment characteristics and that asset classes can be combined to optimize the objectives of the Fund. The goal of this strategic asset allocation is a Fund that is efficient, well diversified, and manageable over the long-term. The benefits of this diversification are reduced risk and improved investment returns.
This strategic plan for investing the assets of the Fund has been established with a time horizon of three to five years. This plan will be reviewed by the Board at least every 3 to 5 years to determine if it should be modified given existing and anticipated circumstances in the condition of the Fund and the prospects for the capital markets.
The Board has currently adopted the following strategic asset allocation:
Asset Class % Allocated Range
Domestic Large/Mid Cap Stocks 42% +/-5%Domestic Small Cap Stocks 9% +/-3% International Equity 21% +/-3%Domestic Bonds and Cash 28% +/-5%
* - The overall Fund does not have a strategic allocation to cash but individual managers will hold varying amounts of cash within their respective portfolios as part of the normal course of managing their portion of the Fund. This is specifically addressed within the individual asset class guidelines to follow.
Rebalancing Guidelines
The asset allocation of the Fund will be maintained as close to the target allocation as reasonably possible. Rapid unanticipated market shifts or changes in economic conditions may cause the asset mix to fall outside of the policy range. Cash additions and withdrawals shall be allocated across portfolios to bring the asset mix as close to the target allocation as possible.
If the asset allocation cannot be maintained within the above policy limits through cash additions or withdrawals, assets shall be shifted across investment management portfolios to restore the strategic asset allocation. Such reallocations are anticipated to occur infrequently. The consultant will be
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responsible for alerting the Board when it is necessary to re-balance the portfolios and across asset classes as necessary to conform to the adopted investment policy.
Manager Diversification
The Board will provide each investment manager with guidelines for the investments entrusted to them. These guidelines may be stricter or more flexible than these Policies as appropriate for the assets to be managed and the strategies to be used. Where the manager guidelines differ from these Policies, the manager shall be bound by the manager guidelines.
Performance Objectives for the Total Fund
The following Total Fund performance objectives address aspects of performance comparison and are important to the overall success of the Fund. Upon applying and/or reviewing them, their relative importance and/or implications should be noted. The primary objective needed to maintain the perpetuity of the Fund is listed as objective number one. Given the unpredictable nature of the economy going forward, objective number two is to at least achieve the passive alternative to the current strategic plan over the long-term and is provided as a minimum goal. This will ensure that the Fund is at least keeping up with the direction of the overall market. In addition, when considering the ongoing volatility of the markets, maintaining a positive relationship to a relevant peer group keeps overall performance in perspective. This is addressed with objectives three and four and should be looked at on an asset allocation adjusted basis.
1. The total return shall exceed the actuarial discount rate over the long term.
2. The total return shall exceed a blended benchmark representing both historical as well as current allocation decisions. It will be comprised of the passive indices for each asset class and sub asset class represented in the asset allocation. The following is the current composition:
42% Russell 1000 index, 9% Russell 2000 index, 21% MSCI EAFE index, 28% Lehman Brothers Aggregate Bond index
3. The Fund’s overall annualized total return should perform above the median of a relevant Database.
4. Achieve a positive risk/reward trade-off when compared to other plans in a relevant Database (over a minimum 3-year period).
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Investment GuidelinesDomestic Equity Investment Managers
Guidelines1. Equity holdings shall be restricted to readily marketable securities of corporations that are actively traded on major exchanges including the NASDAQ in the U.S. Equity holdings may include American Depositary Receipts traded on U.S. exchanges. Preferred and convertible preferred stocks may be held. Publicly traded Real Estate Investment Trust (REITs) shares may be held and are considered part of the allocation to stocks.
2. Investments should not be made in equity securities of issuers which do not have an available operating history of at least three years, unless the security is a constituent of the benchmark. Five years of operating history is preferred. Operating history may include past performance resulting from mergers, acquisitions, and spin-offs.
3. Equity investments in companies with a market capitalization of less than $50 million at the time of purchase are prohibited investments. Market Capitalization shall be defined as the number of shares outstanding multiplied by the market price per share.
4. Not more than 5% of the total stock portfolio may be invested in the common stock of any one corporation at the time of purchase and no more than 7% in any one corporation at market. Not more than 5% of the outstanding shares of any one company may be held. No more than the lessor of (3 times the sector weight in the index and 40%) valued at market may be held in any one economic sector, except for INTECH where the only constraint is on the individual security; 2.5% of the relative weight of the security in the benchmark.
5. Futures and options may be used as a substitute for equity securities provided that they are 100% collateralized by highly liquid securities and do not represent leveraging of the assets.
Pooled/Mutual Fund ExceptionsIn the case of a commingled account or mutual fund, the Fund waives strict adherence to the following investment guidelines. Notwithstanding these guidelines, a pooled/mutual fund’s investment objectives, policies and restrictions, as set forth in its current prospectus and statement of additional information (as amended from time to time), shall govern the investment of the Fund’s assets.
Exclusions
The following categories of securities should not be considered for investment in the Fund without the Board’s written approval within the specified manager guidelines:
1. Unregistered or restricted stock which is not listed or freely traded on any exchange;
2. Commodities or commodity contracts;
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3. Options, Warrants, Futures (except as previously noted);
4. Short sales, warrants or margin transactions, or any leveraged investments;
5. Swaps, Scores, Primes, IOs, POs;
6. Natural resource properties such as oil, gas or timber;
7. All forms of Private Equity including, but not restricted to, venture capital or buyout funds.
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Investment GuidelinesInternational Equity Investment Managers
Guidelines
1. Equity holdings shall be restricted to readily marketable securities of corporations that are domiciled in countries outside the United States or generate most of their revenues outside the United States. The securities shall be actively traded on major exchanges in these countries or in the U.S. Equity holdings may include American Depositary Receipts traded on U.S. exchanges. Convertible preferred stocks may be held. Exposure to Emerging Markets securities shall be limited to 10% of the market value of the portfolio.
2. Investments should not be made in equity securities of issuers which do not have an available operating history of at least three years. Five years of operating history is preferred. Operating history may include past performance resulting from mergers, acquisitions, and spin-offs.
3. Equity investments in companies with a market capitalization of less than $100 million at the time of purchase are prohibited investments. Market Capitalization shall be defined as the number of shares outstanding multiplied by the market price per share.
4. Not more than 5% of the total stock portfolio may be invested in the common stock of any one corporation at the time of purchase and no more than 7% in any one corporation at market. Not more than 5% of the outstanding shares of any one company may be held. No more than the lessor of (2 times the sector weight in the index and 40%) valued at market may be held in any one economic sector as defined by MSCI.
5. Futures and options may be used as a substitute for equity securities provided that they are 100% collateralized by highly liquid securities and do not represent leveraging of the assets. Futures and options may also be used to reduce the effect of currency fluctuations on the returns to the fund.
Pooled/Mutual Fund Exceptions
In the case of a commingled account or mutual fund, the Fund waives strict adherence to the following investment guidelines. Notwithstanding these policies, a pooled/mutual fund’s investment objectives, policies and restrictions, as set forth in its current prospectus and statement of additional information (as amended from time to time), shall govern the investment of the Fund’s assets.
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Investment Guidelines
Domestic Fixed-Income and Cash Investment Manager
General Guidelines Domestic Fixed-Income
Debt shall mean marketable debt securities issued by either (1) the United States Government, or its agencies, (2) corporations, or (3) domestic banks and other financial institutions. Mortgage pass-throughs, collateralized debt obligations and 144A securities are permitted.
1. No more than 5% of the total market value of all debt investments should be invested in the debt obligations of any one issuer, with the exception of securities issued and guaranteed by the United States Government, or its agencies, or collateralized by the U.S. Government which may be held without limitation. Holdings of any individual issue must be 5% or less of the outstanding value of the total issue.
2. With the exception of those situations involving reorganization of fund assets, debt investments should be made only in issues with an outstanding value of at least $50 million, valued at par, at the time of purchase.
3. Mortgage securities held should exhibit price, volatility, and liquidity similar to components of the Lehman Mortgage Backed Securities Index. These may include collateralized mortgage obligations such as pass-throughs, sequential CMO tranches, or planned amortization classes. Asset backed securities including categories other than mortgages may be held provided they are unleveraged, low risk and their values do not change due to the performance of any other security, index or commodity (i.e., structured notes). In determining the acceptability of a derivative, duration must be easily calculated and where duration cannot be calculated, the investment is not permissible.
4. Futures and options may be used provided that they are 100% collateralized by highly liquid securities and do not represent leveraging of the assets.
5. The average effective duration of the portfolio, reflecting all instruments including CMO and Asset-Backed Securities, must be maintained at plus or minus one year of the Lehman Aggregate Bond Index duration.
6. Turnover in the debt portfolio should not exceed 200% in any rolling 12-month period. For purposes of this restriction, turnover shall be defined as the total dollar value of the greater of purchases or sales, divided by the average market value of the debt portfolio for the 12 month period under review. Fixed income managers shall be excluded from this restriction for the first six months of their retention.
7. Taxable debt obligations issued by municipalities may be considered as possible investments.
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8. Treasury Inflation Protection Securities (TIPs) are allowable investments.
Core Fixed Income Manager Guidelines1. All securities at time of purchase shall have a Moody's, Standard & Poor's, or Fitch’s quality
rating of Baa3, BBB- or BBB-, respectively, at a minimum. (If the security is rated by Moody’s, S&P and Fitch, the middle rating of the three agencies will govern. In the event the security is rated by two of the agencies, and the third is non-rated, the lower rating of the two agencies will govern. If only one agency assigns a rating, it will govern.)
2. Debt securities which are downgraded below the minimum level defined above should be sold within a 6-month period of such downgrade.
Core Plus Fixed Income Manager Guidelines1. Core plus managers are permitted to invest in “below investment grade” quality bonds, non-US
dollar denominated bonds, and emerging market debt. However, the total amount invested in these securities in the aggregate shall be limited to 30% of the market value of the portfolio.
Guidelines Cash, Money Market Investments, and Short Term Investments
1. Cash and cash equivalent investments shall mean debt obligations with a maturity of 12 months or less at the time of issue.
2. Cash and cash equivalent investments shall be made only in:
a. Money market mutual funds;b. Securities rated A-1 by Moody’s, P-1 by Standard & Poor’s or better by a recognized
credit rating service;c. Bank deposits that are (1) fully insured by the Federal Deposit Insurance Corporation, or
(2) covered under the SAFE program;d. Repurchase agreements covered under the Master Repurchase Agreement.
Pooled/Mutual Fund Exceptions
In the case of a commingled account or mutual fund, the Fund waives strict adherence to the following investment guidelines. Notwithstanding these policies, a pooled/mutual fund’s investment objectives, policies and restrictions, as set forth in its current prospectus and statement of additional information (as amended from time to time), shall govern the investment of the Fund’s assets.
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Miscellaneous
Brokerage Direction Policy
All separate account managers should participate in the Fund’s Directed Brokerage Program subject to the following instructions:Brokerage transactions in the normal course of business should be directed on a competitive, best execution basis. In addition, brokerage transactions should not be directed if in doing so, taking all factors into consideration, the Fund will incur a disadvantage with respect to the market price of the security. Managers are free to seek the best execution of transactions through any broker. Managers will be advised as to their targeted percentage.
Voting of Proxies
It is expected that the investment managers will review each proxy ballot and vote them in a manner that preserves and enhances shareholder value. Each investment manager shall keep accurate written records of all proxy votes and, on request, provide a detailed report to the Board documenting all votes.
Reporting Requirements
Investment managers are required to provide quarterly reports to the Investment Adviser. Reports should include the following:
Certification of market value, including a summary of all discrepancies with the master custodian bank that have been outstanding more than 90 days if and when applicable.
Performance results.
Notice of any material changes in organizational structure, ownership, key personnel, strategy, philosophy, etc. of the firm.
Any material litigation pending against the firm or any of its’ members whether criminal, civil, or administrative.
On an annual basis the reports should include the annual filing of Form ADV with the Securities & Exchange Commission.
Investment managers must meet with the Board and/or management as required. The Board
expects to receive a written summary that responds to the subjects identified in the agenda at least
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ten days prior to the meeting. These meetings will also provide the investment managers with the
opportunity to explain how their investment strategy/outlook has evolved since previous meetings.
The agenda will include the following:
Performance for past period: Standard time periods for each report will be last quarter, Fund fiscal year to date, calendar year to date, latest one year, three years, five years, seven years, ten years, and since inception. Returns should be annualized for periods longer than one year and calculated on a time-weighted basis for the total portfolio. All returns should include income and dividends and be footnoted as to whether they are gross or net of fees.
Rationale for performance results: Discussion of the rationale for performance results, relating them specifically to investment strategy and tactical decisions implemented during the current review period.
Specific near-term strategy: Discussion of the investment manager’s specific strategy for the portfolio over the near-term period, with specific reference to asset mix (including cash position) and expected portfolio characteristics.
Changes in the Investment Manager’s firm: Discussion of any changes in the investment manager’s firm including, but not limited to, professional turnover, ownership changes, investment strategy, philosophy.
Changes in the Fund’s requirements: Discussion of the required modifications to the investment program and strategy, if any, including changes necessary to comply with new legislation.
Portfolio outlook: including both short and long term views.
Standards of Performance
Investment performance of various asset classes of securities will be compared, on a time-weighted basis, with that of unmanaged market indices as well as a sample universe of funds as follows:
Domestic large cap equity performance will be compared with the Russell 1000, the S&P 500 and with a sample universe of equity funds. Large cap value manager(s) will be compared to the Russell 1000 Value Index. Large cap growth manager(s) will be compared to the Russell 1000 Growth Index. Index manager(s) will be compared to the specific index, e.g. Russell 1000, Russell 200 and S&P 500. Small/mid cap managers will be compared to the Russell 2000 Index or other suitable indexes.
Developed country foreign stock performance will be compared with the MSCI Europe, Australasia and Far East (EAFE) Index and with a sample universe of developed country foreign equity funds.
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Domestic fixed income performance will be compared with the Lehman Brothers Aggregate as well as with a sample universe of fixed income funds with comparable durations.
Ongoing Monitoring
1. Manager Monitoring
The Board will monitor manager performance quarterly. Each quarter, the Board will look principally at three criteria when evaluating individual managers. the manager will be evaluated on whether it met or exceeded the assigned Benchmark for the
investment style utilized. the manager will be evaluated on how well it stayed within the investment discipline for
which it was hired the manager will be evaluated on whether it fell within the top half of the database
comparison with other managers utilizing the same discipline.
2. Manager Review
A thorough Review and Analysis of a Money Manager will be conducted, should: A manager perform in the bottom quartile (75 percentile) of its peer group over an annual
period. A manager fall within the southeast quadrant of the risk/return scatterplot for 3 and/or 5 year
time periods A manager have a 5-year risk adjusted return fall below that of the median manager with the
appropriate peer group. Major organizational changes also warrant immediate review of the manager, including
change in professionals, significant account losses, significant growth of new business, change in ownership, or regulatory issues or evidence of wrongdoing.
3. Manager Replacement
Performance which may require the replacement of a manager include:
Managers that consistently perform below the median (50th percentile) of their peer group over annual periods.
Managers which perform below the median (50th percentile) of their peer group over a three year period.
Managers with negative alphas for 3 and/or 5 year time periods.
The performance of the Fund’s investment managers will be monitored on an ongoing basis and it is at the Board’s discretion to take corrective action by replacing a manager if the Board deems it appropriate at any time.
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Delegation of Responsibilities
The following chart displays the involvement of each entity as the decision making process of the Program expressed as a presentation of control is:
Board Investment Advisor
Investment Manager
Custodian
Asset Allocation Investment Policy
X X
Formation of Investment Policy
X X
Manager Guidelines X X XManager Selection X XPerformance Evaluation X XCompliance with Manager Guidelines
X X
Execution of Trades X XCollection of Dividends & Interest
X X
Cash Sweeps X XRecapture Programs X X X XSecurities Lending X XProxy Voting X XTrading Verification X X
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INVESTMENT MANAGER ACKNOWLEDGEMENT
By execution of this document the undersigned hereby acknowledges receipt of the August 2005 Alabama Prepaid Affordable College Tuition Trust Fund’s Investment Guidelines. Manager has studied its provisions and will abide by its terms in the fulfillment of the contractual responsibilities to the PACT.
_________________________________Firm Name
_________________________________Signed
______________________Date
_________________________Printed Name, Position
_________________________________Telephone Number
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EXHIBIT C
MINIMUM QUALIFICATIONS and MISCELLANEOUS INFORMATION
1. Information Regarding Manager
Name: Address:Phone NumberFax Number:
2. My Company is duly registered with the Securities & Exchange Commission pursuant to the Investment Advisors Act of 1940, as amended, and the registration is current.
Yes No
3. My Company is qualified with the Secretary of State to conduct business in the State of Alabama. (To download the form for a “Certificate of Existence”, access www.sos.state.al.us, corporations division, or call 334-242-5324 to request the form.)
Yes No
4. The portfolio manager assigned to the Treasurer’s account has managed large cap value equity portfolios for at least three (3) years, as of September 30, 2005.
Yes No
5. My Company has managed large cap value equity portfolios for at least three (3) years, as of September 30, 2005.
Yes No
6. My Company does manage at least $350,000,000 in large cap value equities as of September 30, 2005.
Yes No
7. My Company and its personnel have all authorizations, permits, licenses, and certifications as may be required under federal, state or local law to perform the services specified in this RFP at the time it submits a response to the RFP.
Yes No
8. My Company will carry errors and omissions insurance or comparable instrument to cover negligent acts or omissions.
Yes No
9. My Company does comply with all applicable AIMR performance presentation standards.Yes No
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10. My Company maintains sufficient procedures and capabilities to ensure the timely and accurate backup and full recovery for all computers and other data storage systems related to the Treasurer’s account.
Yes No
11. My Company has a company policy and practice of equal employment opportunity and non-discrimination based on race, creed or gender.
Yes No
12. My company has an office location in Alabama.Yes Provide City ____________________ No
13. Primary Contact Concerning the Proposal:Name:Address:Phone Number:Email:
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