CITY PUBLIC SERVICE PENSION PLAN Statement of Investment Objectives, Policy, Guidelines, and Administrative and Review Procedures Original Draft -- September 9, 1982 Revision dates: April 17, 2001 November 2005 June 2006 August 2007 November 2007 October 2010 March 2012 March 2014
INTRODUCTION The Oversight Committee 1 of the City Public Service Pension Plan hereby adopts this Statement of Investment Objectives, Policy, Guidelines and Administrative and Review Procedures ("Statement"). This document represents the investment objectives, policy, guidelines, and administrative and review procedures for Plan investments. The document which follows is divided into six sections Section I - Plan Purposes, Internal and External Responsibilities - This section is introductory in nature. It defines the purposes of the Plan and outlines the responsibilities of internal and external parties associated with the management and administration of the program from an investment standpoint. Section II Section III - Investment Objectives - Objectives are expected results for the Plan's investments, although these results cannot be guaranteed. The objectives focus on the real rate of return (returns in excess of inflation) for all assets under management, benefit security (assets/liabilities), and Plan cost to employees and CPS Energy ( CPS ). The Investment Objectives described in Section II are designed around the concept of preservation and safety of principal. No investment is totally risk-free, though some may be free of certain risks (e.g. Treasury securities are considered free of credit risk). Mitigation techniques are available for the specific risks inherent in securities in which Plan assets are invested. Discussion of the more common risks of investing and mitigation techniques for the Plan assets is provided in Section V. Throughout this Investment Policy, references are made to control and riskmitigation techniques employed. Most of the statements made within this policy were included in an effort to control risk and ensure prudent investment activities. - Investment Policy - This section sets forth the investment policies related to the investment decisions to be made and monitored by the Administrative Committee. It is through the policy selection that the Oversight and Administrative Committees intend to optimize the likelihood of meeting Plan objectives. Section IV - Investment Guidelines - The investment guidelines are the broad parameters within which the Administrative Committee and/or the investment managers should operate in executing and implementing the investment policy and making specific investment decisions. Section V - Risk Environment This section is a general discussion of the more common risks of investing and mitigation techniques employed. Section VI - Administrative and Review Procedures - This is a general description of the review processes for investment policy, performance, and management. 1 The Oversight Committee includes the President & CEO, the CFO of CPS, and the CPS Audit Committee 1
SECTION I: PLAN PURPOSES, INTERNAL AND EXTERNAL RESPONSIBILITIES The purpose of the City Public Service Pension Plan is to provide for the distribution of Plan assets to pay pension, disability, termination and death benefits to employees qualifying as Plan participants and their beneficiaries. The Plan and Trust are intended to meet the requirements of Section 401(a) and 501(a) of the Internal Revenue Code. The Administrative Committee is responsible for Plan administration and shall ensure that the Plan is managed: Effectively and prudently, in full compliance with all applicable laws; For the exclusive purposes of providing benefits to Plan participants and beneficiaries and defraying reasonable expenses of administering the system. With the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with matters of the type would use in the conduct of an enterprise with a like character and like aims; By diversifying the investments of the Plan to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and In accordance with Plan documents. The Oversight Committee is responsible for: Appointing the Administrative Committee, which is necessary to carry out the investment and administrative programs associated with the Plan, as set forth in the Plan document. The responsibilities of the Administrative Committee include: Serving as fiduciaries as defined by laws and regulations that may be issued from time to time by Federal and State legislative bodies or regulatory agencies, if applicable; Selecting, retaining and replacing professional service providers, investment managers and Plan Trustees; Monitoring and evaluating the conduct and performance of the Plan's investment managers and others connected with the investment of the Plan's assets; Monitoring investment performance to ensure that policies are followed and objectives are met; Communicating Plan investment policies to the Plan Trustee and investment managers. 2
Responsibilities of the Plan Trustee include: Complying with applicable rulings, regulations, and legislation relating to the activities of the Trustee; and Acting in accordance with the Pension Trust Agreement (Trust). Responsibilities of an investment manager, if and when appointed by the Administrative Committee, include: Complying with applicable rulings, regulations, and legislation relating to investment management; Adhering to and exercising investment discretion compatible with this Statement; Unless otherwise instructed by the Administrative Committee or provided in its contract with the Administrative Committee, voting all proxies and exercising all other similar shareholder rights on behalf of the Plan in conformance with the guidelines in this Statement. Reporting to the Administrative Committee in a format and frequency as set forth in the Review Procedures of this Statement and as may be further specified by the Administrative Committee; and Acknowledging in writing (1) the acceptance of responsibility as a fiduciary under applicable Federal and State legislation, regulations, and rulings, and (2) the intention to comply with this Statement. 3
SECTION II: INVESTMENT OBJECTIVES The City Public Service Pension Plan is a defined benefit plan, which means that City Public Service may face liability if the Plan's assets are not sufficient to pay the benefits under the Plan. The investment objectives of the Plan, therefore, are to produce, in the long-term, sufficient accumulation of Plan assets, through investment diversification and the trading of high quality securities, to pay Plan benefits. To produce this result, the following Investment Objectives, which are based on Plan requirements and assumptions regarding current and future economic conditions, are adopted: The Plan's fund should experience long-term growth. Growth in assets should be realized with normal levels of risk and volatility of return. The fund should experience growth over time in assets that, together with the Employer's funding policy for the Plan, will allow the market value of the Plan assets to exceed the present value of vested benefits. The Administrative Committee has established a goal for the Plan to become 125% funded (assets/liabilities on an ongoing basis). The investment program, together with the funding policy, should assist the Employer in maintaining a reasonable benefit level for its employees and, at the same time, control costs; As a targeted goal, the total fund assets should earn an average annual real rate of return (over inflation) of 5%. (For purposes of this goal, inflation is defined as increases in the CPIU (All Cities, All Items)). The fund should seek to meet or exceed its target actuarial rate of return, which may be adjusted periodically by the Plan s actuaries in conjunction with the Administrative Committee. The fund's performance should be compared against a weighted average index benchmark based on the strategic asset allocation target. The current allocation target and benchmarks are attached as Exhibit A. These objectives shall be monitored annually and reviewed in light of the various investment cycles. 4
SECTION III: INVESTMENT POLICY There are three basic principles that guide the drafting of the Plan's Investment Policies. Investment decisions are to be made: For the exclusive purposes of providing benefits to Plan participants and beneficiaries and defraying reasonable expenses of administering the system. With the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with matters of the type would use in the conduct of an enterprise with a like character and like aims. By diversifying the investments of the Plan to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 5
The Oversight Committee adopts the following Investment Policies: 1. DIVERSIFICATION AND INVESTMENT LIMITATION BY ASSET CLASSIFICATION Plan assets are to be diversified in order to minimize the risk of large losses in individual investments. The assets of the Plan shall be invested so that the maximum allowable percentages on the table below are not exceeded. These maximums are applicable to the total Plan assets, and thus, the Administrative Committee (and not individual investment managers) shall be responsible for monitoring compliance with this portion of the policy. The strategic asset allocation target is attached as Exhibit A. Not all allowable asset classes listed below are currently targeted. Maximum Allowable Percent Asset Class (At Market Value) 2 Government and Government Guaranteed Debt 100% 3 Corporate Debt 35% Global Bonds 10% International Equities 20% 4 Domestic Equities 60% 4 Insurance Contracts 35% Cash Equivalents 100% Real Estate/ Specialized Funds (hedge funds, precious metals, etc.)/ Venture Capital 25% There is no maximum allowable maturity for any of the investment types listed. Market prices are monitored through professional pricing services of the Plan Trustee and individual investment managers. The Administrative Committee may elect to engage in securities lending. For these purposes, the Plan will follow the practices, procedures and rules for securities lending that CPS Energy utilizes for its securities lending program under the Public Fund Investment Act, Texas Government Code, Section 2256.0155. 2 For purposes of calculating these maximums, an investment in a mutual fund or investment pool investing in one of the named asset classes (domestic equities, global bonds, real estate, etc.) is counted as an investment in the primary type or types of assets in which the fund or pool invests. 3 Not to exceed 50% in any one government-sponsored enterprise. 4 The combined total investment in equities (international and domestic) shall not exceed 70%. Cash or cash equivalents held by equity investment managers or in equity mutual funds or investment pools are considered to be invested in equities for purposes of the individual caps and combined total cap for equities. 6
2. LIQUIDITY Adequate liquidity should be maintained to meet projected cash needs. Due to the very longterm nature of the Plan liabilities, and limited requirements for daily operating cash, the Plan may require only modest short-term reserves for liquidity purposes, and the bulk of the assets may be invested in longer-term securities. 3. MARKET TIMING There will be times when the investment environment is either adverse or particularly attractive for investment in certain types of equity or debt investments. In such cases, it is expected that the investment mix will be altered either to reduce market risk or optimize opportunities to capitalize on expected market movement. The resulting alteration in investment mix may be accomplished through the use of the appropriate cash equivalent reserves or the liquidation of assets. 4. TARGETED INVESTMENTS The Oversight Committee is cognizant that special interest groups may attempt to encourage the investment of Plan assets in specific or targeted investment programs, including investments known as "social investments" or "economically targeted investments." The Oversight Committee adopts the policy that investments and investment decisions are to be made for the exclusive benefit of Plan participants and beneficiaries and should not be influenced in the manner described above. It is the position of the Oversight Committee that investments shall be evaluated and made, regardless of social, local economic or other extrinsic factors, based on whether the investment: Offers a competitive rate of return and maturity in relation to the risks involved; Meets quality standards established by the Administrative Committee; and Is consistent with this Statement. 5. PROXY VOTING Proxy voting decisions shall be based on the following guidelines: Proxy voting shall conform to and be in harmony with the guidelines, policies and objectives of the Statement. Most importantly, voting decisions shall conform to the applicable fiduciary rules, including that the votes be cast for the exclusive purposes of providing benefits to Plan participants and beneficiaries and defraying reasonable expenses of administering the system. Each investment manager shall provide a copy of their proxy voting policy to the Administrative Committee (and any subsequent revisions thereto), and shall keep complete and accurate records concerning all proxy voting undertaken on behalf of the Plan. Copies of these records should be forwarded to the Administrative Committee on an annual basis (or more frequently, if so requested by the Administrative Committee). 7
Although the investment manager must analyze each voting decision individually and may vary from the following guidelines (without the prior approval of the Administrative Committee) if the investment manager believes such variance is in the best interest of the participants and beneficiaries, the Administrative Committee supports the following general positions concerning proxy voting: Support for staggering of terms of members of the board of directors. Opposition to cumulative voting for directors. Support for candidates for board of directors who are independent and who have expertise to serve. Support for executive compensation in levels which are competitive, but not overly excessive. Support for prudent and reasonable policies on debt financing, capitalization, mergers and acquisitions. Support for the development of long-term business plans and investment in employee training. 8
SECTION IV: INVESTMENT GUIDELINES Investment guidelines are the broad parameters within which the Administrative Committee and investment managers operate in executing policies and strategies concerning each particular type of investment. 1. EQUITY INVESTMENTS The equity portfolio risk level should be reasonable and consistent with the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with matters of the type would use in the conduct of an enterprise with a like character and like aims. The retained investment managers may invest in equity securities listed on the principal exchanges or traded over the counter. Investment managers authorized to invest in foreign equity securities may invest in such equity securities that a reasonable and prudent person acting in a like capacity and familiar with matters of these types of investments would use. To the extent reasonably determinable, the Plan's investment managers should limit investment to those securities or companies with the following characteristics: Its competitive position should be relatively strong within most of its principal product or service categories. The company should have a sound financial position for the conduct of its particular business. Management of the company should have a favorable reputation in the following categories: (a) General integrity and business practices, (b) Competence in guiding the enterprise and the effective use of the company's resources, and (c) Other matters that may impact the economic performance of the company. The rights of shareholders should be sufficient for the reasonable exercise of ownership prerogatives. There must be an established market for its common stock, with some reasonable breadth of ownership. These company characteristics may be altered or waived by the Administrative Committee in individual situations or for certain types of investments, such as investments in foreign emerging market companies. 9
Adequate diversification of the Plan investments in equities should be maintained, both on the basis of individual company and types of industries. It is intended that no more than 5% of any one investment manager's equity portfolio's market value be invested in any one company and that no more than the greater of 20% or 2x the sector weighting of the specified index used to measure a manager s performance of any one investment manager's equity portfolio's market value be invested in any one sector. The Administrative Committee may allow certain investment managers, on an individual basis, to invest beyond the percentage limits referenced above. This allowance will be documented in the Investment Manager s Agreement with the particular manager or by separate amendment to the Investment Manager s Agreement. 2. CASH EQUIVALENTS Cash equivalent investments when held for any purpose (i.e., buying reserves) must be rated "A-1", "P-1", or F-1 as defined by Moody's, Standard & Poor's, or Fitch rating services. The rating must be similar for Certificates of Deposit. 3. CORPORATE AND GOVERNMENT DEBT The duration of each investment manager s portfolio should not deviate from the duration of the specified fixed income index used as a benchmark for the investment manager s performance measurement by more than +/- 1.5 years. In addition, the duration of the aggregate fixed income portfolio of the Trust should not deviate from the duration of the specified fixed income index used as a benchmark for the aggregate portfolio by more than +/- 1.5 years. "High Grade" domestic debt investments should have a minimum quality rating of "A" as defined by at least one major credit rating agency, to include Moody's, Standard & Poor's and Fitch rating services, except for convertible issues, which may be rated "BAA" or above, and should be in U.S. dollar denominated securities. However, the Administrative Committee may allow high grade investment managers, on an individual basis, to invest no more than a specified percentage of their investment manager's portfolio in debt investments with a quality rating below "A". The Administrative Committee, if it decides to allow a high grade investment manager to invest in such lower rated debt investments, shall specify the percentage and any other restrictions or guidelines applying to such investments. In no circumstances will less than BBB rated securities exceed 7.5% of the total high grade fixed income investments. In addition, the Administrative Committee may retain investment managers to manage "high yield" debt securities. Authorized high yield securities include bonds, notes or preferred stocks issued by U.S. corporations, foreign corporations and foreign governments payable in U.S. dollars with actual or implied ratings below investment grade by Moody's, Standard & Poor's, or Fitch rating services. No leveraged derivatives are permitted. 10
The Administrative Committee may also retain Global Fixed Income managers who invest in U.S. and non-u.s. fixed and floating rate securities. The average credit quality for the portfolio shall be investment grade, within the four highest grades by Moody's, Standard & Poor's or Fitch IBCA. Additionally, these managers shall manage the portfolio's currency exchange rate exposure through various hedging techniques. No leverage may be employed. The maximum investment in any one corporate bond or note should not exceed 5% of the market value of an investment manager's fixed income portfolio. In addition, the maximum investment in any one corporate bond or note should not exceed 5% of the market value of the aggregate fixed income portfolio. There is no such concentration restriction on the investment in government guaranteed or government agency debt issues, other than government agency debt may not exceed 50% by any one issuer. The Administrative Committee may allow certain investment managers, on an individual basis, to invest beyond the percentage limits referenced above. This allowance will be documented in the Investment Manager s Agreement with the particular manager or by separate amendment to the Investment Manager s Agreement. 4. REAL ESTATE The Administrative Committee may invest in real estate which, in the view of the Administrative Committee and the property management consultant, complements the portfolio, is of high quality and is expected to either earn a reasonable cash flow rate of return and/or appreciate in value consistent with the overall investment objectives of the Plan. A stringent due diligence review will be performed prior to each acquisition, to assist with determining the prudence of the investment. 5. GUARANTEED INVESTMENT CONTRACTS The minimum quality standards for the insurance carrier or bank that offers or issues GICs should be "A+" as defined by A. M. Best and "AA-" as defined by Standard & Poor's or Fitch and "Aa3" as defined by Moody's. 6. NON- TRADED FUNDS The Administrative Committee may invest in non-publicly traded investments which, in the view of the Administrative Committee and the financial consultants, complement the portfolio and are deemed appropriate. If such investments are undertaken, the Administrative Committee will pursue diversity of investments and define prudent guidelines for this specific asset class. 11
7. MISCELLANEOUS Commingled Funds. When assets are invested in pooled or commingled funds, the quality of the investment shall be analyzed based on the fund itself viewed as a whole, not on the constituent holdings of the fund. Prohibited Transactions. No assets shall be invested in restricted securities. 5 No assets shall be invested in the securities of CPS or the City of San Antonio or its agencies. In addition, the Administrative Committee and the Investment Managers may not authorize or carry out any sale, exchange or other transaction which would constitute an act of self dealing within the meaning of Section 113.053 of The Texas Property Code as it may be amended from time to time. The Administrative Committee will make efforts to notify all Investment Managers of any known relationships which may potentially constitute or be perceived to be an act of self-dealing. When changes in market value cause a violation of any provision of these Investment Guidelines, the investment manager will either adjust the portfolio's holdings within 60 days or make a written recommendation for alternative actions to the Administrative Committee. 5 Restricted Securities are securities that cannot be sold to the public through an orderly trading market on an unrestricted basis because such a market is not available for such class of security or because of the operation of the securities laws or contractual restrictions on resale. 12
SECTION V: RISK ENVIRONMENT A discussion of the more common risks of investing and mitigation techniques for the investment of Plan assets is provided below. A. EQUITY SECURITIES 1. MARKET RISK This is the risk associated with the price fluctuations of securities, which could result in proceeds from the sale of the securities being less than the original purchase price. Generally, the long-term nature of the Plan liabilities allows for short-term fluctuations in market value to occur without jeopardizing the long-term value of the Plan assets. Volatility is a term used to describe a security s price fluctuations. Equity securities will have more price volatility than fixed income securities. In order to mitigate this risk, the equity portion of the portfolio will be diversified across industries and asset classes. By having a diversified and quality equity portfolio, market risk is mitigated as fewer industries and asset classes are likely to be subject to market downturns at the same time. 2. ECONOMIC RISK This is the risk that the economy will suffer a downturn as a whole. Such an event generally affects all the financial markets across the board, from product prices to the job market. In order to mitigate economic risk, the equity portfolio will be diversified across different sectors of the U.S. economy. In addition, fixed income holdings will add further diversity to the portfolio, as fixed income investments tend to react differently than stocks do during various stages of the economic cycle. Investing in foreign economies will add further diversification to the portfolio as well. By diversifying the portfolio, economic risk can be mitigated, as it will be unlikely that an economic downturn will adversely affect the entire portfolio. 3. INTERNATIONAL RISK This is the risk that a country s government will suddenly change its policies. Events such as wars, embargos, coups, and the appointments of individuals with unfavorable economic policies can impact the financial markets, especially concerning investments related to that country. Possible results include changes in tax structures and changes in bond or stock ratings. In order to mitigate this risk, investments in international portfolios will be limited to a maximum of 20% of the overall portfolio. In addition, international investments will be diversified across countries and industries as well as investment styles. 13
B. FIXED INCOME SECURITIES 1. INTEREST RATE RISK This is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the long-term nature of the Plan liabilities, and the limited need for daily operating liquidity, allow that interim fluctuations in market value can occur without jeopardizing the ultimate value of the Plan assets. Where long-term securities are held, the interim market value of assets can be sensitive to changes in interest rates. As the general level of interest rates moves up and down, the interim market value of longer-maturity bonds may change substantially. Volatility is a term used to describe a security s price fluctuations. Securities with long terms to maturity are more volatile than securities with short terms. Securities with call or periodic prepayment structures are also more sensitive to changes in interest rates than simpler, more traditional structures. One of the techniques used to mitigate this risk in investment portfolios is by having a duration limitation. The duration of each investment manager s portfolio should not deviate from the duration of the specified fixed income index used as a benchmark for the investment manager s performance measurement by more than +/- 1.5 years. In addition, the duration of the aggregate fixed income portfolio of the Trust should not deviate from the duration of the specified fixed income index used as a benchmark for the aggregate portfolio by +/- 1.5 years. Additionally, the maximum investment in any one corporate bond or note should not exceed 5% of the market value of an investment manager's fixed income portfolio or 5% of the aggregate fixed income portfolio. There is no such concentration restriction on the investment in government guaranteed or government agency debt issues, other than government agency debt may not exceed 50% by any one issuer. By diversifying in this manner, interest rate risk is mitigated, as fewer funds should be subject to a risk occurrence at any given time. 2. CREDIT RISK This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Plan assets can be invested in U.S. Treasury securities without limit, and in government agency debt not to exceed 50% by any one issuer. These issuers, if guaranteed, are deemed to be without credit risk. Some, but not all federal agency issuers are guaranteed, however, they continue to carry high credit ratings. Investment in any one corporate bond or note should not exceed 5% of the market value of an investment manager's fixed income portfolio or 5% of the aggregate fixed income portfolio. Credit risk is minimized by limiting "High Grade" domestic debt investments to a minimum quality rating of "A" as defined by Moody's, Standard & Poor's, or Fitch rating services, except for convertible issues, which may be rated "BAA" or above, and by limiting these investments to U.S. dollar denominated securities. However, the Administrative Committee may allow high grade investment managers, on an individual basis, to invest no more than a specified percentage of their investment manager's portfolio in debt investments with a quality rating below "A". The Administrative Committee, if it decides to allow a high grade investment manager to invest in such lower rated debt investments, shall specify the percentage and any other restrictions or guidelines applying to such investments. In no circumstances will less than BBB rated securities exceed 7.5% of the total high grade fixed income investments. 14
The high concentration of investment grade not only mitigates credit risk, but also mitigates liquidity risk, as the higher rated issues are generally the most liquid. Credit risk may also manifest in the following forms: Concentration of Credit Risk. This is the risk of loss attributed to the magnitude of investment in a single issuer. Diversification is the primary tool utilized to mitigate this risk. Maximum holdings by other than federal government issuers have been established, such that failure of one issuer would not affect the entire investment portfolio. Government-guaranteed securities are not subject to these restrictions, as the guarantee in itself, mitigates credit risk. In some instances, credit ratings may outweigh diversification as a mitigating tool. As a matter of policy, a maximum of 7.5% of the total fixed income investments can be invested in securities with less than a BBB rating. U.S. Treasury and guaranteed federal agency securities are viewed as having the highest possible quality rating. Custodial Credit Risk. This is the risk that, in the event of the failure of the counterparty to a transaction, the value of the investment or collateral securities that are in the possession of an outside party will not be recovered. Assets pledged as collateral must generally be a type of security specifically authorized to be held as a direct investment; must be held by the Trust or by an independent third party; and must be pledged in the name of the Trust. Securities lending transactions would be additionally supported with agent indemnifications against borrower default. 3. LIQUIDITY RISK This is the risk that a security would not be adequately marketable, and that sale of said security would be unattainable, or attainable at a loss. However, due to the very long-term nature of the Plan liabilities, and only limited requirements for daily operating cash, only modest short-term reserves are required for liquidity purposes, and the bulk of the Plan assets may be invested in longer-term securities. Investment in equity securities will be restricted as described in Sections III and IV. 4. FOREIGN CURRENCY RISK This is the risk that changes in exchange rates will adversely affect the value of an investment. In order to mitigate this risk, investments in foreign currency-denominated securities will be limited to a maximum of 10% of the overall portfolio. 15
SECTION VI: ADMINISTRATIVE AND REVIEW PROCEDURES Review of Policies All investment policies, investment management guidelines, the strategic asset allocation target and portfolio structure will be reviewed annually, or whenever circumstances change to the extent that policies are ineffective or inappropriate. Review of Performance Each investment manager will meet with the Administrative Committee at least annually to review the manager's investment results. The review of investment results will focus on: Adherence to this Statement, the investment manager's contract requirements, and any other instructions or directions of the Administrative Committee. Evaluation of the investment manager's results in comparison to a benchmark index and with funds using similar strategies (in terms of quality, price earnings ratio, dividend yield, beta, and market capitalization for equity managers and maturity, duration, quality and current coupon for bond managers); and Investment opportunities available for the assets of the Plan. Review of Investment Management Written Reports. The Administrative Committee expects each investment manager managing Plan assets to properly inform the Administrative Committee of the investment managers' decision structure, including any material changes in such structure. A detailed written description should be provided to the Administrative Committee annually that describes the investment manager's organization and the key individuals responsible for the formulation and execution of the investment strategy. If there is a material change after such annual description has been presented to the Administrative Committee, the investment manager shall submit a written update within 30 days of such change. Investment managers must also prepare reports reviewing the economy and market, portfolio activity, and portfolio appraisal on specific security listings. 16
Meetings. Each investment manager is expected to make, at a minimum, annual presentations to the Administrative Committee consisting of: Past and prospective changes in portfolio structure; Past and prospective changes in investment philosophy and investment strategy; Historical performance in terms of absolute and real rate of return in accordance with the objectives set forth in this Statement; as well as with industry returns and averages; and The information provided in the written reports described above. Tenure While the relationships with any consultants or investment managers retained by the Administrative Committee are expected to be on-going, the Administrative Committee reserves the right to terminate its relationship with any retained consultants or investment managers at any time as deemed necessary or otherwise provided in its contracts with such consultants or investment managers. Rebalancing to Strategic Asset Allocation Target The asset allocation should be reviewed and adjusted from time to time to meet or reestablish targets. Once the final target asset allocation is achieved, rebalancing should occur when the allocation for a particular class of assets falls outside of the range shown on Exhibit A. DATE: APPROVED BY: Oversight Committee 17
EXHIBIT A PENSION PLAN STRATEGIC ASSET ALLOCATION TARGET ASSET CLASS TARGET BENCHMARK INDEX RANGE FOR REBALANCING Fixed Income: Total Fixed Income (Domestic, High Yield & Global) 22.0% Blended Index 18.0% - 40.0% Equities: International 10.0% MSCI AC World Free xus 5.0% - 20.0% Domestic 48.0% Russell 3000 40.0% - 60.0% Total Equities 58.0% 40.0% - 70.0% Alternative Investments: Real Estate/Specialized Funds (hedge funds, precious metals, etc.)/venture Capital 20.0% Blended Index 15.0% - 25.0% Total Portfolio 100.0% Blended Index 18