Core Portfolio

• Core 101

• Managers

• Performance

• Forms and Sample Documents

• Investment Policy Statement

Core 101

As those with oversight for the investment of Episcopal Church assets consider the options available for assets under management, it is good to be clear on the many facets of asset administration, and placing them in a prudent structure is a key role of governance. As options are considered, including planned giving efforts, The Trustees of the Funds may be an excellent good option, as it has proven to be for nearly 150 of the churches, conference centers, schools and other organizations in Virginia.

The core portfolio has roots to October 31, 1754, with the founding of the Widows and Orphans Fund, which is still in existence today. This portfolio, like all services of TOTF, is available to any Episcopal Church organization in the Commonwealth of Virginia.

The portfolio is managed according to an Investment Policy Statement (IPS), which can be found here. Within this IPS are the guidelines on types of assets and managers which can be used. The expectations of the Trustees are outlined for investment managers, investment consultant and institutional custodian.

Monthly reporting is sent electronically and is usually comprised of three parts: a summary report on Trustee actions, a report on asset performance and a unitization report documenting month to month changes for all participant funds. Monthly reporting is usually sent after the third week of each successive month.

A summary of the managers currently utilized by the portfolio is included on a separate tab. Understanding the type of investments being used is a key element of the role of the fiduciary. TOTF does not generally have a great deal of investment manager turnover.

The core portfolio is managed as a unitized portfolio, meaning that all participating funds are managed exactly the same way in terms of selected investments. The large pooled asset values allow TOTF to obtain the services of very strong managers in a very cost effective manner. This risk-monitored portfolio therefore is able to benefit all participants.

Mechanics of Investing

To create a new investment with the Trustees of the Funds, the vestry/board needs to complete the New Fund form located in the forms tab. If the vestry/board has passed a resolution authorizing the creation, it would be helpful to receive a copy of that document for corporate memory. The New Fund form should be sent to the Trustees of the Funds’ office, as well as a check payable to “The Trustees of the Funds”. We can also arrange for electronic ACH transfers from bank to bank.

If there are any restrictions on the use of the fund, such as scholarships, those should be enumerated. A classic, or true, endowment generates unrestricted income for the mission and ministry of the underlying entity.

Please be sure to advise if the fund is to reinvest or to have a calculated disbursement issued (after the third quarter). Most funds can usually change these instructions as often as the participating institution requires.

Structure

An organizational chart is shown below so that you can see how TOTF functions, including the core portfolio.

The core portfolio, like the other services offered, is overseen by the Trustees and staff. Key external support organizations are:

• Prime Buchholz, Portsmouth, NH, investment consultant
• SunTrust Bank, Richmond, VA and Atlanta, GA, institutional custodian
• Cherry Bekaert, Richmond, VA, auditors
• Armstrong, Bristow, Richmond, VA, legal

The asset alignment of the core portfolio is an 80/20 split between equities and fixed income holdings. Cash is targeted at zero, although TOTF maintains approximately $250,000 in cash at any given time for inflows/outflows so that managers are kept as fully invested as possible.

Current managers and performance (historical and current) are found on separate tabs.

Endowment Management

The core portfolio is managed as a perpetual endowment fund. As such, the Trustees establish a standard spending policy for the funds under management. Participants can request alternate schedules and they have (to date) always been accommodated. TOTF has a spending policy of a distribution of 4.5% of average market value for the prior 20 quarters, ending on September 30 th of any given year. In any given year, participants receive a letter from TOTF explaining the current payout or reinvestment for each named fund. About half of the nearly 700 funds receive a payout and about half reinvest until funds are needed. Participants can alter instructions at any point.

As an example of how a typical annual distribution goes, the trailing 20 quarters market value for the entire core portfolio is averaged and that average is multiplied by the 4.5% payout formula. This amount is then divided by the number of units outstanding as of 9/30/XXXX, and that gets us to a “per unit” payout amount. Then, depending on the number of units in any given fund, a check is issued to the Episcopal Church entity (fund units x per unit payout). These checks are typically issued in October. Each fund is handled separately, so participants receive information on each specific fund from TOTF.

Many churches and organizations have multiple funds placed with the Trustees of the Funds. Many do this for ease of reporting funds that have traditionally been held separate by decision of the vestry, board, investment committee or by direction of the donor.

To allow for different investment requirements of their funds, many churches or organizations use the reinvestment option as opposed to the annual payout. This allows the church organization to have an annual cash flow they can count on (payout) or long-term growth (reinvestment). Having the multiple funds accounted for in a distinct manner facilitates record-keeping, audit work, etc. While no investment that includes a level of risk can guarantee a specific return, the annual payout method using the rolling average market value softens any severe volatility in a distribution model, and this provides for manageable cash flow.

Additions and Withdrawals

Additions to any fund should be sent to the TOTF office using the form found in the Forms tab, and checks made payable to “The Trustees of the Funds.” The form should state which fund should receive what amount if you have more than one account. Additions to funds should arrive at TOTF before the last Friday of the month to make sure SunTrust has sufficient time to appropriately enter the additional amounts for that month’s unitization report.

If an individual wishes to make a contribution directly, and that is certainly done very often, I hope participant leadership will make that option known. TOTF can acknowledge contributions directly for donor tax purposes.

If a participant needs to make a withdrawal of a fund (beyond any scheduled distribution), a mailed or emailed copy of the standard form is requested. The form should be sent to TOTF, name the fund and the amount needed, and to whom the check should be payable. Typically, the church entity is the payee, but occasionally we are asked to pay a contractor or a university (such as for a scholarship). TOTF can also send withdrawals electronically if that is desired for timing purposes.

A long-standing policy of the Trustees is that for any account withdrawal request of 90% or more of a fund’s market value (such as a total liquidation) there will be a 10% hold-back to allow for the subsequent month-end unitization. Once there has been a new unitization, any balance will be released. While we do not have many such cases, with roughly 700 individual funds, it does happen from time to time as a building project may be exactly what a fund was created to support. This redemption/holdback process is common practice in trust management.

In 2011, the Trustees approved a formal withdrawal policy for large scale withdrawals that may adversely impact the ability of TOTF and the investment managers to make prudent investment commitments in accordance with the investment policy. The Trustees have considered the proper threshold on two separate occasions and the current policy for the core portfolio is under the Forms tab.

Fees

TOTF is run at cost for the benefit of the Episcopal Church in Virginia. All reported returns for the core portfolio are always shown as net of fees, so you do not see a dollar-based charge at any time. This is common trust management practice. The actual expenses of the portfolio (management fees, custodial fees, and administrative fees) are about 56 basis points in total (0.56%). This is reflected in the annual audit of TOTF.

Managers

Equities

Domestic Equities

• Davenport & Company, an “active” domestic large-cap stock manager, target weighting of 10.0%, the benchmark for performance is the S&P 500.
• Vanguard, Total Stock Market Fund. A “passive” domestic equity blend, target weighting of 10%, the benchmark is the Spliced Total Stock Market Composite Index.

Global Equities

• Dodge and Cox, Global Stock Fund. A “passive” global equity manager, target weighting of 4.5%, the benchmark is the MSCI World Index.
• Lansdowne Partners, Developed Markets Long-Only Fund. A “passive” long-only global equity manager with concentrated holdings, target weighting of 3.0% and the benchmark is the Dow Jones Titans 50 Index.
• Vanguard, FTSE All-World Ex-US Index Fund. A “passive” global equity blend, target weighting of 9%, the benchmark is the FTSE All-World Ex-US All Cap Index.

International Equities

• Silchester, International Value. A “passive” international equity manager, target weighting of 9%, the benchmark is the MSCI EAFE. Due to the success of this Silchester strategy, this fund is currently closed to new investment.
• Aberdeen, Emerging Markets Institutional Fund. A “passive emerging markets manager, target weighting of 3%, the benchmark is the MSCI Emerging Markets Index.
• Vanguard, Emerging Markets Stock Index Fund (Institutional). A “passive emerging markets manager, added as a complement to Aberdeen, target weighting is 1.5%, the benchmark is the FTSE Emerging Markets Index.

Equity Alternatives

• AEW Capital Management, AEW Global Property Securities Fund. An “active” global REIT manager, 2% allocation, the benchmark is the FTSE EPRA/NAREIT Developed Index.
• Commonfund
  • Distressed Debt Partners II. An “active” real assets fund acquired in late 2014 as a secondary acquisition and as this fund has matured, it is now targeted at zero percent (0.0%). The benchmark is the 91-day Treasury Bill plus 5%.
  • Natural Resources Fund VIII. An “active blended natural resources fund, with a higher than peer level of alternative energy assets, contracted in late 2009 for $1.75M, the current weighting is just under 1%, the benchmark is the 91-day Treasury Bill plus 5%.
• Drake Capital, An “active” multi-strategy hedge fund, Drake complements Forester, with Drake being smaller and more nimble in terms of underlying portfolio holdings. This fund has a portfolio weighting of 10.0% once fully invested and the benchmark used for Drake Capital is the HFRI Fund of Funds: Diversified Index.
• Forester Capital, Forester Diversified Fund. An “active” multi-strategy hedge fund, Forester complements Drake. This fund has a portfolio weighting of 10.0% once fully invested and the benchmark used for Forester is the HFRI Fund of Funds: Diversified Index.
• GMO, Forestry Fund 7. An “active” real assets fund acquired in late 2014 as a secondary acquisition and as this fund has matured, it is now targeted at zero percent (0.0%). The benchmark is the 91-day Treasury Bill plus 5%.
• Gresham Investment Management, The TAP Fund. A “passive” commodities futures fund, target weighting is 2.0% of the portfolio, the Bloomberg Commodity Index is the benchmark.
• Mangham Associates, Resources Fund I. An “active” real assets fund acquired in late 2014 as a secondary acquisition and as this fund has matured it is now targeted at zero percent (0.0%), the benchmark is the 91-day Treasury Bill plus 5%.
• Metropolitan
  • Metropolitan Real Estate Equity Management Fund IV. An “active” real assets fund, this fund has reached maturity, is disbursing capital back to the portfolio and now has a target weighting of zero percent. The benchmark is the 91-day Treasury Bill plus 5%.
  • Metropolitan Distressed Real Estate Fund 2008. An “active” real assets fund, this fund has reached maturity, is disbursing capital back to the portfolio and now has a target weighting of zero percent. The benchmark is the 91-day Treasury Bill plus 5%.
• MIT, Private Equity Fund II, III and IV. These are a series of “active” private equity funds and each has reached maturity and is returning capital to the portfolio. These are funds of Massachusetts Institute of Technology and deal in global venture and private capital projects. These funds now have a current target weighting of zero percent (0.0%). The benchmark is the 91-day Treasury Bill plus 5%.
• Park Street Capital, Natural Resources Fund V. An “active” real assets fund of funds, the contracted amount of $1.35M is about 1% of the portfolio, and it is almost fully funded. The benchmark is the 91-day Treasury Bill plus 5%.
• Private Advisors, Small Company Buyout Fund. An “active” fund acquired in late 2009 as a secondary acquisition, this fund has matured and is distributing capital. It is now targeted at zero percent (0.0%) and the benchmark is the 91-day Treasury Bill plus 5%.
• Property Investment Advisors, Property Holdings – Fund IV. An “active” real assets fund that has matured and it is in the process of disbursing capital. The benchmark is the 91-day Treasury Bill plus 5%.
• RS Investments, Global Natural Resources Fund. A “passive” real assets fund added to the portfolio in July 2013, the target weighting is 2.0% of the portfolio, the S&P North American Natural Resources Sector Index is the benchmark.
• The Investment Fund for Foundations (TIFF)
  • Realty and Resources Fund II. A “passive real assets fund, acquired in late 2014 as a secondary acquisition, the fund has matured, is now targeted at zero percent (0.0%) and the benchmark is the 91-day Treasury Bill plus 5%.
  • Secondary Partners II. A “passive” private equity fund acquired in late 2014 as a secondary acquisition, this fund has matured and is well into distributing capital, is targeted at zero percent (0.0%) and the benchmark is the 91-day Treasury Bill plus 5%.
• Vanguard, Inflation Protected Bond Fund. A “passive” “TIPS” fund , target investment is 2.0% of the portfolio. The benchmark is the Barclay’s US Inflation-Protected Index.

Bonds

• Agincourt, An “active” domestic bond manager, this manager has a current target weighing of 9.0% of the portfolio. The benchmark for this active fund is the Barclay’s US Aggregate index.

• Colchester, Global Bond Fund. A “passive” global bond fund, the target weighting is 4.0% of the portfolio, the benchmark is the Citigroup World Government Bond Index.

• Vanguard, Total Bond Market Index Fund. A “passive” domestic bond fund to complement Agincourt, target weighting is 7%, the benchmark is the Spliced Total Bond Market Index.

Cash

• SunTrust Bank – Our cash management account is used to provide the highest flexibility possible to our “client” churches and institutions. There is a zero percent allocation to cash, but in keeping approximately $250,000 in this account, the investment managers are kept very close to 100% invested. These funds are managed in a fee-free SunTrust cash management account to generate some income (a fixed +0.15% on an annual basis) while providing instant liquidity. This account is benchmarked against the 91-day Treasury bill.

Performance

As of June 30, 2016, periodic returns were:

June    +0.1%

Trailing three-month    +1.7%

Year to date    +2.3%

One year    -2.2%

Three year    +3.4%

Five year    +4.2%

The total return at 12/31/xxxx, net of fees, for the core portfolio for prior years since 1995 was:

2015 had a return of -2.6%, just behind the global blend of -2.4%. The core portfolio, however, does so at about 65% of the same risk as that global portfolio. Please keep in mind that the core portfolio reports returns net of fees.

Performance is reported on monthly by the TOTF office. If your church organization is not receiving these reports on a monthly basis and would like to, please send the request form below.

Forms and Sample Documents

• Core Fund Addition or Withdrawal Form
• Core Set Up and Change Form

Investment Policy Statement

Investment Policy Statement

(Adopted March 5, 2014, Revised May 27, 2015)

BACKGROUND

The Trustees of the Funds of the Protestant Episcopal Church in the Diocese of Virginia, more commonly known as The Trustees of the Funds (“the Funds”), was chartered by the General Assembly of Virginia in 1892 to raise, receive, manage and disburse funds for the support of the Episcopate, churches, related organizations, clergy, widows and orphans and for other purposes of the Diocese of Virginia. With roots to October 31, 1754, the Trustees of the Funds was created to support the Episcopal Church in Virginia and, to use current canonical language, is considered a related organization of the Diocese of Virginia. The Trustees are elected to three-year terms from a slate of nominees approved by the Annual Council of the Diocese of Virginia. In 2013, access to the TOTF services was widened to include the Dioceses of Southern Virginia and Southwestern Virginia.

PURPOSE OF INVESTMENT POLICY STATEMENT

The purpose of this Investment Policy Statement (“IPS”) is to set forth the objectives and policies of the Trustees, the guidelines to be used for the selection, monitoring and evaluation of investment managers, and the guidelines for investment managers for the prudent investment management of the core portfolio (the “Fund”) assets.

This IPS will further the Trustees’ objectives, defined in the various sections that follow, by:

1. Stating in written form the Trustees’ expectations, attitudes and guidelines for investment of the Fund’s assets.
2. Specifying an investment structure, including various asset classes, investment management styles, allocations and ranges expected to produce overall diversification and acceptable total investment risk and return over the investment time horizon.
3. Establishing formal criteria to select, monitor, evaluate and compare performance results of investment managers on a regular basis.
4. Encouraging effective communication between the Trustees, Investment Advisor(s), Investment Manager(s) and other interested parties.
5. Complying with all applicable duties of fiduciary prudence, due diligence, legal and regulatory compliance.

MANAGEMENT OBJECTIVE

The management objective for the Trustees is to preserve and enhance the Funds’ real, inflation-adjusted, purchasing power while providing a steady and consistent spending stream in support of the respective missions of the Fund’s Participants.

To support distributions and preserve purchasing power, the Trustees’ objective is to maximize investment return within reasonable and prudent levels of risk. While it is understood that each Participant in the Fund has the right to withdraw its investments at any time according to the then-current withdrawal policy of the Trustees, it is the express intent of the Trustees to invest the Fund for the long term and accept that level of portfolio risk consistent with achieving long-term growth and preservation of capital.

In pursuit of this objective, the Trustees have set an annual distribution rate policy range of four percent to five percent (the current rate is listed in the Appendix to this document). The annual distribution, calculated using the current distribution rate, is based on a rolling 20-quarter market value average of the Fund. The Trustees authorize the annual distribution to be issued after the third quarter of each calendar year.

The distribution rate will be reviewed annually for appropriateness in prevailing economic conditions. A Fund Participant may request a different payout percentage, subject to approval by the Trustees. To serve these management objectives, the investment objective of the Funds is to attain a real total return of at least 5.0 percent per annum over the long term.

ASSET ALLOCATION GUIDELINES

The Trustees believe that long-term performance, in large part, is primarily a function of asset class mix. The Trustees have reviewed the long-term performance characteristics of the broad asset classes, focusing on balancing the risks and rewards of using specific asset classes. The Trustees are conscious of the risk tolerance of the Participant electing to place assets with the Fund, and that is taken into consideration when determining asset allocation.

The Fund asset structure should reflect a proper balance between the need for liquidity, preservation of purchasing power, long-term growth of principal and the risk tolerance of the Participants whom the Trustees serve.

To achieve this balance, the Fund shall be invested across a variety of asset classes in proportions determined by the Trustees and intended to achieve the intended investment objectives. Target allocations and ranges for the Fund are described in the Appendix to this document.

Rebalancing

Deviations from policy targets will occur due to market fluctuations. As long as individual fund weights remain within their policy ranges, the Trustees have the discretion whether or not to rebalance back to the policy target. However, if individual fund weights exceed their policy ranges, then the Trustees will convene to determine a rebalancing action, whether back to the policy limit or to the policy target. Cash flow, such as deposits or pending divestments, will be allocated to rebalance any deviation from the target allocations, according to the policies detailed herein. Should no cash flow be pending, the Chief Executive Officer, or other authorized officer, shall rebalance by transferring among the funds.

Guidelines for the Equity Exposure

The purpose of the Fund’s Equity Exposure is to provide an engine of real total return sufficient to drive the Fund to its return objective. The investment objective for the Equity Exposure, as a whole, is to match or outperform, net of fees, the MSCI All Country World index. To ensure that this objective is met, the performance of each equity manager will be measured against an appropriate equity index and against an appropriate universe of its peers.

Decisions as to individual security selection, security size and quality, number of industries or holdings, current income levels and turnover are left to broad manager discretion, subject to usual standards of fiduciary prudence.

However, in no case (excepting mutual fund shares or investments in any other comingled fund) shall a single security exceed 10 percent of the Equity Exposure’s market value at purchase. Additionally, no single major industry shall represent more than 25 percent of the market value of the Equity Exposure. Foreign stocks may be purchased; however, the total investment in non-U.S. stocks, including foreign equity substitutes (further defined below) shall not exceed 50 percent of the market value of the Equity Exposure with the portfolio.

To provide general control over liquidity, the Trustees maintain a target that at least 75 percent of the Fund will be considered fully liquid and that at least 90 percent of the Fund will be in investments that can be liquidated within three years. No more than 10 percent of the Fund may be in investments that are illiquid beyond three years (“illiquid”). Moreover, illiquid investments with lock-up periods will be diversified by inception date and by liquidation date. In this way, the Fund will hold illiquid investments with different maturities so that at all times some will be in the funding stage and others will be in the liquidation stage.

The Trustees will periodically consider actions of the General Convention of the Episcopal Church and of the Annual Convention of the Diocese of Virginia regarding socially-responsible investing guidelines and will carefully apply such guidance in making investment commitments.

The Trustees recognize that, due to the nature of equity markets, the Equity Exposure will be subject to “market risk”, which is to say periods of declining prices. This risk is exacerbated during conditions of unanticipated inflation. To mitigate this risk, the Trustees will increase the diversity of the Equity Exposure by investing portions of the Fund in assets that have a moderate or low covariance with the U.S. equity market, and growth potential that equals or exceeds that of U.S. stocks. These assets may include hedge fund strategies, foreign stocks, real-asset investments in private funds and other assets termed “Equity Substitutes or Equity Alternatives.”

Equity investment managers may, at their discretion, hold investment reserves of either cash equivalents or bonds without limitation in terms of asset size or period of time, but with the understanding that performance will still be measured against the appropriate index and peer group as described above.

Guidelines for the Bond Exposure

The purpose of the Fund’s Bond Exposure is primarily to provide a hedge against deflation. (In the special case of Treasury Inflation Protected Securities (TIPS), the purpose is to provide a hedge against inflation). In general, the objective is to match or outperform, net of fees, the Barclay’s Government/Credit Bond Index. To ensure that this objective is met, the performance of each bond manager will be measured against an appropriate index and against an appropriate universe of the manager’s peers.

The duration of the Bond Exposure should range from three to six years. The average bond rating of the Bond Exposure is intended to be “AA” or higher, and investments in securities rated less than “BBB” should represent no more than 10 percent of the total Bond Exposure. Credit risk and currency risk should be carefully considered when purchasing obligations denominated in foreign currencies, and such holdings are limited to no more than 25 percent of the Bond Exposure.

Obligations issued or guaranteed by the U.S. Government may be held without limitation. All other securities in the Fund shall be well diversified with respect to type, industry and issuer in order to minimize default exposure.

Guidelines for the Short-Term Exposure

The purpose of the Fund’s Short-Term Exposure is to provide liquidity sufficient to meet short-term withdrawal needs of Participants and capital call requirements of contracted manager commitments. Its investment objective, as a whole, is to outperform by one-percent per annum, net of fees, a 91-day T-Bill index. To ensure that this objective is met, the performance of any Short-Term fund manager will be measured against an appropriate index.

Money market instruments, as well as bonds, may be used in the Short-Term Exposure, but equities and convertible bonds are excluded. Since the Short-Term Exposure is designed as a stable, temporary repository for funds to facilitate operations and management, its average duration should never be greater than 12 months.

Because of the Short-Term Exposure’s stability and liquidity requirements, its investments are permissible only within securities with certain minimum credit standards. These standards allow:

1. Obligations of, or guaranteed by, the U.S. government.
2. Corporate bonds rated “A” or higher by Moody’s or Standard & Poor.
3. Commercial paper rated Prime-3 or higher by Moody’s.
4. Negotiable certificates of deposit, bankers’ acceptances and floating rate notes issued by U.S. chartered banks rated “B” or higher by Thompson’s Bankwatch, Inc.
5. Interest rate futures contracts, providing that such contracts are used only for the purpose of duration management.
6. Repurchase agreements secured by securities consistent with the guidelines above.
7. Money Market funds from commercial banks and other major investment managers containing securities consistent with the guidelines above. Short-Term obligations denominated in foreign currencies are not permitted in the Short-Term Exposure.

In general, the Short-Term Exposure shall be well-diversified with respect to type, industry and issuer in order to minimize risk exposure. However, obligations issued or guaranteed by the U.S. Government may be held without limitation.

DUTIES AND RESPONSIBILITIES

Trustees: As stewards of the Fund, the Trustees’ fiduciary duties include:

• Preparing and periodically reviewing the Investment Policy Statement.
• Prudently selecting and reviewing asset allocations.
• Prudently diversifying the Fund’s assets to meet the Policy’s risk/return profile.
• Controlling and accounting for all expenses of investment, record-keeping and administration associated with the Fund.
• Selecting, monitoring and supervising all service vendors.
• Avoiding prohibited transactions and conflicts of interest.

Investment Advisor: The Trustees may seek advice from and elect to delegate certain investment reporting and manager search/monitoring duties to an objective, third-party Investment Advisor in relation to the overall investment process. The Investment Advisor will be responsible for guiding the Trustees through a disciplined and rigorous investment process governed by the guidelines of this Policy. The Investment Advisor’s process will be designed to enable the Trustees to meet the fiduciary duties outlined above.

Investment Managers: The Trustees’ investment process will be implemented by engaging Investment Managers who will execute specific investment decisions including security selection and price decisions.

Passive mandates may be used in more efficient segments of the capital markets to gain exposure; otherwise, active managers will be engaged to generate superior returns relative to their benchmarks (see the Appendix for benchmark descriptions). Benchmarks, whether they are passive investible indices, floating rate (e.g., Libor) plus a hurdle or absolute return targets, will be determined by the Trustees. The Trustees may seek active Investment Managers who demonstrate effective strategies, sustainable advantages, and high-quality organizational structures that pursue prudent, risk conscious, asset management processes that have been thoroughly diligenced by either the Trustees or the Investment Advisor and who adhere to the highest ethical standards.

All Investment Managers within each asset class will be compared to their own relevant style index benchmarks. While a horizon of at least three years is the preferred comparison period, significant short-term differences will be highlighted and, if warranted, the Trustees may take action to remedy performance deficiencies.

Attractive investment management firm characteristics include:

• Strong reputation in the marketplace and a meaningful, high quality, institutional client base.
• Aligned interests (e.g. significant principal/employee dollars invested in the funds).
• Stable and experienced professional team.
• Appropriate demonstrable risk controlled processes.
• Controlled growth and a manageable level of assets under management and,
• Competitive long-term performance among peers.

The Investment Managers’ duties will include:

• Managing the assets under their supervision in accordance with the provisions of their respective service agreements, prospectus or trust agreement.
• Exercising full discretion on buying, managing and selling assets under their supervision in accordance with this IPS.
• Effecting all transactions on a “best price and execution” basis. If an Investment Manager utilizes transactions of Fund assets to facilitate “soft dollar” relationships, detailed disclosure will be made to the Trustees.
• Using the skill, care, prudence and due diligence that experienced professionals would use in similar circumstances, in accordance and compliance with the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and all applicable laws, rules and regulations.
• Voting promptly all proxies and related actions in a manner consistent with the long-term interests and objectives of the Funds as outlined in this IPS. Each manager shall keep detailed records of the voting of proxies and related actions, and will comply with all applicable laws, rules and regulations.
• Communicating with the Trustees all significant changes pertaining to the assets under their supervision and to their firm itself. Changes in management, ownership, financial condition or organization structure are examples of changes about which the Trustees should be informed.
• If managing a separate account, as opposed to a mutual fund or commingled account, acknowledging the co-fiduciary responsibility by signing and returning a copy of this IPS.

The Investment Advisor will conduct extensive due diligence prior to recommending each Investment Manager to the Trustees. Evaluations include meetings with key personnel and typically include at least one on-site visit to the principal office. Research includes reviews of audited financial statements, reference checks with other clients and business associates, and comparison to competitors. When deemed appropriate, background checks may be conducted. Staff and the Investment Advisor will use their respective networks of contacts in an effort to gain further confirmation of an Investment Manager’s abilities and business practices. New firms may have additional business risk and are subject to a more rigorous level of due diligence and more stringent ongoing monitoring. Selection of Investment Managers is not geographically restricted.

Custodian: The Trustees may elect to delegate record-keeping, custody and administrative duties to an

institutional Custodian. The duties of the institutional Custodian include:

• Maintaining separate accounts.
• Valuing the Fund’s holdings.
• Collecting all income and dividends owed to the Fund.
• Disbursing all distributions from the Fund.
• Settling all transactions initiated by the Investment Managers.
• Providing monthly reports that detail transactions, cash flows, securities held and their values and change in value since the previous report.

MONITORING OF PERFORMANCE, PARTIES AND POLICY

Investment Managers: The Trustees acknowledge that the securities markets are characterized by fluctuating rates of return, particularly during short-term periods. With such fluctuations in mind, the Trustees intend to evaluate Investment Manager performance from a long-term perspective. In conjunction with the periodic review of the Fund’s performance, the Trustees will review each Investment Manager.

In addition to performance measurement, staff and/or the Investment Advisor will monitor for consistent implementation of investment strategy and philosophy, appropriate risk controls, adherence to any stated guidelines, and any material changes in the Investment Manager’s organization and/or personnel.

The performance of the Fund’s Investment Managers will be actively monitored by the Investment Advisor, who will report any meaningful observations and performance deviations to the Trustees in a timely manner. Quarterly performance will be evaluated versus appropriate benchmarks and peer universes, but emphasis will be placed on relative performance over longer investment periods.

The Trustees have the discretion to take corrective action by replacing an Investment Manager if the Trustees deem it appropriate at any time.

Corrective action typically occurs as a result of meaningful organizational or process-related change, and, in some cases, sustained relative underperformance. Significant short-term underperformance may also trigger a review.

The following are some examples of reasons that may cause the Trustees to lose confidence in a manager:

• Change in organizational structure or personnel – a significant change in culture through a merger or acquisition that is likely to distort incentives and promote turnover; or if the investment team leaves the firm.
• Changes in strategy and style – if the manager departs from the strategy and style that they were hired to implement; such as a switch from a quantitative process to a fundamental one.
• Performance – continued performance shortfalls versus a peer group of managers with similar style and/or a market index. Performance is most meaningfully evaluated over a medium-term to long-term time horizon of three to five years.
• Changes in regulatory or legal matters relating to a manager.

Investment Advisor: The Trustees recognize that maintaining a rigorous, disciplined investment process is essential in the performance of their fiduciary duties to the Fund Participants, and that the Investment Advisor is their principal guide in that process.

The Trustees will conduct an annual review of the Investment Advisor’s services including:

• Market guidance and developments in the investment profession and fiduciary field.
• Assistance in reviewing and adhering to asset allocations.
• Due diligence research of potential Investment Managers.
• Monitoring, analysis and reporting on current Investment Managers.
• Communication and responsiveness on an ongoing basis.

The Investment Advisor’s performance will be monitored regularly, and it is at the Trustees’ discretion to replace the Investment Advisor if they deem it appropriate to do so at any time.

Cost Review: The Trustees will review at least annually all costs associated with the management of the Fund’s investment process, including:

• Expense ratios of each investment option versus other options, indices and peers.
• Whether each manager is adhering to the standard of “best execution” in trading securities.
• Advisor’s fees as measured against similar professionals in the field.
• Custody fees as measured against similar professionals in the field.
• Administrative costs, to ensure appropriate balance between capabilities and costs.

Investment Policy Review: The Trustees will review this IPS annually to determine whether stated investment objectives are still relevant and feasible. It is not expected that short-term fluctuations in the financial markets would result in adjustments to this Investment Policy.

Appendix

(2) Fixed Income Custom Benchmark will be a composite index comprised of a blend of appropriate benchmarks that includes, but is not limited to, investments in U.S. Treasury and government agency bonds, non-U.S. dollar denominated bonds, public and private corporate debt, mortgages and asset-backed securities, and non-investment grade debt.