The Florida Prepaid College Plan is the marketing name for the Stanley G. Tate  Florida Prepaid College Program. All references to the Stanley G. Tate Florida Prepaid College Program mean the Florida Prepaid College Plan.

Effective as of May 13, 2003.

Authority
Purpose
Organization
Investment Management
Reporting
Authorized Investment Vehicles
Prohibited Investment Vehicles and General Investment Restrictions
Asset Allocation Policy
Manager Selection and Evaluation
Implementation

Part I

Fixed Income Objective
Asset Allocation
Enhanced Immunization Guidelines
Restricted Investments
Performance Objectives

Part II

Large Cap Growth Equity Objective
Asset Allocation
Equity Investment Guidelines
Restricted Investments
Performance Objectives

Part III

Large Cap Value Equity Objective
Asset Allocation
Equity Investment Guidelines
Cash and Short Term Investment Guidelines
Restricted Investments
Performance Objectives

Part IV

Large Cap Core Objective
Asset Allocation
Equity Investment Guidelines
Cash and Short Term Investment Guidelines
Restricted Investments
Performance Objectives

Part V

Small Cap Equity Objective
Asset Allocation
Equity Investment Guidelines
Cash and Short Term Investment Guidelines
Restricted Investments
Performance Objectives

AUTHORITY   

All investments made under this plan are made under the authority granted the Florida Prepaid College Board under Section 1009.973, Florida Statutes. All funds managed by the Board are funds of the State of Florida.

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PURPOSE   

The Stanley G. Tate Florida Prepaid College Program was created to provide a medium through which the cost of a state postsecondary education may be paid in advance of enrollment at a rate lower than the projected corresponding cost at the time of actual enrollment. The Program is administered by the Florida Prepaid College Board (Board), which was created pursuant to Section 1009.98 of the Florida Statutes.

The policy goals of this Comprehensive Investment Plan (CIP) are established as follows in the priority listed. These goals are:

1. Safety
2. Liquidity
3. Yield

The sole purpose of the investment program is to meet the forecasted actuarial liability projections. In pursuing the objective of meeting the forecasted liabilities, the primary policy goal is the safety in the program's ability to meet the forecasted liabilities. The goals of safety must be met by the limitation of risk through portfolio allocation based on liability requirements, diversification within asset classes, credit quality guidelines and investment operating procedures.

A second and equally important portfolio objective is giving adequate consideration to the liquidity requirements necessitated by the program obligations. Consideration will be given to investment maturities, investment income and funds receipts in calculating funds required for liquidity purposes.

After meeting safety and liquidity requirements, the goals of maximizing investment return will be met. Strategies will be employed to achieve the highest possible net returns within policy guidelines.

The investment strategy is designed to enable the Board to meet actuarially determined program liabilities, calculated by an independent actuarial consultant firm, and approved by the Board, at the time of funding. By definition, responsibility for financing any divergence of actual liabilities from actuarial assumptions that may result in program funding deficits belongs to the Legislature. The sole purpose of the Board's comprehensive investment plan is to outline the strategies to be employed to meet forecast actuarial liability projections, and to establish the guidelines under which each investment manager will operate.

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ORGANIZATION 

The Board retains ultimate responsibility for the development, execution and control of the comprehensive investment plan. The Board may delegate responsibility for the administration of the comprehensive investment plan to a committee of the Board or a person duly chosen by the Board. This committee or person shall ensure that Board policies are strictly followed and that investment procedures, which protect the financial assets of the program, are in place and properly followed. The Committee will employ the services of a professional consultant to advise it in the pursuit of the investment objectives.

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INVESTMENT MANAGEMENT   

The Board will hire duly qualified investment managers to carry out the day-to-day investment responsibilities outlined in the comprehensive investment plan. Investment managers (product providers) will have investment discretion as to security selection subject to the guidelines and limitations expressed in the comprehensive investment plan and any manager-specific guidelines agreed upon between the Board and manager.

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REPORTING   

The Executive Director will cause detailed quarterly reports and monthly flash reports of the investment portfolio structure and performance to be prepared for review by the Board.

To ensure that the Executive Director and the Board have the necessary information to discharge their oversight responsibility, the quarterly reports will include the following:

1. Performance Measurement and Attribution

Performance measurement of the Fund shall be reported each quarter for the most recent completed quarter, fiscal year-to-date, most recent twelve-month period and cumulatively from inception showing returns on the assets vs. liability requirements. Returns will be reported on a time-weighted basis.

• The performance of the total Fund will be compared against a benchmark comprised of market portfolios representing the underlying investment strategies and weighted in accordance with the program's asset allocation policy.
• Performance of each asset class will be shown along with an analysis of each manager's contribution to the performance of the asset class.
• Performance of each investment manager and an attribution analysis of that manager's performance will be shown in comparison to benchmarks appropriate to their investment strategy.
  - Fixed income attribution will include such factors as the effects of changes in interest rates, and sector and quality decisions.
  - Equity attribution will include such factors as sector and industry weights, beta, company size, yield and growth in earnings.
• The performance of each manager will also be evaluated relative to a universe of its peers managing similar portfolios and following a similar investment style.
• Returns for each manager and the overall Fund will also be evaluated on a risk-adjusted basis.
  - For individual managers, the risk measurement will be expressed relative to appropriate benchmarks.
  - For each asset class and the overall Fund, the risk measurement will take into consideration any deviation from asset allocation policy and the impact on the funded status of the Program's liabilities.

2. Compliance and Monitoring

• Asset allocation of the Fund and diversification within each asset class will be reported to ensure allocation guidelines are met.
• Projection of sources and uses of funds will be reported to ensure liquidity requirements are met.
• Investment asset holdings will be reported and monitored monthly to ensure investment only in authorized vehicles.
• Each manager will certify monthly that their portfolio is in compliance with the terms of this comprehensive investment plan and their specific investment mandate. Any exceptions to policy will be noted and a statement provided indicating the steps to be taken to bring the portfolio back into compliance with the policy.
• Each manager will be monitored based upon the performance objectives outlined in this Comprehensive Investment Plan.
• Each manager shall immediately disclose to the Board in writing any instance which a member of the investment manager’s Board of Directors, an officer of the investment management firm, or a member of the portfolio management staff is also a member of the Board of Directors, an officer of, or a significant shareholder of 5% or more in stocks of a company in which they propose to invest Board funds. In addition, the Board’s investment consultant and the trustee/custodian shall annually certify that no conflicts of interest exist with respect to the services they provide to the Program and shall annually provide the Board with a copy of the firm’s policy governing conflicts of interest. The requirements of this paragraph do not apply with respect to the common stock of the manager responsible for investment of the large capitalization core domestic equity portfolio (or the common stock of the manager's holding company) when the manager's common stock (or that of its holding company) is included in the S&P 500; provided that, prior to the initial purchase of the manager’s common stock (or that of its holding company), the manager notifies the Board in writing that the manager's common stock (or that of its holding company) is included or has been included, in the S&P 500.

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AUTHORIZED INVESTMENT VEHICLES   

Funds managed by the Florida Prepaid College Board may be placed in the following accounts or investments:

1. Deposit accounts and certificates of deposit in banks.

2. Obligations of United States Treasury.

3. Obligations of agencies of the United States Government (not restricted to full faith and credit obligations).

4. Commercial paper of prime quality of the highest letter and numerical rating established by a nationally recognized rating service.

5. Bankers' acceptances that are accepted by a member bank of the Federal Reserve System.

6. Corporate debt obligations preferred stock, mortgage and asset-backed securities, provided the obligations meet the minimum credit criteria set forth elsewhere in this CIP.

7. Institutional investment products including fixed annuities, variable annuities and guaranteed insurance contracts that are obligations of United States insurance companies.

8. Common stocks traded on domestic exchanges, including over-the-counter markets and recognized third and fourth markets.

9. Collateralized repurchase agreements for which the underlying securities are obligations of the United States Treasury or agencies of the United States Government.

10. Commingled investment funds and mutual funds.

11. American Depositary Receipts, 144(a) securities (with registration rights), and Yankee bonds (excluding sovereign bonds).

12. Exchange Traded Funds (ETF’s), traded on domestic exchanges, so long as consistent with the investment mandate, and guidelines.

13. Derivatives: In general, the following uses of derivatives are approved for portfolio management purposes, although specific written permission must be granted to each manager on a case-by-case basis in formal written account guidelines.

• Substitute for physical
• Duration management
• Risk control

Before a derivative security or derivative strategy is used by an investment manager, one or more of the following benefits must be demonstrated to the Board:

• Increased liquidity.
• Stabilized and enhance portfolio returns.
• Lower transaction costs, including market impact costs.
• Reduction in the time required to change the mix of the portfolio.

Before any such derivative strategy is used by an Investment Manager, written permission for such use must be obtained from the Executive Director of the Prepaid Board.  However, in recognition of the balances that may exist in the early stages of the Savings Program, the use of derivatives to meet the objectives of diversification will be permissive during the first twelve months of the launch of the Savings Program. The use of derivatives after the first twelve month period will be reevaluated at that time.

Investment managers must keep in mind at all times the Board’s preference for safety and liquidity.

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PROHIBITED INVESTMENT VEHICLES AND GENERAL INVESTMENT RESTRICTIONS   

1. Assets may not be invested in the securities of any foreign-domiciled entities, except to the extent those securities are registered in the United States and traded on one of the domestic exchanges or markets, and otherwise meet the limitations of this comprehensive investment plan.

2. Short selling of securities is prohibited

3. Maximum investment in the securities of any issuer, except U.S. Treasury or Agency or repurchase agreements collateralized by U.S. Treasury or Agency securities, is 5% of the market value of the fund.

4. Debt obligations and preferred stock may not be rated less than BAA/BBB. Rating from each service must meet or exceed the required rating. (As established by two nationally recognized rating services.)

5. The following derivative strategies and derivative instruments are considered inappropriate and therefore not permitted for use in the managing of assets for the Program:

• Derivatives use for speculative purposes.
• Derivatives that leverage the account (except as described in the section on leverage).
• Commodity options, swaps or other derivatives based on commodities.

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ASSET ALLOCATION POLICY  

The fund shall maintain an asset allocation such to maximize the probability of meeting the Program's liabilities over the long term. An asset / liability study shall be conducted once every five years, and more often if warranted by a material change in the underlying liabilities or the investment environment. Taking into consideration the results of the asset liability study and the recommendations of the Program's consultants, the Board will adopt an asset allocation which properly reflects its attitude towards the balancing of risk and return. The Board at this time has adopted an asset mix of 88% fixed income and 12% domestic equity. The fund's principal objective in asset allocation is that of asset/liability matching. An immunized fixed income strategy emphasizing zero coupon U.S. Treasury issues is the dominant investment strategy employed to meet these goals. Other fixed income investments may be used in limited amounts to seek incremental yield. Actuarial reserve assets may be invested in other asset classes as directed by the Board.

The benchmarks for monitoring investment performance at the Total Fund and asset class level shall be:

The Customized Benchmark will be reconstituted annually using the June 30 liability profile as determined by the Program’s actuary. The duration of the benchmark and the pattern of its cash flows will mirror that of the Program’s liabilities. The benchmark is comprised of United States Treasury strip securities, United States Treasury Inflation Protected Securities (TIPS), Lehman Credit Index and Lehman Mortgage Backed Securities Index, and other Authorized Investment Vehicles as defined in the Comprehensive Investment Plan (CIP).

In order to accommodate asset value fluctuations due to short-term economic or market conditions, the asset allocation of the portfolio can vary among asset categories within the ranges noted above, provided appropriate notice is given to and approval received from the Investment Committee without violation of the overall investment policy.

At no time shall the allocation to the Enhanced Immunized Bond Portfolio (EIBP) and the equity segment of the fund be less than at a fully funded status net of projected payments from participants. That is, the total portfolio value shall always be greater than or equal to the actuarial liability minus projected cash flows from the participants.

The domestic equity component shall be equally allocated among two or more styles of equity management. At the present time, the Board has adopted a strategy of allocating equally among large capitalization growth manager, a large capitalization value manager, and a large capitalization indexed manager. In the absence of strong evidence supporting a deviation from these baseline allocations, and subject to Board direction, the allocations to each style of management will be rebalanced in a manner designed to minimize portfolio impact, including transaction costs.

In developing this asset allocation policy, the portfolio has been designed to be fully invested, and thus no portion of the portfolio has been targeted for cash. However, managers may raise cash balances in accordance with their individual investment guidelines. In the course of operations the Board may deem it appropriate to maintain a cash balance outside of the managers' portfolios in order to meet the Program's liquidity and allocation needs.

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MANAGER SELECTION AND EVALUATION   

The Board has elected to employ multiple investment managers with complementary investment skills and/or styles. As part of this multi-manager structure, managers are hired for their expected contribution to the overall portfolio performance over the various market cycles based on their style, stated strategy, and asset mix. Therefore, the Board shall evaluate manager performance over a sufficient time horizon, and in the context of the prevailing market environment, in order to properly assess each manager's contribution to the overall portfolio. In general, a three or more year period of time will be used to evaluate a manager's success or failure at attaining agreed-upon goals.On an interim basis, portfolio risk and investment performance will be monitored continually to ensure that the management of Program assets remains consistent with the style and objective for which the manager was retained.

At a minimum, investment manager reviews will include a quarterly quantitative performance review conducted by the consultant. Specific evaluation criteria are stated in the investment guidelines that have been individually prepared for each manager pursuant to their specific role in the Program's multi-manager strategy. As necessary, the evaluation may also include an annual site visit to review each portfolio manager's operations. This portion of the evaluation will be conducted by a member of the Board or the Investment Committee, as may be designated either by the Board or the Investment Committee.

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IMPLEMENTATION   

All money invested for the Plan by their Investment Managers after the adoption of this Investment Policy Statement shall conform to this Statement.

The following guidelines have been established: (1) to ensure that the manager continually adheres to all regulations administered by any regulatory authority charged with oversight responsibility; (2) to limit the Fund's exposure to risk; (3) to ensure that the manager maintains the style of management for which they were retained; and (4) to provide objective, reasonable criteria to the manager of the Board's expectations. The following four-parts contain the investment guidelines and policies for each segment of the Florida Prepaid College Program funds:

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PART I
FIXED-INCOME
INVESTMENT GUIDELINES

OBJECTIVE  

A fixed-income manager(s) will be retained as part of a multi-manager investment strategy. Their function within this strategy is to manage an enhanced immunized fixed-income portfolio.

The enhanced immunization style of management shall mean that the manager shall immunize the liabilities of the Program by structuring the assets in such a way that the value of the Program's assets increase (decreases) in conjunction with increases (decreases) with the value of the liabilities due to the changes in interest rates. The manager shall be permitted to attempt to add value to the portfolio relative to the liabilities through modest duration and yield management and through active sector and security selection, to the extent permitted by this policy.

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ASSET ALLOCATION

The portfolio is expected to be fully invested at all times. However, cash holdings may represent an integral part of the manager's desired portfolio structure. Therefore, for purposes of this constraint cash will be defined as securities with a duration of less than three months and manager shall be allowed a maximum cash position of not more than five percent.

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ENHANCED IMMUNIZATION GUIDELINES   

1. The portfolio will be managed in a manner that protects the Program's funded status relative to changes in its projected liabilities due to changes in interest rates. Therefore, the primary focus of the portfolio shall be on limiting actuarial reserve volatility.

2. The total duration of the portfolio shall not differ from the total duration of the benchmark by more than +/- one-half of one year.

3. Investments in fixed income instruments can be made in sectors and securities as authorized in the Comprehensive Investment Plan (CIP).

4. Sector allocations shall be made so that the portfolio is well diversified such that it meets its liability requirements.

5. The maximum investment for any issue, except U.S. Treasury or Agency Securities, is 5% of the market value of the portfolio.

6. Cash and cash equivalent investments shall be made in liquid Authorized Investment Vehicles as defined in the CIP.

7. The use of futures will be permitted subject to the restrictions imposed by "AUTHORIZED INVESTMENT VEHICLES" Paragraph 11.

8. A maximum allocation of 30% to securitized debt obligations including, but not limited to, mortgage pass-throughs and asset-backed securities is permitted.

9. A maximum allocation of 20% to corporate debt securities is permitted.

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RESTRICTED INVESTMENTS   

Use of margin is prohibited except as may be required in the use of futures as permitted in subparagraph 3 of this section.

Other than futures, the use of derivative securities that have not been specifically approved by the Board in written form is prohibited.

Convertible securities shall not be considered for investment.

No commingled or mutual funds may be used to achieve desired diversification.

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PERFORMANCE OBJECTIVES   

Manager performance shall be reviewed relative to the customized benchmark over any three or more year period of time, taking into consideration the following:

• The manager's performance, net of fees, is expected to meet or exceed the customized benchmark.
• The effectiveness of the manager's duration, sector and security allocations will be reviewed to determine if the manager has demonstrated, on a total return basis, the ability to add value above the benchmark.

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PART II
LARGE CAP GROWTH EQUITY
INVESTMENT GUIDELINES

OBJECTIVE   

The Board hopes to achieve its goal of reducing total portfolio volatility while enhancing total return through diversification of the equity asset class using multiple styles of management. Large cap growth equity manager(s) will be retained as part of a multi-manager investment strategy. Their function within this strategy is to manage an equity only portfolio utilizing an active large cap growth style of investment. For purposes of this Comprehensive Investment Plan, growth is a style that seeks to purchase stocks of companies, which offer the best combination of strong earnings growth and valuation. This allocation will be represented in the policy benchmark by the Russell 1000 Growth Index. The manager is expected to add value over a passively managed benchmark over a three to five year time frame.

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ASSET ALLOCATION  

The portfolio is expected to be fully invested at all times, relying on the manager's ability to generate return through the selection of securities and not through the timing of market movements. Therefore, during these time periods the manager shall be allowed to maintain a maximum cash position of only five percent. Asset allocation shall be determined based on the average position over any three month time period and shall operate within the following constraints set forth herein:

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EQUITY INVESTMENT GUIDELINES  

1. The Board prefers the manager to invest only in equity securities that have a publicly available operating history of at least three years. However, the manager can invest up to five percent of the portfolio in initial public offerings that have been spun off by a company for which there is an adequate history and that has at least $1 billion in market capitalization. Further, the parent must have been previously listed on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) or have been traded on the National Association of Securities Dealer's Automated Quotation system (NASDAQ) or other recognized domestic exchange. If, through spin-offs or other activities of the companies held, the portfolio exceeds five percent of holdings with less than three years operating history, the manager will bring the portfolio into compliance within a six-month period.

2. The coefficient of determination (R^2) measures the percentage of total market-related risk that an investment manager has undertaken. Therefore, the manager shall maintain a coefficient of determination to the Russell 1000 Growth Index of not less than .80 over any rolling five-year time horizon calculated using monthly data. Until such time as the portfolio has sufficient historical data, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be utilized in determining portfolio compliance.

3. Tracking error measures the standard deviation of the differences between an investment manager's return and the index return. A low tracking error indicates that the manager's performance is closely tracking the performance of the index. In meeting the objectives set forth in these guidelines, the manager shall maintain an annualized tracking error of less than six hundred basis points relative to the Russell 1000 Growth Index over any rolling five year time period. Until such time that the portfolio has sufficient historical results, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be used to determine portfolio compliance.

4. Equity investments shall be made only in securities listed on a United States stock exchange or traded on NASDAQ in the United States or in other, recognized domestic markets.

5. Cash and cash equivalent investments shall be made in liquid Authorized Investment Vehicles as defined in the Comprehensive Investment Plan (CIP).

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RESTRICTED INVESTMENTS   

1. Use of margin is prohibited.

2. Use of options, futures, primes, scores or any other type of derivative securities is prohibited.

3. Convertible securities shall not be considered for investment.

4. No commingled or mutual funds may be used to achieve desired diversification.

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PERFORMANCE OBJECTIVES   

Manager performance shall be reviewed relative to the Russell 1000 Growth Index, over any three or more year period of time, taking into consideration the following:

• The manager's performance, net of fees, is expected to meet or exceed the Russell 1000 Growth Index, taking into consideration the degree of risk.
• The manager's performance is expected to rank at or above the median when compared to a universe of its peers managing similar portfolios and following a similar investment style.
• The manager should generate a positive alpha calculated in accordance to the Jensen methodology.

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PART III
LARGE CAP VALUE EQUITY
INVESTMENT GUIDELINES

OBJECTIVE   

The Board hopes to achieve its goal of reducing total portfolio volatility while enhancing total return through diversification of the equity asset class. Large cap value manager(s) will be retained as part of a multi-manager investment strategy. Their function within this strategy is to manage an equity only portfolio utilizing an active large cap value style of investment. For purposes of this comprehensive plan, value is a style that seeks to purchase stocks in companies generally exhibiting lower price/earnings, lower price/book and higher dividend yield than the average large cap equity. This allocation will be represented in the policy benchmark by the Russell 1000 Value Index. The manager is expected to add value over a passively managed benchmark over a three to five year time frame.

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ASSET ALLOCATION  

The portfolio is expected to be fully invested at all times, relying on the manager's ability to generate return through the selection of securities and not through the timing of market movements. Therefore, during these time periods the manager shall be allowed to maintain a maximum cash position of only five percent. During periods of market over-valuation, the manager may have difficulty in identifying solid companies that could be purchased within their value style of management. Therefore, asset allocation shall be determined based on the average position over any three month time period and shall operate within the following constraints set forth herein:

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EQUITY INVESTMENT GUIDELINES   

1. The Board prefers the manager to invest only in equity securities that have a publicly available operating history of at least three years. However, the manager can invest up to five percent of the portfolio in initial public offerings that have been spun off by a company for which there is an adequate history and that has at least $1 billion in market capitalization. Further, the parent must have been previously listed on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) or have been traded on the National Association of Securities Dealer's Automated Quotation system (NASDAQ), or in other, recognized domestic markets. If, through spin-offs or other- activities of the companies held, the portfolio exceeds five percent of holdings with less than three years operating history, the manager will bring the portfolio into compliance within a six-month period.

2. The coefficient of determination (R^2) measures the percentage of total market-related risk that an investment manager has undertaken. Therefore, the manager shall maintain a coefficient of determination to the Russell 1000 Value Index of not less than .80 over any rolling, five-year time horizon calculated using monthly data. Until such time as the portfolio has sufficient historical data, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be utilized in determining portfolio compliance.

3. Tracking error measures the standard deviation of the differences between an investment manager's return and the index return. A low tracking error indicates that the manager's performance is closely tracking the performance of the index. In meeting the objectives set fourth in these guidelines, the manager shall maintain an annualized tracking error of less than five hundred basis points relative to the Russell 1000 Value Index over any rolling five year time period. Until such time that the portfolio has sufficient historical results, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be used to determine portfolio compliance.

4. Equity investments shall be made only in securities listed on a United States stock exchange or traded on NASDAQ in the United States.

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CASH AND SHORT TERM INVESTMENT GUIDELINES   

Cash and cash equivalent investments shall be made in liquid Authorized Investment Vehicles as defined in the Comprehensive Investment Plan (CIP).

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RESTRICTED INVESTMENTS  

1. Use of margin is prohibited.

2. Use of options, futures, primes, scores or any other type of derivative securities is prohibited.

3. Convertible securities shall not be considered for investment.

4. No commingled or mutual funds may be used to achieve desired diversification.

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PERFORMANCE OBJECTIVES   

Manager performance shall be reviewed relative to the Russell 1000 Value Index, over any three or more year period of time, taking into consideration the following:

• The manager's performance, net of fees, is expected to meet or exceed the Russell 1000 Value Index, taking into consideration the degree of risk.
• The manager's performance is expected to rank at or above the median when compared to a universe of its peers managing similar portfolios and following a similar investment style.
• The manager should generate a positive alpha calculated in accordance to the Jensen methodology.

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PART IV
LARGE CAP CORE
INVESTMENT GUIDELINES

OBJECTIVE  

The Board hopes to achieve its goal of reducing total portfolio volatility, while enhancing total return through diversification of the equity asset class. An allocation to a passive core equity strategy is one component of this strategy. The objective for this component of the portfolio is to replicate the returns of the S&P 500.

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ASSET ALLOCATION  

The portfolio is expected to be fully invested at all times.

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EQUITY INVESTMENT GUIDELINES   

1. The Manager shall be permitted to invest in any securities which are a part of the S&P 500, without regard for the constraint within this policy prohibiting or restricting the ownership of companies with less than a 3 year publicly available operating history.  If the Manager’s common stock (or the common stock of the Manager’s holding company) is included in the S&P 500, the Manager is permitted to purchase, retain and sell the Manager’s common stock (or the common stock of the manager’s holding company), consistent with the other requirements, guidelines, restrictions and performance objectives applicable to this portfolio under this Part IV and the reporting requirements imposed on Managers.

2. The Manager shall be permitted to invest in any securities which are a part of the S&P 500, without regard for the preference within this policy for investments to be made in United States based corporations. There shall be no limit on the percent of the portfolio held in American Depository Receipts, provided those same companies are included in the S&P 500 as American Depository Receipts.

3. The use of futures as a substitute for physical investing, or to facilitate cash flows shall be permitted for this portfolio, provided the manager receives prior written approval from the Board. In order to obtain such approval, the manager must submit a written request to the Board, quantifying the net advantages that will accrue to the portfolio.

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CASH AND SHORT TERM INVESTMENT GUIDELINES  

Cash and cash equivalent investments shall be made in liquid Authorized Investment Vehicles as defined in the Comprehensive Investment Plan (CIP).

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RESTRICTED INVESTMENTS   

1. The use of futures will be permitted subject to the restrictions imposed by Paragraph 13 (entitled “Derivatives”) in the “Authorized Investment Vehicles” section.

2. Use of margin is prohibited except as may be required in the use of futures.

3. Convertible securities shall not be allowed for investment purposes.

4. No commingled or mutual funds may be used to achieve desired diversification.

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PERFORMANCE OBJECTIVES   

Manager performance shall be reviewed relative to the S & P 500, over any three to five year period, taking into consideration the following:

• The manager's performance, net of fees, is expected to meet the S&P 500 Index.
• The beta of the portfolio over any two year rolling time period and calculated using monthly data shall not be less than .98 nor greater than 1.02.
• Tracking error measures the standard deviation of the differences between an investment manager's return and the index return. A low tracking error indicates that the manager's performance is closely tracking the performance of the index. In meeting the objectives set fourth in these guidelines, the manager shall maintain an annualized tracking error to the S&P 500, net of fees, of less than 25 basis points

Until such time that the portfolio has sufficient historical results, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be used to determine portfolio compliance.

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PART V
SMALL CAP EQUITY
INVESTMENT GUIDELINES

OBJECTIVE  

The Board hopes to achieve its goal of reducing total portfolio volatility while enhancing total return through diversification of the equity asset class using multiple styles of management. Small cap equity manager(s) will be retained as part of a multi-manager investment strategy. Their function within this strategy is to manage an equity only portfolio utilizing an active small cap style of investment. For purposes of this Comprehensive Investment Plan, this style seeks access the small-cap segment of the US equity universe. This allocation will be represented in the policy benchmark by the Russell 2000 Index which includes the smallest 2000 securities in the Russell 3000 index. The manager is expected to add value over a passively managed benchmark over a three to five year time frame.

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ASSET ALLOCATION  

The portfolio is expected to be fully invested at all times, relying on the manager's ability to generate return through the selection of securities and not through the timing of market movements. Therefore, during these time periods the manager shall be allowed to maintain a maximum cash position of only five percent. Asset allocation shall be determined based on the average position over any three month time period and shall operate within the following constraints set forth herein:

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EQUITY INVESTMENT GUIDELINES   

1. The Board prefers the manager to invest only in equity securities that have a publicly available operating history of at least three years. However, the manager can invest up to ten percent of the portfolio in initial public offerings of companies that have at least two years of audited financial statements and have been profitable (from continuing operations) for at least one of the last two years.

2. The coefficient of determination (R^2) measures the percentage of total market-related risk that an investment manager has undertaken. Therefore, the manager shall maintain a coefficient of determination to the Russell 2000 Index of not less than .80 over any rolling five-year time horizon calculated using monthly data. Until such time as the portfolio has sufficient historical data, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be utilized in determining portfolio compliance.

3. Tracking error measures the standard deviation of the differences between an investment manager's return and the index return. A low tracking error indicates that the manager's performance is closely tracking the performance of the index. In meeting the objectives set forth in these guidelines, the manager shall maintain an annualized tracking error of no less than four hundred basis points and no more than one thousand basis points relative to the Russell 2000 Index over any rolling five year time period. Until such time that the portfolio has sufficient historical results, the manager's reported monthly historical performance data, which shall be in compliance with the Association of Investment Management and Research Performance Presentation Standards, shall be used to determine portfolio compliance.

4. Equity investments shall be made only in securities listed on a United States stock exchange or traded on NASDAQ in the United States or in other, recognized domestic markets.

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CASH AND SHORT TERM INVESTMENT GUIDELINES  

Cash and cash equivalent investments shall be made in liquid Authorized Investment Vehicles as defined in the Comprehensive Investment Plan (CIP).

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RESTRICTED INVESTMENTS   

1. Use of margin is prohibited.

2. Use of options, futures, primes, scores or any other type of derivative securities is prohibited.

3. Convertible securities shall not be considered for investment.

4. No commingled or mutual funds may be used to achieve desired diversification.

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PERFORMANCE OBJECTIVES   

Manager performance shall be reviewed relative to the Russell 2000 Index, over any three or more year period of time, taking into consideration the following:

• The manager’s performance, net of fees, is expected to exceed the Russell 2000 Index, taking into consideration the degree of risk.
• The manager’s performance is expected to rank at or above the median when compared to a universe of its peers managing similar portfolios and following a similar investment style.
• The manager should generate a positive alpha calculated in accordance to the Jensen methodology.

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Updated May 27, 2005