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INVESTMENT POLICY
FOR
SAMPLE RETIREMENT TRUST FUND
SEPTEMBER, 1997
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TABLE OF CONTENTS
PAGE
PURPOSE 1
RESPONSIBILITY OF THE MANAGER 1
OBJECTIVES OF THE ACCOUNT 2
POLICIES AND RESTRICTIONS 2
Equities 3
Fixed Income 3
Cash and Equivalents 4
Other Assets 4
ACKNOWLEDGEMENT 5
1
INVESTMENT POLICY STATEMENT
PURPOSE
The purpose of this Statement is to communicate to the investment manager a clear understanding of
the Fund's investment policies and objectives. This statement will outline an overall philosophy that
is specific enough for the manager to know the Fund's expectations, but sufficiently flexible to allow
for changing economic conditions and securities markets. The policy will provide realistic risk policies
to guide the Manager toward long-term rate of return objectives, which will serve as standards for
evaluating investment performance. The policy also will establish the investment restrictions to be
placed upon the Manager, and will outline procedures for policy and performance review.
RESPONSIBILITY OF THE MANAGER
Investments will be made for the sole interest and the exclusive purpose of providing the maximum
return within the constraints described herein. The assets must be invested with the care, skill and
diligence that a prudent man acting in this capacity would undertake. All investments will be made
within the guidelines of quality, marketability and diversification mandated by controlling statutes.
The manager is to implement these policies so as to achieve a return, after fees,superior to the return
of the target asset mix, without additional risk as measured by the variability of returns.
TARGET ASSET MIX TABLE
Asset Class Min Wt Target Wt Max Wt Representative Index
Equities 20 50 60 S&P 500
Fixed Income 20 50 80 Lehman Bros. Govt/Corp
Cash & Equiv 0 - 0 30 Salomon 3 Mo. T-Bills
The investment returns of the Manager's asset allocation will be measured against those of a target
portfolio based on the target weights shown in the Target Asset Mix Table above as invested in the
representative indices.
The Manager is to maintain the weights of each asset class, based on market value, to within the
minimum and maximum range shown in the Target Asset Mix Table. Note that all convertible
securities are treated as equity, preferred stocks are treated as fixed income securities, and long term
debt securities with under one year remaining to maturing are treated as fixed income.
Because security market conditions can vary greatly throughout a market cycle,the Manager is granted
full discretion to change the asset mix within the above ranges, for the purpose of increasing
investment return and/or reducing risk.
More specifically, over any three year period, the manager is expected to achieve a return superior to
the target mix without additional risk as measured by the variability of quarterly returns.
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The investments are expected to produce a total return exceeding the median of a universe of balanced
fund managers.
It is understood that the manager will deviate from the target asset allocation mix. To limit the extent
of potential underperformance, and because of the inherent difficulty in defining specific restrictions
which would cover all possibilities, the Manager is expected to invest so as to prevent the returns of
the total Fund from being less than 90% of the policy return in the quarters during which the policy
return has been positive, or decreasing more than 90% of the policy return in the quarters during
which the policy return has been negative, measured over a trailing maximum 5-year period.
OBJECTIVES OF THE FUND
The objectives of the Fund should be pursued as a long-term goal designed to maximize the returns
without exposure to undue risk, as defined herein. Whereas it is understood that fluctuating rates of
return are characteristic of the securities markets,the Manager's greatest concern should be long-term
appreciation of the assets and consistency (i.e., low standard deviation) of total portfolio returns.
Recognizing that short-term market fluctuations may cause variations in the account performance,the
Board of Trustees expects the Fund to achieve the following objectives over a three year moving time
period:
1. The total expected return will exceed the increase in the Consumer Price Index by 5%
annually. Actual returns should exceed the expected amount 50% of the time.
2. The total expected return will exceed 8.5% annually (note: the assumed actuarial rate of
return, as of this date, is 8.0% after investment related expenses).
Understanding that a long term positive correlation exists between performance volatility (risk) and
expected returns in the securities markets, the Board of Trustees has established the following short-
term objective:
3. The portfolio should be invested to minimize the likelihood of low or negative total returns,
defined as a one year return worse than 0%. It is anticipated that a loss greater than this
will occur no more than,one out of five calendar years.
POLICIES AND RESTRICTIONS
The investment policies and restrictions presented in this statement serve as a framework to help the
Manager achieve the investment objectives at a level of risk deemed acceptable. These policies and
restrictions are designed to minimize interfering with the Manager's efforts to attain overall objectives,
and to minimize excluding him from appropriate investment opportunities. The policy allows the
Manager substantial discretion in the asset allocation and diversification of the assets for the purposes
of increasing investment returns and/or reducing risk exposure. The Manager has broad responsibility
to shift the commitment of assets among asset classes, industry sectors and individual securities to
pursue opportunities presented by long-term secular changes within the capital markets.
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Equities
The Manager should maintain the equity portion of the portfolio at a risk level roughly equivalent to
that of the equity market as a whole, with the objective of exceeding its results as represented by the
S&P 500 Index by 0.5% annually over a three year moving time period. Equity holdings may be
selected from the New York,American and Regional Stock Exchanges,or the NASDAQ markets. These
holdings must represent companies meeting a minimum capitalization requirement of$400 million with
high market liquidity. In absence of Board approval, the Manager is prohibited from investing in non-
U.S.securities, private placements, letter stock, and options;or from engaging in short sales,or margin
transactions. It is expected that no assets will be invested in securities whose issuers have filed a
petition for bankruptcy.
Within the above guidelines, gives the Manager full responsibility for security selection and
diversification, subject to a maximum 5% commitment of the equity portfolio's market value for an
individual security, and 20%for a particular industry as defined in advance in writing by the Manager.
The Manager also will have full discretion over turnover and allocation of equity holdings among
selected securities and industry groups, within the limits described above.
It is understood that the Manager will deviate from the representative index. To limit the extent of
potential underperformance,and because of the inherent difficulty in defining specific restrictions which
would cover all possibilities, the Manager is instructed to invest the equity component of the account
so as to prevent the returns for that component from being less than 100% of the Index return in the
quarters during which the Index return has been positive, or decreasing more than 90% of the Index
return in the quarters during which the Index return has been negative, measured over a trailing
maximum 5-year period.
The equity portfolio should produce a total return exceeding the median of an appropriate universe of
value equity managers.
Fixed Income
Investments in fixed income securities will be managed actively to pursue opportunities presented by
changes in interest rates, credit ratings, and maturity premiums. The Manager may select from
appropriately liquid preferred stocks, U.S. corporate debt securities, and obligations of the U.S.
Government and its agencies. These investments will be subject to the following limitations:
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1. No issues may be purchased with more than 30 years to maturity.
2. Investments in securities of a single issuer(with the exception of the U.S. Government and
its and its agencies) must not exceed 5%of the market value of the fixed income portfolio.
3. Only corporate debt issues that meet or exceed a credit rating of BBB from Standard &
Poor's and/or a BAA rating from Moody's, may be purchased.
4. Preferred stocks must be rated A or better by Moody's and/or equivalent Standard&Poor's
at the time of purchase.
5. No non-U.S. debt securities may be purchased.
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The Manager is prohibited from investing in private placements, from speculating in fixed income or
interest rate futures.
It is understood that the manager will deviate from the representative index. To limit the extent of
potential underperformance,and because of the inherent difficulty in defining specific restrictions which
would cover all possibilities, the Manager is instructed to invest the fixed income component of the
Fund so as to prevent the returns for that component from being less than 90% of the Index return
in the quarters during which the Index return has been positive, or decreasing more than 80% of the
Index return in the quarters during which the Index return has been negative, measured over a trailing
maximum 5-year period.
Within the above restrictions, the Manager has complete discretion over timing and selection of fixed
income securities.
The fixed income portfolio should produce a total return exceeding the median of an appropriate
universe of broad fixed income managers.
Cash and Equivalents
The Manager may invest in commercial paper, repurchase agreements, Treasury Bills, certificates of
deposit, and money market funds to provide income, liquidity for expense payments, and preservation
of the account's principal value. All such assets must represent maturities of one year or less at time
of purchase. Commercial paper assets must be rated A-1 or P-1 by Standard & Poor's and Moody's,
respectively. The Manager may not purchase short-term financial instruments considered to contain
speculative characteristics (uncertainty of principal and/or interest). The Manager also may not invest
more than 5%of the total Fund's market value in the obligations of a single issuer,with the exception
of the U.S. Government and its agencies. Uninvested cash reserves should be kept to minimum levels.
Within the limitations mentioned above, the Manager has complete discretion to allocate and select
short-term cash and equivalent securities.
Other Assets
The Manager will not purchase assets other than those mentioned above without written consent.
Investments in options or futures contracts is also prohibited. Securities of foreign companies
represented by American Depository Receipts (ADR's) or traded on foreign stock exchanges may not
be purchased. Investments not specifically addressed by this statement are forbidden without written
consent.
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ACKNOWLEDGEMENT
By acknowledging in writing the receipt of this statement, the Manager agrees to its terms and
conditions. Should the Manager believe at any time that changes, additions, or deletions to this
statement are advisable, it will be responsible for communicating these in writing for review.
This statement shall be reviewed on an annual basis. Any modifications to this policy shall be
reviewed with the manager prior to implementation.
The signatures below affirm that this statement has been read, understood and accepted.
Client Manager
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Name Name
Date Date
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F:\CLIENT\GS L\M ISC\OTH ER\SAM PLE.OTH