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ABC Endowment99 Sesame StreetPortland, MaineINVESTMENT POLICY STATEMENTPURPOSE OF THIS INVESTMENT POLICY STATEMENT The purpose of the ABC Endowment was established to support the operating budget and special projects that further the study of the alphabet. The majority of this study and research is conducted at various facilities owned and operated on Sesame Street. The Endowment is incorporated as a Non-Stock, Non-Profit Corporation and has been granted tax-exempt status under Internal Revenue Code Section 501(c)(3).GENERAL GUIDELINES The management of the ABC Endowment investment portfolio should be conducted in compliance with the investment policy guidelines detailed below. The investment portfolio should be managed to maximize the total rate of return, given the investment objective, asset allocation ranges, and constraints. Given the long time horizon of the portfolio, it shall be managed for long-term results, not short-term performance. The committee would expect that dividend and interest income would comprise an important part of the total return realized on the portfolio. It is expected that investment managers will maintain well-diversified equity and fixed income portfolios. Portfolios shall be diversified by sector, industry, maturity, etc., as appropriate. The Endowment has adopted a spending policy of 5% based on the previous twelve-quarter moving average of the total market value. ASSET ALLOCATION GUIDELINES AND RETURN REQUIREMENTS The overall objective of the portfolio is to provide growth over the long term, in excess of inflation, while also maintaining a high quality portfolio of marketable securities. The portfolio should be balanced between equities, having superior long-term growth potential, and fixed income securities, which provide higher current income. To achieve this objective, the investment manager may vary the market value of the asset allocation within the following ranges and invest in the following asset classes:Asset Allocation Ranges: EQUITIES 50-70% FIXED INCOME 30-50% US CASH AND EQUIVALENTS 0-5%The investment manager is advised to make recommendations to the Finance and Investment Committee in the event that such asset allocation ranges seem contrary to the long-term objective of the portfolio. In addition, the investment manager shall notify the Committee of the need to rebalance an asset class whenever the class maximum is exceeded. The asset class shall be rebalanced to comply with the target ranges outlined above. INVESTMENT CONSTRAINTSStocks primarily doing business in slang or in any way encourage misspelling or improper grammar are to be avoided. The investment manager should avoid investing in companies whose activities result in social impacts that are counter to those of the ABC organization.The portfolio and all securities must comply with the following constraints:(Large Portfolio - Direct Investment of Securities)Equities: It is expected that the equity component of the portfolio will be diversified across economic sectors. The sector weighting may equal up to the S&P market rating or 25%, whichever is greater. Holdings in any single issuer and/or its subsidiaries should not exceed 5% of the equity component of the portfolio. Equity portfolios are to be composed of small, large and mid – capitalization stocks. Investments in equity securities of companies domiciled outside of the US, in total, may not exceed 25% of the equity component of the portfolio. (Small Portfolio - Utilizing Mutual Funds or Exchange Traded Funds)Equities: It is expected that the equity component of the portfolio will be diversified with regard to size, industry, and geography. Broadly diversified mutual funds or exchange traded funds should be utilized to limit the overall exposure of the portfolio to one segment of the market. In addition to diversification and market focus, fund selection should also focus on low expense ratios and transaction costs. Investments in equity securities domiciled outside of the US, in total, may not exceed 25% of the equity component of the portfolio. (Large Portfolio - Direct Investment of Securities)Fixed Income: With the exception of US treasury and government securities, the securities of a single issuer and/or its subsidiaries may not exceed 7.5% of the fixed income component of the portfolio. Mortgage-backed, asset-backed, and collateralized mortgage obligations may not exceed 10% of the fixed income component of the portfolio. It is expected that the fixed income component of the portfolio will be diversified across maturities and sectors, yet retain a strong bias towards high quality and liquidity.Individual Bond SecuritiesWith the exception of US Treasury and government securities, all individual bonds must be rated “BBB” or better by one of the nationally recognized rating agencies at the time of the purchase. Downgrades in the rating of such securities below “BBB”, subsequent to purchase, the Investment Advisor will be required to notify the investment committee of the change and recommend if the security should be removed from the portfolio. The investment committee prefers a laddered maturity for its portfolio of individual bonds. The fixed income portfolio will have an average duration not to exceed 5 years.Fixed Income Mutual Funds, ETFs and Closed End FundsThe use of low-cost mutual funds, exchange traded funds (ETF) and closed end funds (CEF) are allowable within the fixed income allocation, including those funds invested in higher yielding, lower quality securities. However, the following guidelines are provided given the moderate risk and return expectations of the Endowment:The aggregate of all securities rated below “BBB” may be between 0-10% of the total fixed income allocation. Funds invested in foreign bonds may be between 0-10% of the total fixed income allocation.The aggregate allocation to fixed income mutual funds, ETF’s and CEF’s, is not to exceed 35% of the total fixed income allocation, without consent from the investment committee. (Small Portfolio - Utilizing Mutual Funds or Exchange Traded Funds)Fixed Income: The fixed income component of the portfolio will be implemented using a combination of diversified mutual funds, ETFs and Closed-End Funds. Fund selection should focus on diversification and market focus, but also have low expense ratios and transaction costs. The aggregate of all securities rated below “BBB” may be between 0-10% of the total fixed income allocation. Funds invested in foreign bonds may be between 0-10% of the total fixed income allocation. Cash and Equivalents The following cash and equivalent securities are permissible investments: treasury bills, certificates of deposit, and money market mutual funds. Not more than the FDIC insured limit should be invested in a certificate of deposit at any one bank, given the current limit of government insurance on deposits.LIQUIDITY REQUIREMENTSBeyond the spending policy, there is no ongoing requirement for short-term liquidity. The investment manager shall remain in contact with the Finance and Investment Committee regarding any short-term liquidity needs.LEVERAGE AND DERIVATIVESThe use of leverage is expressly prohibited. The use of any options, futures, and/or forwards on stocks, bonds, currencies, and/or indices is prohibited. It is the general policy of the Endowment that “derivatives” not be used in the management of the portfolio, although it realizes that the exact definition of a derivative is not universally recognized. By way of example, fixed income securities such as “interest only” securities, “inverse floaters”, etc. are not acceptable investments for the Endowment portfolio. Any uncertainty as to the appropriateness of an individual security should be presented to the Finance and Investment Committee prior to any purchase.PERFORMANCE MEASUREMENTIt is expected that the investment manager will modestly outperform over a complete market cycle, assumed to be 3-5 years, the “market” benchmark allocated in a similar manner to that of the Endowment. Such “market” portfolio should reflect the various investment policy guidelines set forth herein. For measurement purposes, the following three indices will be used: S & P 500 Index, Barclays Aggregate Bond Index, and the 91 day Treasury Bill. Performance measurement data should be provided to the Finance and Investment Committee no less frequently than quarterly and the investment manager should be available for periodic meetings with the Finance and Investment Committee, as needed. The manager must affirm annually that the portfolio is in compliance with these investment guidelines. Performance measurement should be in compliance with the Performance Measurement Standards mandated by the Association for Investment Management and Research.ADMINISTRATIONThe Board of Directors shall review and approve the investment policy at least annually and management of the Endowment’s portfolio at least once every five years. Any changes must be submitted in writing to the Board and approved by the Board. Approved by the Board of Directors on: May 12, 2001Amended by the Board of Directors on: February 21, 2002Amended by the Board of Directors on: July 16, 2002 Amended by the Board of Directors on: March 23, 2004Amended by the Board of Directors on: September 28, 2004Amended by the Board of Directors on: October 31, 2005Amended by the Board of Directors on: July 4, 2006Amended by the Board of Directors on: June 26, 2007Amended by the Board of Directors on: November 24, 2008Amended by the Board of Directors on: October 31, 2009Amended by the Board of Directors on: May 15, 2012 Signature of Chair of the Board: __________________________________Date: ___________________The investment manager agrees to fully comply with the Endowment’s investment policy guidelines set forth herein.Signature: _____________________________________________________Date: ___________________ ................
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