Delaware College Investment Plan



Delaware College Investment Plan

Minutes

Delaware Higher Education Conference Room

Board of Trustees Meeting

January 11, 2010

Trustees Attending: Others Present:

José Echeverri, Chair Peter Mahoney, Fidelity Investments

Santosh Viswanathan Cynthia Collins, Deputy AG

Glenn Barlow Maureen Laffey, DHEC Director

David Gregor for Tom Cook

José Echeverri called the meeting order at 1:10 pm. He opened the meeting by stating that the reason for the meeting was to get everyone “on board” with the circumstances surrounding the Fidelity Money Market portfolios. José then asked Peter Mahoney to review the handout that was recently presented to the board members.

Peter recognized that everyone was already aware of the situation with the negative yields in the DCIP money market portfolios , but wanted to explain how it occurred:

• On November 6, 2009, the money market portfolio unit value dropped a penny from $10.86 to $10.85.

• Cash reserves yield dropped to 10-11 basis points, as of last week, it has dropped to 8 bps.

• In evaluating the situation they determined the drop in the cash reserves yield wasn’t because of dilution.

• This is a case of where interest and dividends being generated are less than fees charged for Money Market portfolios

• Program management fees were decreased on December 1, 2009.

• Steps that Fidelity has taken to correct the problem include:

• Notification to José and Maureen about the problem.

• They have adjusted the PUV back up to $10.86 retroactive to November 6, 2009 so customers would be made whole and not have to take any loss in their money market portfolios.

• Fidelity put a floor in place on December 17, 2009 in order to stop the PUV from decreasing any further.

• All customers were made whole. Those who redeemed during the period where the PUV was down by a penny were reimbursed through their active accounts or sent a check if their account was closed.

• If customers exchanged into new funds, Fidelity will buy fractional shares to make up the loss.

• Fidelity previously received unanimous email approval from the DCIP board to use their program management fees to correct the steps noted above, so until April 1, 2010, any costs associated with the above actions will come only from Fidelity resources.

Next steps, going forward:

• Fidelity is not sure whether this be a short term issue or continue for years

• Fidelity has proposed that beginning April 1, 2010, Fidelity and DCIP share the costs in the same proportion as we currently share the Program Management Fee revenue. The current split is 15 bps for Fidelity and 5 bps for DCIP.

• In a worst case scenario, Fidelity has estimated the cost to DCIP from April 1, 2010 to December 31, 2010 at $3,500.

• If implemented today, the proportionate cost sharing to reimburse the current 11 bps shortfall would result in DCIP contributing an estimated $215 per month.

• Fidelity needs the DCIP board approval to implement the proposal.

• Fidelity will be sending letters to customers who have DCIP money market portfolios explaining that Fidelity will pay the fees now so they won’t lose any money.

Santosh Viswanathan asked Peter how many calls have been received from concerned customers regarding the situation. Peter replied that less than 3 dozen have been received, and most have come from New Hampshire. None have come from Delaware.

Santosh also asked what the results of the board’s vote were regarding approval of Fidelity to use their program management fees to cover current customer losses. Maureen reported that all board members voted via email to approve the proposed action.

Cindy Collins asked that the Fidelity letter to customers be reviewed by the board before they are sent out. She also asked if there are any other investment options available to customers with lower fees where the Investment objective is capital preservation. Peter replied that there is a US Treasury Index Fund, which would be the next best thing to a Money Market Fund. There should also be an FDIC product available by the end of September 2010. . Peter also mentioned that there are other products under development such as a guaranteed insurance contract product that is now in the infancy stages and will be managed in partnership with a major insurance company, such as Met Life or New York Life. Further, the Board indicated that the letter should be sent jointly from the Board and Fidelity.

A discussion was had and the Board discussed that having more than one investment option available to the customers would be preferable. A concern was expressed that customers may look to the State of Delaware if they invest in what is perceived as a safe “money market” investment and then lose money. asked if the that customers may be uncomfortable that there is currently only 1 product option.

Glenn Barlow asked if everyone who was affected has been made whole. Peter replied that yes they have.

Cindy spoke about the uncertainty of the situation and requested that any agreement the DCIP entered into with Fidelity would t clearly state that the State of Delaware will only pay up to 5 basis points on a pro-rata basis and that Fidelity would assume all other costs to make the Money Market Participants whole . Peter agreed that this was most likely possible.

Cindy asked if the administration had been informed of the situation and impending agreement. José agreed to write a memo to Governor Markell in order to update him, and indicated he would try to arrange a meeting with the Governor if necessary. Jose will call Tom McGonigle to request a meeting with Governor. Cindy agreed to brief the governor’s legal counsel after the memo is sent to the Governor.

MOTIONS:

Glenn Barlow motioned to approve the use of Fidelity program management fees to make the customers whole through March 31, 2010. Santosh seconded the motion and it was unanimously approved.

Glenn Barlow then motioned that after April 1, 2010, DCIP will contribute 5 basis points in addition to Fidelity sharing 15 basis points, pending legal approval from the State of Delaware. The motion was seconded by Santosh and approved unanimously. Fidelity and the board agreed the sharing of costs will always be proportional.

Peter agreed to have a presentation available by the next meeting, which will include detailed information about the: (i)status of the money market account, (ii) investment options available to customers, (iii) fee structures, (iv) GIC product update, and (v) FDIC launch path update. Peter was also asked if he could negotiate with the money market managers to ask them to reduce their fees by 10 basis points so the money market account would not have negative returns.

Peter noted that he is hoping to get the customer letters to Maureen for distribution to the board by the end of the week.

The meeting was adjourned at 1:55 pm.

Respectfully submitted,

Pauline Day

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