The meeting was called to order at - Delaware



Delaware College Investment Plan

Delaware Children’s Museum

Board of Trustees Meeting

May 12, 2010

|Trustees Attending: |Others Present: |

|José Echeverri, Chair |Joe Ciccariello, Fidelity Investments |

|Glenn Barlow |Peter Mahoney, Fidelity Investments |

|Santosh Viswanathan |Christopher Sharpe, Fidelity Investments |

| |Jennifer Trainor, Fidelity Investments |

| |Elio Battista, DAG (Via Teleconf) |

| |Maureen Laffey, DHEC |

| |Rebecca Goldsmith (Designee for Tom Cook) |

| |Drew Young (University of Delaware) |

| |Jessica Winemiller (University of Delaware) |

The meeting was called to order at 10:16 a.m.

José Echeverri asked that everyone in attendance introduce themselves.

Drew Young, General Manager of the Blue Hens ISP Sports Network, noted that he has been working closely with Ms. Laffey to identify what sponsorship opportunity at UD would work best for DCIP. In previous years, DCIP has sponsored a football game, typically, the Homecoming Game. Mr. Young has developed a sponsorship package that he believes will more directly reach the target audience than sponsorship of just one football game per year.

Mr. Young presented the proposal to the Board. He stated that DCIP would receive tabling opportunity at the Football FanZone during all regular season home football games, which begins two hours prior to kick-off and includes a number of activities for the kids. We would also have the opportunity to hand out promotional materials from a table at the FanZone. For the new sponsorship, they would like to add a different element this year, and that would include a season-long promotion of the DCIP at the Men’s and Women’s Lacrosse games. The DCIP banner sign can be displayed at all of the games.

Mr. Young noted that their internet site , the official home of the University of Delaware Athletics, would include banner advertising for the DCIP, with a link to the DCIP website. There are almost 1.5 million page views each month. This could provide an important part of advertising – kids and adults visiting the site.

Mr. Echeverri asked if the soccer season would be included in the sponsorship. What is the youth market for soccer? Mr. Young responded that lacrosse is growing faster with youth today, but they could be flexible and incorporate soccer as well. Mr. Young stated that any sport can be incorporated into the sponsorship.

Mr. Young then reviewed the 2nd handout regarding a new program they will be starting – the Blue Hens Kids Club. He stated that he wanted to come up with another idea for the youth market. The first piece in the packet is the game day promotion at the football games. DCIP will be a presenting partner. The University of Delaware prides itself in connecting with the market, and this would draw in parents as well as their kids. DCIP would have a table to discuss savings with families. This will take place through the entire season. The Blue Hens Kids Club would target kids 12 and under and they would receive a membership card and other promotional items including a YoUDee promotional photo, Blue Hen team posters, etc. They would also receive free admission to select Olympic Sports and discounted tickets. Kids receive birthday cards from YoUDee, and a quarterly newsletter. DCIP would have the opportunity to send a “Welcome Packet” to new members. DCIP is responsible for getting information out to individuals. The total cost of the proposed sponsorship investment is $11,500.

Mr. Echeverri questioned if we had a hard time getting the kids to attend the games and the response, by Maureen, was only for the Delaware State University games. Mr. Viswanathan asked how many kids they expect to join the Kids Club in the first year and Mr. Young was unsure of what the attendance will be. Mr. Barlow asked if the target audience is better at football games, Mr. Young responded yes they are. Mr. Mahoney asked what the average age was for a Kid’s Club member, and Ms. Winemiller replied it is 11 years old.

Ms. Laffey thanked them for pulling this presentation together on such short notice, because the conversation about the sponsorship took place just late last week.

Mr. Echeverri asked the board members to review the minutes from the October 20, 2009 meeting. Glenn Barlow motioned to approve the minutes, Santosh Viswanathan seconded, and they were unanimously approved. Mr. Echeverri asked the board to review the minutes from the January 11, 2010 meeting. Glenn Barlow motioned to approve the minutes, Santosh Viswanathan seconded, and they were unanimously approved.

Ms. Laffey noted that just recently, Gov. Markell signed House Bill 335, which will allow a DCIP account holder to automatically deposit their Delaware tax refund into their DCIP account beginning next year. There will be a checkoff box on the tax return form where they can designate they want to have their refund deposited into their account. Ms. Laffey noted that she has received some logistical questions of whether the deposit can be deposited into more than one account, partial deposit into an account, etc. The technology area is still in question. Ms. Goldsmith asked about checking whether or not this is tax deductible. Ms Laffey replied that Delaware does not currently have a tax-deductable component of the Plan.

Mr. Mahoney gave an update on the Money Market Portfolios (MMP). The Portfolio Unit Value (PUV) of the MMP is dictated by the yield of cash reserves. The dividends from cash reserves are reinvested and not paid out to participants. Back in November, the PUV of the DCIP MMP dropped by 1 cent per share – from $10.86 to $10.85. The decline was caused by the program fee expenses exceeding the interest earned in the underlying Cash Reserves Fund. In December Fidelity reimbursed the DCIP MMP to increase the value of the PUV back up to $10.86. Fidelity initiated a program fee waiver which established a floor beneath the DCIP MMP so it couldn’t drop again in value. All customers were made whole and letters were sent to the customers affected explaining the situation. Ms. Laffey asked when was the letters were sent out and Mr. Mahoney responded they went out between February and March of this year.

Mr. Mahoney said that Fidelity will continue to cover the costs of the fee waiver through the end of May. Beginning June 1st, the fee waiver costs will be shared by Fidelity and DCIP in the same proportion as the program management fee revenues are shared.

Mr. Mahoney noted the new FDIC product will be available to customers in September. This product is designed for customers who don’t want to lose any of what they have saved. Fidelity is evaluating the Guaranteed Investment Contract. Mr. Viswanathan asked when we will have additional information, and Mr. Ciccariello stated that they should know more in the third or fourth quarter, and will give an update at the fall board meeting.

Mr. Sharpe reviewed the investment performance for Q1. He noted that there are some signs of an economic recovery through strengthened employment markets and consumer spending. Financial conditions have also continued to improve as access to credit became cheaper and easier, particularly for corporations. He said it will probably take two to four quarters to determine in reality what type of recovery we are having.

Mr. Sharpe went on to discuss the performance of the aged based portfolios on page 3. There was a relative outperformance in investment-grade bond and short-term asset classes during the quarter.

Page 4 – Actively managed age-based portfolios – Mr. Sharpe noted that the return on the actively managed portfolios have good, healthy numbers and for the past year the returns have topped the benchmarks.

Page 5 – Index funds – Mr. Sharpe stated that as expected, the index portfolio performance lags the benchmark, mostly due to the expenses incurred by the fund.

Page 6 –Actively managed vs. index performance – Mr. Sharpe noted that over the last year, all of the active portfolios outperformed the index portfolios, but they have generally underperformed the index portfolios over the 3 year period.

Page 7 – Individual Index Portfolios – Mr. Sharpe noted that the index portfolio performance lags the benchmark, generally due to the expenses incurred by the fund.

Mr. Echeverri asked what effect that the international exposure is having. Mr. Sharpe stated that the problems with the EURO are having somewhat of a negative effect on the markets, but there is speculation that the markets will pull out of it ok.

Mr. Ciccariello spoke about the proposed option of an FDIC Insured Investment per a previous request from the Board. By adding this offering, it enhances DCIP’s competitive position in the 529 marketplace. He stated that adding this option for customers is relatively new, there are only about 7 states that offer the option. It will help DCIP target moderate income families who want guaranteed savings in their 529 plan.

Mr. Ciccariello stated that with the FDIC option, it will allow the customer to have an integrated experience to have both savings and investment options within the same account. The customer would receive only one statement for multiple options in one account. Fidelity would assume fiduciary responsibility for the bank deposit portfolios. They have been working with bank partners to successfully meet customer demands for FDIC-insured deposits. Fidelity first offered a bank sweep product in 2007, and currently has agreements with 5 banks that support the core sweep program. Fidelity is in the process of working with Wells Fargo to be the depository bank for the 529 program.

Mr. Ciccariello stated that all balances up to $250,000 (current FDIC limit) in the portfolios will be eligible for FDIC insurance coverage. He said there are 6 key processes that occur in terms of managing the bank deposit portfolios with the banks, and in their fiduciary role they have ongoing risk reviews.

Mr. Ciccariello reviewed the bank deposit portfolio pricing structure. Mr. Echeverri asked the board members if they would agree to waive the DCIP program fee of 5 basis points as Fidelity has agreed to waive their share. Mr. Viswanathan was in agreement as was Mr. Barlow. Mr. Echeverri added that this is a great option for clients. Mr. Echeverri asked Mr. Ciccariello to check to see what the impact may be of DCIP waiving the fee, and Mr. Ciccariello said that he would and agreed to follow up with the Board. Mr. Battista asked if any of the program fees will be passed on to the customer. Mr. Ciccariello replied that they would not get passed on.

Mr. Battista asked how Fidelity plans to implement the FDIC option. Mr. Ciccariello stated that the customer experience will be easy to open up an account. They would open up the same DCIP application on the website, will see an option for a new “bank deposit portfolio”, when they select that option and complete the application, the money will be transferred to Wells Fargo.

Mr. Ciccariello reviewed the next steps to be taken. He said they are working on a contract with Wells Fargo which will need to be signed. They will then develop their communication strategy and marketing efforts to launch the DCIP Bank Deposit Portfolio in late September.

Mr. Echeverri asked for a motion to accept the FDIC offering. Mr. Viswanathan motioned to accept the offering, and Mr. Barlow seconded the motion. All approved to adding the FDIC option to the DCIP plan.

Ms. Laffey asked about adding an amendment to our current Management Services Agreement and Mr. Ciccariello replied that they would draft an amendment.

Mr. Mahoney discussed the Business Results – Although the changes in the number of accounts and sales for 2009 fell below the levels in 2008, assets were up 27%. Mr. Mahoney noted that the changes for all for 2010 from 2009 were all up, and assets were 31% higher than the previous year, showing that the fund is going in the right direction. Mr. Echeverri asked if the 360 new accounts accounted for the $16 million in gross sales, Mr. Ciccariello replied that the $16 million included customers with the automatic contributions into their accounts.

Mr. Mahoney reviewed the sales results from 2009 through April 2010, and noted that the negative net sales results from July and August occurred because those two months include tuition payment season.

Mr. Mahoney discussed the 2010 Marketing Plan. He reviewed the marketing objectives and marketing strategies and stated that they will continue to refine the plan by evaluating the results and success metrics on a regular basis. He noted that the online search generated 84% of the new accounts, with only 16% of the new accounts generated from print advertising. They have re-evaluated the print ad selection and have decided to replace advertising in the Metro Kids magazine with the Delaware Moms magazine.

Mr. Viswanathan asked who pays for the marketing campaign, and Mr. Mahoney replied that the funding comes from Fidelity’s program management fees. Ms. Laffey stated that Fidelity has also agreed to pay $10,000 annually in special events at the Delaware Children’s Museum. In past years, Fidelity had used their funds to help sponsor other activities such as the University of Delaware football game. Ms. Laffey said that since Fidelity has pledged to spend the $10,000 for the DCM, DCIP will pick up the costs for other local sponsorships.

Mr. Mahoney noted that Ms. Trainor has the marketing expertise and can explain how they determine where they get the best value out of their marketing efforts.

Ms. Trainor extended her appreciation for allowing her to help negotiate a sponsorship on behalf of DCIP with the DCM. DCIP will have the Art Workshop named the Delaware College Investment Plan Art Workshop. We will spend $250,000 for a ten-year sponsorship. The sponsorship is somewhat unique in that there will be additional benefits included. DCIP logo will be included on the “gears” hanging on the wall at the art room entrance as well as on the “Sponsor” wall in the lobby. We will have the opportunity to contribute to their newsletter, we will receive 2 “free rental” events to host invited special guests, and other benefits.

Ms. Laffey asked how the payment structure usually works with these types of sponsorships. Ms. Trainor responded that there are many different ways to schedule payment, depending on what the DCM would agree to with DCIP. Ms. Goldberg noted that the 10-year commitment seemed too long and felt that a 5-year contract would be more feasible. The question was raised about having future Board meetings at the DCM, and Ms. Trainor responded that if we did, the meetings would be considered “rentals”. Ms. Laffey replied that we should continue to have our Board meetings at the DHEC office.

Ms. Trainor noted that by leveraging the sponsorship over a 10-year period, the cost of the sponsorship is a good deal for DCIP.

Ms. Laffey asked for a motion to approve the sponsorship of $250,000 for the DCM with a few contract details and a payment schedule to be determined later. Mr. Viswanathan motioned to approve spending $250,000 for the DCM sponsorship, Mr. Barlow seconded the motion, and it passed unanimously.

Ms. Laffey said she met with staff from the Delaware Division of Libraries and they had requested DCIP to assist them by sponsoring a summer library program that they conduct each year. Ms. Laffey asked them to send her a proposal but she has not yet received it. Mr. Viswanathan asked how much the sponsorship would cost. Ms. Laffey replied that she didn’t have a specific amount, but that it would probably not be more than $5,000. Mr. Barlow motioned to approve spending up to $5,000 to support the program upon receipt of a specific proposal that spells out the terms of the sponsorship. Mr. Viswanathan seconded the motion, and it passed unanimously.

Mr. Echeverri asked how we should propose a payment schedule to the DCM. The board members agreed to pay $125,000 in the first year of the contract, and in year 6 review the sponsorship and determine at that time if they want to pay $25,000 each year for years 6 – 10, or pay the balance of $125,000 in year 6. Mr. Echeverri motioned to accept this payment schedule, Mr. Viswanathan seconded the motion, and it passed unanimously.

Mr. Echeverri motioned to approve the UD marketing proposal for up to $12,000 if they added men’s and women’s soccer to the proposal. Mr. Viswanathan seconded the motion, and it passed unanimously.

Mr. Echeverri noted that the Board will need to select a representative from the Board to sit on the DCM Board. He nominated Mr. Viswanathan to be the representative to the DCM Board. Mr. Barlow seconded the nomination, and they unanimously agreed on the nomination.

Mr. Battista said that Mr. Viswanathan should check with the DCM about indemnification. The board members are protected by the state in their role on the DCIP Board.

Mr. Echeverri motioned to adjourn the meeting, Mr. Viswanathan seconded the motion, the meeting was adjourned at 12:50 p.m.

Respectfully submitted,

Karin Gotcher

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