NCMA Unrestricted Reserve Fund
NCMA Unrestricted Reserve Fund
INVESTMENT POLICY STATEMENT
This investment policy statement was adopted by the
NCMA Asset Management Committee
Date: April 21, 2007
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NCMA Unrestricted Reserve Fund
TABLE OF CONTENTS
I Summary Data
II Purpose
III Statement of Objective
IV Access Policy
V Duties and Responsibilities
VI Investment Policy and Guidelines
VII Guidelines for Portfolio Holdings
VIII Control Procedures:
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NCMA Unrestricted Reserve Fund
I – SUMMARY DATA
Fund Name:
Investment Time Horizon:
Risk Tolerance:
Portfolio Type:
Trustee:
Custodian:
Investment Advisor:
Fund Administrator:
NCMA Unrestricted Reserve Fund
0-3 years
Moderate
Moderate Growth and Income
NCMA Asset Management Committee
Wachovia Trust
Wachovia Charitable Services
W.Todd Ripley, CTFA
II - PURPOSE
This document establishes the Investment Policy Statement for NCMA Unrestricted Fund
Account and is designed to assist in effectively supervising, monitoring, and evaluating
the investment of the current income portfolio assets. A thorough investment program is
defined throughout this document to achieve the following:
Document NCMA Unrestricted Account’s investment objectives, performance
expectations, and investment guidelines for Fund assets.
Establish an appropriate investment strategy for managing all Fund assets, including an
investment time horizon, risk tolerance ranges, and asset allocation. The goal of this
strategy is to provide sufficient diversification and overall return.
Establish investment guidelines to control overall risk and liquidity, within the agreed
upon investment strategy.
Establish periodic performance reporting requirements that will effectively monitor
investment results and ensure that the investment policy is being followed.
Comply with fiduciary, prudence, due diligence, and legal requirements for Fund assets.
The NCMA Asset Management Committee has arrived at this Investment Policy through
careful study of the returns and risks associated with alternative investment strategies in
relation to the current and projected access policies and fund raising requirements of the
Fund. This policy has been chosen as the most appropriate policy for achieving the
objectives of the Fund, which are described in the Objectives section of this document.
III - STATEMENT OF OBJECTIVE
The objective of the NCMA Unrestricted Reserves shall be defined as:
To preserve and enhance the purchasing and earning value of the funds held in the
NCMA Unrestricted Account Fund.
To seek an average annual real rate of return of 1% or total return, or CPI plus 1%. This
objective shall be measured over 0-3 year time frame, with the intent of this objective, to
preserve over time the principal value of the assets as measured in real, inflation adjusted
terms.
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NCMA Unrestricted Reserve Fund
To seek competitive investment performance versus appropriate or relative benchmarks.
This objective shall be measured primarily by comparing investment results over 0-3 year
time period.
IV – ACCESS POLICY:
The Access Policy for the NCMA Unrestricted Reserves as set forth by the NCMA Asset
Management Committee shall be as follows: This account was designed as an
unrestricted account to support certain NCMA Board approved projects, developmental
activities, and assist from time-to-time with operational cash flow requirements.
Access to this account shall be supported by a letter of justification prepared and signed
by the NCMA National President and Executive Director. The letter of justification shall
present the business case for accessing the unrestricted funds and shall be coordinated
with the NVP & Treasurer and the Chair of the Asset Management Committee prior to
accessing the funds. The NCMA CFO shall retain a copy of all documentation to support
the audit trail for use of NCMA unrestricted reserve funds for a long enough period of
time to support any audits or financial reviews.
It shall be the responsibility of the NCMA Asset Management Committee to periodically
review the access policy to make adjustments necessary to preserve the purchasing power
of the NCMA Unrestricted Reserves.
Further, it shall be the responsibility of NCMA Executive Director to promptly
communicate any desired changes in the access policy or specifically any changes to
expected outflows to the NCMA NVP & Treasurer, the Chair of the Asset Management
Committee, and to the Investment Advisor prior to accessing the funds.
V - DUTIES AND RESPONSIBILITIES
The NCMA Asset Management Committee is responsible for managing the investment
process in a prudent manner with regard to preserving principal while providing
reasonable returns. In carrying out these duties, the NCMA Asset Management
Committee has retained an Investment Advisor, Wachovia Trust, to assist in managing
the assets of the Fund. The Investment Advisor’s role is to provide guidance to the
committee on matters pertaining to the investment of Fund assets including investment
policy, investment selection, monitoring Fund performance, and compliance with the
Investment Policy. All decisions pertaining to the investment policy and guidelines for
the policy’s implementation shall be made by the NCMA Asset Management Committee.
NCMA Asset Management Committee:
Retain a qualified Investment Advisor to assist in the development and implementation of
the investment policy, (e.g., goals, objectives, and guidelines).
Establish the investment policy of the Fund. This includes, but is not limited to,
allocation between equity and fixed income assets, selection of acceptable asset classes,
and investment performance expectations.
Investment Advisor:
Regularly review investment performance of the Fund to assure the policy is being
followed and progress is being made toward achieving objectives.
Assist the NCMA Asset Management Committee ‘in establishing the investment policy
and guidelines contained in this Investment Policy Statement.
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NCMA Unrestricted Reserve Fund
Determine an investment strategy and coordinate the asset allocation process through the
investment provider of the mutual funds and individual securities. This strategy shall be
within investment policy guidelines as set forth in this statement, and as otherwise
provided by the NCMA Asset Management Committee.
Monitor asset allocation among all asset classes and verify on a quarterly basis, to the
NCMA Executive Director, that allocations are within targets defined by this investment
policy statement and approved by the NCMA Asset Management Committee.
Monitor the investment performance of the Fund and provide quarterly performance
advisory reports to the Executive Director in addition to an annual summary prepared for
presentation to the NCMA Asset Management Committee, as mutually agreed upon.
Report, in a timely manner to the NCMA Executive Director, any substantive
developments that may affect the management of Fund assets.
Brief the Finance and Budget Committee and the Board of Directors once every year at
the first meeting of the new Program Year (traditionally the July meeting).
Any additional briefings should be coordinated among the AMC, CFO, ED and President
on an as-needed basis.
VI - INVESTMENT POLICY AND GUIDELINE
The Portfolio
Fund assets will be held in an investment portfolio with an active strategic asset
allocation strategy. This portfolio will be invested to match the projected outflows of this
account, and will therefore, remain in cash or cash equivalents, mutual funds, or publicly
traded individual securities, and as a result, assets held in this portfolio will be highly
liquid.
The investment adviser for the portfolio is responsible for managing the assets of the
account in accordance with the stated objectives and policies of the fund as set forth in
each prospectus.
Investment Level Targets
The aggregate target amount of NCMA reserve fund assets (both Restricted and
Unrestricted) should be 40% of any given year’s Operating Budget. The target amount
for Unrestricted Reserve Funds shall be 10% of the aggregate reserve funds. For
example, if aggregate reserve funds are $2 million, then unrestricted should be $200,000.
Fund Replenishment
Replenishment plans should be developed any time $10,000 or more is withdrawn from
the NCMA Unrestricted Fund
Time Horizon
Fund objectives are based on 0-3 year, investment horizon, so that interim fluctuations
should be viewed with the appropriate perspective. The NCMA Unrestricted Fund
Account has adopted this investment horizon such that the chances and duration of
investment losses are carefully weighed against the potential for appreciation of assets.
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NCMA Unrestricted Reserve Fund
Diversification
Investments shall be diversified with the intent to minimize the risk of significant losses
to the Fund. Consequently, the total portfolio will be constructed and maintained to
provide prudent diversification with regard to the concentration of holdings in individual
issues, corporations, or industries. Diversification occurs at several levels. The NCMA
Asset Management Committee realizes a significant portion of the account comprising
the portfolio is allocated to CD’s, Money Market accounts, US Government, and Quality
Corporate bonds. Moderate exposure to developed international and high yield bonds
may be permitted, but may not exceed 10% of total portfolio. Financial research has
demonstrated that price volatility can be further reduced by lengthening the investment
time horizon. Notwithstanding the diversification policy outlined above, the Asset
Management Committee reserves the right to override the diversification policy if the
strategic or operating cash requirements of NCMA warrant such action.
The portfolio is managed in accordance with the diversification and industry
concentration restrictions set forth in the Investment Company Act of 1940, as amended
(the “1940 Act”). Pursuant to the provisions of the 1940 Act, diversified mutual funds
may not, with respect to 75% of their assets, (i) purchase securities of any issuer (except
securities issued or guaranteed by the United States Government, its agencies or
instrumentalities) if, as a result, more than 5% of its total assets would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding voting
securities of any one issuer. Certain mutual funds in which the Fund may be invested are
considered non-diversified for 1940 Act purposes. These non-diversified funds are not
required to follow this procedure.
In addition, no mutual fund in the portfolio or the portfolio itself, may purchase any
securities which would cause more than 25% of its total assets to be invested in the
securities of one or more issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments in securities issued or
guaranteed by the United States Government, its agencies or instrumentalities.
Asset Allocation
Academic research indicates that the decision to allocate total account assets among
various asset classes will far outweigh security selection and other decisions that impact
portfolio performance. The NCMA Asset Management Committee believes that to
achieve the greatest likelihood of meeting fund objectives and the best balance between
risk and return for optimal diversification, the Fund should allocate assets in accordance
with the projected outflows, and will therefore, vary. However, the chart below indicates
the target allocation
Asset Classes
Fixed Income – US
CD’s/Money Markets
Cash/Equivalents
Asset Allocation
Limitations:
Target Weightings
50%
25% .
25%
Sector
Target Range
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Strategic
Target
NCMA Unrestricted Reserve Fund
Domestic Large-Cap
Equity
US Treasuries/Agencies
Corporate Bonds (Inv.
Grade)
Certificates of Deposit
International Fixed / High
Yield
Cash Equivalent / Money
Market
0% -- 20%
0%
5% – 50%
5% – 50%
0%
0%
0% – 100%
0% – 10%
0%
0%
5 – 100%
100%
Rebalancing Procedures
From time-to-time, market conditions may cause the Portfolio’s investment in various
mutual funds to vary from the established allocation. To remain consistent with the asset
allocation guidelines established by this Statement, each mutual fund in which the
Portfolio invests will be reviewed on a quarterly basis and rebalanced back to the normal
weighting if the actual weighting varies by 5% or more from the recommended
weighting.
In addition, the allocation of assets in the Portfolio may deviate from the normal
allocation within the permitted range when market conditions warrant. Such deviations
are designed primarily to reduce overall investment risk in the long term.
The Asset Management Committee recognizes that rebalancing is inherent to the element
of diversification, where the goal is to create a portfolio that balances the appropriate
levels of risk and return. That balance, once achieved, only can be maintained by
periodically rebalancing to the preferred asset allocation guidelines. Policy will mandate
annual rebalancing (minimum), though the Committee reserves the right to review
quarterly as deemed prudent. In addition, the Investment Advisor will by policy seek to
rebalance to strategic asset allocation guidelines when notified of any distributions or
contributions.
Risk Tolerances
The NCMA Asset Management Committee recognizes that the objectives of the
Portfolio cannot be achieved without incurring a certain amount of principal volatility.
The Portfolio will be managed in a style-neutral manner that seeks to minimize principal
fluctuations over the established time horizon and that is consistent with the Portfolio’s
stated objectives and projected outflows.
Performance Expectations
Over the long-term, the investment objectives for this portfolio shall be to achieve an
average total annual rate of return which consists of the Consumer Price Index (CPI) plus
1% for the aggregate investments under this Investment Policy Statement. Returns may
vary significantly from
VII - GUIDELINES FOR PORTFOLIO HOLDINGS
As described in the Investment Advisory Agreement, the Investment Advisor implements
this Investment Policy through investments in mutual funds and individual securities.
Such investments are acceptable investments provided they conform to the diversification
restrictions set forth below.
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NCMA Unrestricted Reserve Fund
Domestic Fixed Income
The Domestic Fixed Income asset class may be comprised of mutual funds and
Individual securities that are invested principally in fixed income securities that are rated
investment grade or better, i.e., rated in one of the four highest rating categories by an
NRSRO at the time of purchase, or if not rated, are determined to be of comparable
quality by the Investment Advisor or a mutual fund sub-Advisor.
Cash Equivalent Reserves
Cash equivalent reserves shall consist of money market mutual funds that comply with
Rule 2a-7 under the 1940 Act.
Equity Income
The Equity Income asset class may be comprised of mutual funds that are invested
principally in equity securities of Large Cap. US Companies. These securities may be
listed on registered exchanges, or actively traded in the over the counter market, or
considered to be restricted Securities (provided that the percentage of the funds assets
invested in such securities conform to the funds prospectus and stated objectives).
VIII - CONTROL PROCEDURES
Review of Liabilities
NCMA Asset Management Committee will review all policies, objectives and guidelines
annually. This review will focus on an analysis of major differences between the Fund’s
assumptions and actual experience.
Review of Investment Objectives
Investment performance will be reviewed annually by the Investment Advisor to
determine the continued feasibility of achieving the investment objectives and the
appropriateness of the investment policy for achieving these objectives. In addition, the
validity of the stated objective will be reviewed annually. It is not expected that the
investment policy will change frequently. In particular, short-term changes in the
financial markets should not require an adjustment in the investment policy.
Review of Investment Advisor
The Investment Advisor will report on a quarterly basis to review the total Fund
investment performance. In addition, the Investment Advisor will be responsible for
keeping NCMA advised of any material change to access policy, investment strategy, or
other pertinent information, potentially affecting performance of all investments.
Proxy Statements
Proxy statements will be voted in accordance with the terms of the Investment Advisory
Agreement.
Investment Advisor & Fund Manager(s)
The Investment Advisor serves at the pleasure of the NCMA Asset Management
Committee and Executive Director. NCMA may at any time direct the Investment
Advisor on the means and methods of all investment instruments and instrumentalities in
accordance with applicable laws and rules and regulations as well as policies set forth
herein.
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NCMA Unrestricted Reserve Fund
ADOPTION OF INVESTMENT POLICY STATEMENT
The NCMA Asset Management Committee has reviewed, approved, and
adopted this Investment Policy Statement, dated April 21 2007.
NCMA Executive Director
Date
Wachovia Trust Charitable Services Group
Date
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