Investment Strategy Statement

General Board of Pension and Health Benefits

of The United Methodist Church
I. Purpose of the Investment Strategy Statement: As a fiduciary for the participants
in its plans and programs, the General Board of Pension and Health Benefits
(hereafter referred to as the “Board”) must operate in a financially sound and prudent
fiscal manner. The Board will establish an appropriate Statement of Administrative
Investment Policy relating to the prudent management of investments within the
ethical parameters established by the Board of Directors and the Book of Discipline.
A. The Fiduciary Committee will establish and monitor the Statement of
Administrative Investment Policy relating to the prudent management of
investments.
B. The Statement of Administrative Investment Policy relating to the prudent
management of investments must specify permitted investment funds. The
Statement must identify the fund objective, fund performance benchmark,
performance objective, investment strategy, eligible investments, active risk
target, and eligible investors for each investment fund. It must also specify
permitted asset classes/investment strategies and delegation of authority to staff
in the administration of the Statement of Administrative Investment Policy.
Finally, the Statement must specify the policy of the General Board for ensuring
that its investment funds adhere to the Social Principles of The United Methodist
Church as referenced in the Book of Discipline.

II. Application:
A. The policies stated in this Investment Strategy Statement apply to funds and
investments administered by the Board.
B. The standard of care when making decisions is the Prudent Expert Standard
defined as: the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with like
aims.

III. Committee Responsibilities:

A. The Fiduciary Committee of the Board of Directors is charged by the Board to:
1. Establish a Statement of Administrative Investment Policy.
2. Review for approval changes to the Statement of Administrative
Investment Policy recommended by staff.
3. Review and monitor investment performance for compliance with
the Statement of Administrative Investment Policy.
4. Approve investment in any asset class or investment strategy not
specifically listed in the Statement of Administrative Investment
Policy.
5. Approve any new investment management contracts or authorize any
investment manager termination except as otherwise provided in the
Statement of Administrative Investment Policy.

Issued: March 21, 2003

Revised: April 21, 2007
 6.
Delegate the execution and administration of the Statement of
Administrative Investment Policy to staff.
B. The UMC Principles Committee of the Board of Directors is charged by the
Board to:
1. Ensure that the General Board’s investment program is aligned with
the Social Principles of The United Methodist Church consistent
with prudent fiduciary investment standards.
2. Monitor the General Board’s socially responsible investment
program as specified in this Strategy Statement and in the Statement
of Administrative Investment Policy.

IV. Socially Responsible Investment Program:

A. Socially Responsible Investing defined: Investments are to be consistent with the
trust imposed upon the Board. Investments in industries, companies, corporations
and funds deemed likely to make positive social, moral and economic impact on
society shall be sought.
B. All of the General Board’s investments made on behalf of its participants shall
fulfill prudent fiduciary investment standards regarding expected rates of return
commensurate with perceived investment risk.
C. The Board demonstrates its commitment to issues of social responsibility in
various ways:
1. Securities Screening - The Board screens out of its investment
portfolio companies that derive significant income from products
and services that are inconsistent with the Social Principles.
2. Shareholder Advocacy - The Board uses various shareholder
advocacy strategies to engage corporations on issues of concern.
These strategies include letter writing, filing shareholder resolutions
and engaging corporate management with dialogue.
3. Positive Social Purpose Investments Program– The Board will strive
to invest in support of affordable housing, community development
for underserved communities and other types of positive social
purpose investments, identified in the Statement of Administrative
Investment Policy.
4. Emerging Manager Program – the Board will attempt to identify and
retain small investment firms with sound investment approaches for
the Board’s investment programs. All else being equal, preference
will be given to minority-owned, woman-owned firms and/or
socially proactive investment approaches.
D. The Board votes on issues of corporate governance in the financial interests of
our plan participants and also consistent with the values of the denomination.

Issued: March 21, 2003

Revised: April 21, 2007
 Statement of Administrative Investment Policy
General Board of Pension and Health Benefits
of The United Methodist Church
I. Purpose: The purpose of the Statement of Administrative Investment Policy (Statement)
is to outline the governance of the General Board of Pension and Health Benefits (Board)
investment program. The Board of Directors has charged the Fiduciary Committee to
establish and monitor this policy. Certain elements of the policy related to socially
responsible investing are monitored by another committee of the Board of Directors, the
UMC Principles Committee. The Investment staff is responsible for hiring, monitoring
and terminating investment managers in all approved asset classes. Investment managers
retained by the Board must strictly adhere to these policies unless otherwise agreed to by
the Board. Exceptions are permitted, but must be contractually documented in the
investment management agreement between the Board and investment manager.
Additionally, board staff must notify the Fiduciary Committee of any exceptions.

II. Investment Funds: The Board offers a variety of investment funds comprised of
permitted asset classes and investment strategies. The net asset values for the Board’s
funds are based on the fair market value of the underlying assets. Unless otherwise
specified, the investment funds are available to all participants or entities that have
deposits on account with the Board. Funds may be selected by participants or other
eligible investors. Additionally, the Board offers a managed account program (LifeStage
Investment Management Service) elected by participants or as required in certain
employer contribution plans (i.e., the Ministerial Pension Plan). Exhibits shall be
provided as addenda to this policy for each approved investment fund. Each exhibit
shall include the following elements for each fund: fund objective, fund performance
benchmark, performance objective, investment strategy, eligible investments and limits
including target and permitted range, active risk target, permitted active risk range and
eligible investors.

The Board is authorized to offer the following funds:

A. Domestic Stock Fund. The Domestic Stock Fund (DSF) invests in a broadly
diversified portfolio of primarily publicly traded, U.S.-based equity securities.
The DSF portfolio is intended to have most of its assets invested in equities and
equity index futures. (Exhibit A)
B. International Stock Fund. The International Stock Fund (ISF) invests in a broadly
diversified portfolio of primarily non-U.S. based equity securities. The ISF
portfolio is intended to have most of its assets invested in equities and equity
index futures of companies based in both developed and emerging market
countries. ISF may also invest in currency forward contracts. (Exhibit B)
C. Domestic Bond Fund. The Domestic Bond Fund (DBF) invests in a broadly-
diversified portfolio of fixed income securities. (Exhibit C)
D. Inflation Protection Fund. The Inflation Protection Fund (IPF) invests in a
portfolio of domestic and international inflation-protected securities, commodities
derivatives contracts and cash equivalents. (Exhibit D)

Issued: March 21, 2003

Revised: September 12, 2009 1
 E. Stable Value Fund. The Stable Value Fund (SVF) invests in a broad range of
short and intermediate term high quality, investment grade fixed income
instruments and principal protection contracts. SVF may also hold mortgages and
other loans initiated through the Positive Social Purpose Investment Program.
(Exhibit E)
F. Balanced Social Values Plus Fund. The Balanced Social Values Plus (BSVP)
Fund invests in a portfolio of U.S. stocks, Positive Social Purpose Investments,
and cash equivalents. The principal difference between the BSVP and other funds
managed by the Board is reflected in stricter social screening compared to other
funds. (Exhibit F)
G. Annuity Immunization Fund. The Annuity Immunization Fund (AIF) invests in
fixed income securities of U.S. government, agency and corporate bonds. (Exhibit
G)
H. Short Term Investment Fund. The Short Term Investment Fund (STIF) invests in
short-term, highly-rated fixed income securities. (Exhibit H)
I. Multiple Asset Fund. The Multiple Asset Fund (MAF) is a fund-of-funds vehicle
with targeted fund allocations to four of the individual funds described above
(DSF, ISF, DBF and IPF.) (Exhibit I)
J. Long Duration Bond Fund: The Long Duration Bond Fund (LDBF) invests in
fixed income securities of longer duration, i.e. greater than 5 years. The Fund
invests in Positive Social Purpose and fixed income investments for the purpose
of generating income to fund annuity obligations. The LDBF is limited to
participants of the Ministerial Pension Plan and for investment of funds
supporting MPP Annuities. (Exhibit L)
K. Domestic Private Equity Fund: The Domestic Private Equity Fund holds limited
partnership investments in U.S.-based private equity funds including direct
private equity funds, mezzanine investment funds and private equity fund-of-
funds. The Domestic Private Equity Fund is not offered directly to participants
but is intended to be held by other Board funds and plans. (Exhibit M)
L. Domestic Private Real Estate Fund: The Domestic Private Real Estate Fund holds
limited partnership investments in U.S.-based private real estate funds including
direct private real estate funds, mezzanine debt real estate investment funds, and
real estate fund-of-funds. The Domestic Private Real Estate Fund is not offered
directly to participants but is intended to be held by other Board funds and plans.
(Exhibit N)
M. International Private Equity Fund: The International Private Equity Fund holds
limited partnership investments in internationally-domiciled private equity funds
and private equity funds-of-funds. The International Private Equity Fund is not
offered directly to participants but is intended to be held by other Board funds and
plans. (Exhibit O)
N. International Private Real Estate Fund: The International Private Real Estate Fund
holds limited partnership investments in internationally-domiciled private real
estate funds including direct private real estate funds, mezzanine debt real estate
investment funds, and real estate fund-of-funds. The International Private Real
Estate Fund is not offered directly to participants but is intended to be held by
other Board funds and plans. (Exhibit P)

Issued: March 21, 2003

Revised: September 12, 2009 2
III. Socially Responsible Investing (SRI)
A. The UMC Principles Committee is responsible for ensuring that the Board is
investing in a socially responsible manner and that its investments are consistent,
as much as prudently possible, with the goals outlined in the Social Principles.
B. The Fiduciary Committee is responsible for ensuring that the Board’s socially
responsible investing is consistent with prudent investment standards regarding
expected rates of return commensurate with perceived investment risk.
C. All Board investments shall be screened according to United Methodist values as
described in the Social Principles, ¶716 of The Book of Discipline 2008 and
Resolution 4071 (“Investment Ethics”) of The Book of Resolutions 2008.
1. The UMC Principles Committee will evaluate and approve Board
screening guidelines following each General Conference to ensure
consistency with adopted Church positions.
2. Staff shall maintain a list of companies excluded from investment. The
list shall be updated monthly and made available to all Board investment
managers. A quarterly list of excluded companies shall be available
publicly on the Board’s Web site.
3. Investments shall not knowingly be made in any company producing, as
its core business, alcoholic beverages (beer, wine, distilled liquor) or
a) receiving 10% or more of gross revenues from selling,
distributing or marketing alcoholic beverages, or
b) receiving 10% or more of gross revenues from supplying key
elements for alcoholic beverage production.
4. Investments shall not knowingly be made in any company
manufacturing, as its core business, cigarettes, cigars, chewing tobacco
or smokeless tobacco or
a) receiving 10% or more of gross revenues from selling,
distributing or marketing tobacco-related products, or
b) receiving 10% or more of gross revenues from supplying key
elements to the tobacco industry (cigarette papers, flavorings,
adhesives, etc.).
5. Investments shall not knowingly be made in any company owning or
managing, as its core business, casinos, racetracks or off-track betting
parlors or receiving 10% or more of gross revenues from the production
of goods and services related to the gaming or lottery industries.
6. Investments shall not knowingly be made in any company receiving 10%
or more of gross revenues from the production, sale or distribution of
products or services that are considered pornographic or meet the legal
definition of “obscene” or “harmful to minors.”
7. Investments shall not knowingly be made in any company
a) receiving 10% or more of gross revenues from the manufacture,
sale or distribution of antipersonnel weapons (land mines,
“assault-type” automatic and semiautomatic weapons, firearms,
etc.), armaments, ammunition or weapons-related systems
provided for commercial and private markets (exceptions may be

Issued: March 21, 2003

Revised: September 12, 2009 3
 made for weapons and ammunition provided for sporting or law
enforcement purposes), or
b) whose identifiable ratio of nuclear weapons contract awards from
DOD or comparable agency or department of any foreign
government to gross revenues is greater than or equal to 3%.
8. Investments will not be made in corporations in which 10% or more of
gross revenues are derived from a combination of the above (3 – 7.)
9. Companies not falling into any of the above categories still may be
ineligible for purchase because of reputation, public image or any
specific business practices determined to be a gross violation of the
Social Principles (such as human rights violations, abusive labor
practices including the exploitation of child labor, flagrant or egregious
damage to the environment, and unethical business practices).
10. Emerging markets commingled equity pools are exempt from the above
restrictions if specifically authorized and the aggregate exposure of
companies otherwise prohibited does not exceed 10% of the value of the
fund.
D. The Board will exercise prudent governance over companies whose stock is held
in the Board’s funds by voting proxies based on approved proxy voting
guidelines.
1. Staff will develop and maintain proxy voting guidelines that reflect the
importance of environmental, social and governance issues in business
practices. The proxy voting guidelines will be presented annually to the
Fiduciary and UMC Principles Committees for review.
2. Lending of securities on record date for voting proxies at the annual
meeting is not permitted unless there is a compelling financial reason to
do so.
3. The Board’s proxy voting record shall be available publicly on the
Board’s Web site.
E. Shareholder Advocacy: The Board will carefully evaluate the various business
practices of companies and attempt to influence them to operate responsibly,
ethically and in alignment with the Social Principles. In the event that attempts at
shareholder advocacy are unsuccessful, the Board may consider divestment.
Annually, staff will identify the primary advocacy issues to be addressed the
following year. In deciding which issues to pursue, consideration will be given to
the concerns of church constituencies, available staff resources and the advocacy
priorities of the Board’s strategic partners. Staff is authorized to apply the
following tools of shareholder advocacy to work for change.
1. Written communications. The Board will use letters to alert companies
to issues, seek resolution of concerns, request a meeting or offer
commendation.
2. Shareholder resolutions. The Board will file or co-file a limited number
of shareholder resolutions. Resolutions call upon companies to address a
particular issue and provide shareholders with a report.

Issued: March 21, 2003

Revised: September 12, 2009 4
 3.Dialogue. The Board will attempt to engage selected companies in face-
to-face meetings or conference calls. The Board reserves the right to
withdraw from an unproductive engagement at any time.
4. Divestment. The Board will consider the following in determining
whether the sale of securities issued by a company whose business
practices are considered to be an egregious violation of Church polity:
a) The Church, either in the Social Principles or The Book of
Resolutions, has established a position on a specific divestment
issue.
b) The call for divestment has been objectively researched and the
business and social case articulated clearly and persuasively by
United Methodist and other respected constituencies.
c) There is widespread support for divestment in the responsible
investing community.
d) Staff has communicated with the company in writing at least
twice explaining the issue or issues prompting the divestment
discussion and requesting a clear statement of company policy
and practices relating to the issue, any remedial action undertaken
to address the issue and a request for holding a meeting to discuss
the issue or issues in more detail.
e) The Board has either directly filed or has partnered with other
investors to file a shareholder resolution seeking a report on the
company’s course of action to address the issue in question.
When no measurable company action is achieved through engagement or
shareholder advocacy, staff will present a business case rationale supporting a
recommendation for divestment to the UMC Principles and Fiduciary
Committees. The rationale should consider both the financial implications of
divestment and the appropriate social criteria found in the Social Principles.
F. Strategic Partnerships: The Board will partner with other socially responsible
investors, socially responsible investing organizations and organizations dedicated
to corporate accountability and responsibility. Partners should complement the
Board’s full range of responsible investing activities. The Board will consider
partner relationships under the following conditions:
1. The partner must be:
a) an investor or investing organization related to The United
Methodist Church,
b) a socially responsible investor, preferably faith-based, or
c) an individual or organization working for greater corporate
accountability in alignment with widely-held socially responsible
investing values.
2. The partner’s socially responsible investing or advocacy activities are
consistent with United Methodist policies and teachings as found in the
Social Principles and The Book of Resolutions.
3. The partner’s advocacy objective must be consistent with best practices
relating to the consideration of environmental, social and governance
issues in making investment decisions.

Issued: March 21, 2003

Revised: September 12, 2009 5
 4. The partner is credible and respected in the socially responsible investing
community.
5. The partnership is mutually beneficial to both the partner and the Board,
maximizing financial resources and staff capacity.
G. Positive Social Purpose Investments
1. The Board seeks investments that make a positive contribution toward
the goals outlined in the Social Principles. These investments are
expected to earn a market rate of return commensurate with the risk to
participants. Such investments include:
a) affordable housing,
b) community development projects,
c) microfinance lending opportunities and
d) charter schools.
2. The Board also supports and will endeavor to seek investments in
companies, banks, funds or ventures that are owned by women or racial
and ethnic persons or have a positive record in hiring or promoting
women or racial and ethnic persons.
3. The Board also will pursue positive social purpose investments requested
by General Conference (such as investments with companies that
produce products and/or services that promote clean energy and
investments that support Native American communities) as long as such
investments are in keeping with this investment policy. See also
Statement of Administrative Investment Policy, Section IV.F, Positive
Social Purpose Investments.
4. Annually, staff will report investments funded through the Positive
Social Purpose Investments program to the UMC Principles and
Fiduciary Committees.
H. Emerging Manager Program
1. The Board supports and will endeavor to identify and retain qualified
and sound investment management firms that are owned by women or
members of an ethnic minority group or who factor environmental,
social, or governance criteria into their investment philosophies.
2. Annually, staff will report investments directed through the Emerging
Manager Program to the UMC Principles and Fiduciary Committees.
I. Manager Due Diligence: The Board’s request for proposals will include a
question asking prospective managers to describe their policy of evaluating
environmental, social and governance (ESG) issues when making investment
decisions. Ongoing investment manager due diligence will include an annual
response provided by all Board investment managers in which managers explain
how they factor ESG issues into their investment decisions. Staff will formally
assess each manager’s commitment and success in evaluating the impact of ESG
on its investment decisions.

IV. Permitted Asset Classes/Investment Strategies: Asset classes and investment strategies
are permitted only if specifically listed below.

Issued: March 21, 2003

Revised: September 12, 2009 6
 A. U.S. Equity Securities: Investments in U.S. equities shall be limited to common or
preferred corporate stocks and investment trusts of corporations domiciled in the
U.S. and listed on the NYSE, AMEX or the NASDAQ exchanges or the ADRs of
foreign stocks traded on these exchanges. To avoid the risk of concentration of
assets, no more than 2% of the outstanding securities of any one class of an issuer
may be held. Equity derivative contracts are permitted but must comply with the
Derivatives Investment Policy (Exhibit J).
B. International Equity Securities: Investments shall be limited to common or
preferred stocks of corporations domiciled in countries that comprise the Morgan
Stanley Capital International All Countries World Index or other countries
specifically permitted by Board staff. Sub-asset classes include Developed
Market Equities, which consist of stocks of companies domiciled in countries that
comprise the MSCI EAFE Index and Canada; and Emerging Market Equities,
which consist of stocks of companies domiciled in countries that comprise the
MSCI Emerging Markets Free Index. Investment managers may purchase stocks
of companies domiciled in countries that do not comprise either of these indices if
permitted by the investment management agreement. Investment managers may
execute foreign exchange contracts and invest in local country cash equivalents
issued under the laws of permitted foreign countries. Equity derivative contracts
are permitted but must comply with the Derivatives Investment Policy (Exhibit J).
C. Fixed Income Securities: Investments shall be limited to classes of securities
specified below. Investment managers may purchase classes of securities not
listed if specifically permitted by the investment management agreement. Fixed
income derivative contracts are permitted but must comply with the Derivatives
Investment Policy (Exhibit J). The following classes are permitted:
1. U.S. Treasury and agency fixed income securities
2. Credit Bonds that are rated investment grade that comprise the Barclay’s
Capital Credit Index
3. U.S. Treasury Inflation Protected Securities
4. Guaranteed investment contracts issued by insurance companies with a
rating of “A” or better by A M Best.
5. Non-investment grade securities if specifically permitted by the
investment management agreement. These include publicly and privately
traded U.S. dollar-denominated securities (including bank loans) that
have a below investment grade rating from one of the major rating
services. Unrated securities are permitted if staff is provided with
satisfactory documentation from an investment manager justifying the
purchase, reason for a lack of rating, and the manager’s expected rating
if one were published.
6. International Bonds: exchange traded fixed income securities (including
inflation-linked bonds) that are investment grade denominated in
currencies other than the U.S. and issued by governments and
corporations domiciled outside of the United States. Investment grade
emerging market debt denominated in U.S. dollars and foreign
currencies is also permitted. Non-investment grade debt (e.g. emerging

Issued: March 21, 2003

Revised: September 12, 2009 7
 market debt) is permitted but the investment must be rated and
specifically permitted in the investment management agreement.
7. Cash Equivalents: instruments issued by domestic corporations including
corporate notes and floating rate notes, repurchase agreements (subject to
appropriate collateralization), obligations of domestic banks, including
banker's acceptances, certificates of deposit, time deposits, notes and
other debt instruments, instruments denominated in U.S. dollars of U.S.
banks offshore, bank loans, agency and non agency mortgage backed
securities.
8. Mortgage-Backed Securities (MBS): securities with cash flows that are
backed by the principal and interest payments of a set of mortgages.
MBS issued by Fannie Mae, Freddie Mac, and Ginnie Mae are
permitted. Non-agency MBS are permitted if rated in the three highest
investment grades assigned by a major rating agency.
9. Asset-backed securities secured by cash flows backed by principal and
interest payments for financing business and consumer purchases such as
auto loans, credit cards, and student loans that are rated investment
grade.
10. Bank loan securities: syndicated bank loan securities provided they meet
the portfolio credit quality and duration requirements.
D. Active Currency: Investments are permitted in forward contracts for foreign
currencies of countries approved by the Board.
E. Securities Lending: The Board will administer a securities lending program in
accordance with the Securities Lending Policy (Exhibit K). The purpose of the
securities lending program is to generate incremental income while safeguarding
the return of principal and ensuring liquidity. Securities lending is permitted for
all Board funds unless specifically precluded.
F. Positive Social Purpose Investments: The Board manages a positive social
purpose investment program with the dual objectives of accomplishing a social
good and simultaneously earning a rate of return commensurate with risk. The
program consists primarily of permanent mortgage loans on multi-family Low
Income Housing Tax Credit projects. Investments also include collateralized
mortgage obligations, mortgage-backed securities, and other real-estate secured
debt investments. Additionally, investments may include loans originated to fund
projects qualified for the New Markets Tax Credit program, and other loans
which meet the goals of the Positive Social Purpose Investment Program and are
approved by staff (such as health care, retail and industrial loans that support
underserved communities, and charter schools that serve students from low and
moderate income families). Loans are enhanced by full recourse to the U.S.
Government, its agencies, and its sponsored entities and participations with
recourse to approved financial intermediaries providing credit protection in and
outside of pooled structures. The program is administered by staff, which is
required to adhere to a published set of documented procedures for administering
the program.
G. Private Real Estate: Private real estate consists of investments in commingled
limited partnerships which invest either domestically or internationally in the debt

Issued: March 21, 2003

Revised: September 12, 2009 8
 or equity of underlying real estate properties, portfolios of properties or operating
companies within the real estate industry.
H. Timber and Energy (Real assets): Investments are permitted in timber and energy
via commingled limited partnership vehicles which own interests in timber-
producing and energy-producing properties, such as cultivated forestlands, oil
wells, pipelines, gas fields, etc.
I. Private Equity: Private equity consists of buyout, venture capital and special
situation funds, such as distressed and mezzanine. Private equity funds can invest
domestically and internationally. Unless specifically approved by the Fiduciary
Committee, the Board will only invest in private equity through commingled
fund-of-funds limited partnership vehicles, which invest in turn either in
underlying funds or directly in companies.
J. Hedge Funds: Hedge funds that invest according to specific strategies, which may
include, but are not limited to global macro, convertible arbitrage, equity
long/short, equity market neutral, distressed, and merger arbitrage. The Board is
permitted to invest in hedge funds only through a registered commingled
investment fund-of-funds vehicle that is offered by a Securities and Exchange
Commission-registered investment advisor. The nature of hedge fund investing,
including complex investment strategies and very rapid fluctuations in investment
portfolios, makes it extremely difficult to impose social responsibility guidelines
on individual managers prospectively. However, not less than once quarterly, the
intermediary fiduciary shall prepare a report to the Board regarding restricted
securities held by the underlying hedge funds aggregated at the overall fund level.
K. Commodities: Exchange-traded agreements, including swaps and futures, which
allow the Board to gain exposure to the return on a portfolio of physical
commodities without having to own the underlying commodities directly. The use
of commodities derivatives contracts is subject to the Derivatives Investment
Policy (Exhibit J).
L. Managed Accounts for Defined Contribution Plans: The Board will administer for
participants a managed account program for executing the asset allocation for
participant defined contribution accounts. The program is required for all
participant balances in Supplement III of the Clergy Retirement Security Program
(f/k/a Ministerial Pension Plan) except for the balance of those participants who
elected to retain a Participant Directed Account established on April 16, 2004.
The program is elective for participant contributions to any currently active
defined contribution plan administered by the Board and shall be the default
election for enrolled participants who do not make an investment election. The
Board will administer the managed account program as described in the Managed
Account Investment Policy (Exhibit Q).
M. Rebalancing:
1. Fund rebalancing: Asset classes within each fund shall be rebalanced
whenever actual allocations to an asset class fall outside the maximum
and minimum allocation range as specified in the fund exhibits.
2. Plan rebalancing: Benefit plan fund allocations shall be rebalanced
whenever actual allocations to a specific fund fall outside the maximum
and minimum allocation range as established for the plan.

Issued: March 21, 2003

Revised: September 12, 2009 9
 3. Liquidity limitations: Rebalancing may be temporarily suspended should
market conditions preclude cost-effective implementation of fund and/or
plan rebalancing. Staff will notify the Fiduciary Committee whenever
conditions warrant suspending rebalancing.

V. Delegation of Authority: The Fiduciary and UMC Principles Committees delegate to

staff the following responsibilities for administering this Statement:
A. Invest fund assets among approved asset classes listed in Section IV consistent
with the guidelines specified in each fund exhibit.
B. Select investment managers responsible for investing assets allocated to approved
asset classes for each fund. Staff is authorized to identify and hire investment
managers for fund mandates without seeking formal approval from the Fiduciary
Committee provided that each manager’s investment mandate is within permitted
guidelines. Additionally, staff may terminate investment contracts with existing
investment managers without Fiduciary Committee approval. Staff shall
informally notify the committee prior to and subsequent to any change that it
initiates.
C. Manage the Board’s Positive Social Purpose Investment Program. Not less than
once biennially, staff will provide the Fiduciary Committee with an independent
opinion from a qualified third party regarding the viability and adequacy of the
administration of the Positive Social Purpose Investment Program.
D. Develop for each investment management firm an investment mandate that
formally outlines the nature of that firm’s engagement with the Board, which will
include the importance of evaluating environmental, social, and governance issues
in selecting investments.
E. Formally evaluate and document not less than annually each investment
manager’s success in fulfilling its investment mandate.
F. Maintain formal documentation that outlines the procedures that staff will adhere
to when carrying out its responsibilities.
G. Hire and retain qualified third party vendors to assist in the execution of this
policy and document annually an appraisal of the vendor’s services.
H. Develop and adhere to a code of conduct for all staff involved in administering
the responsibilities delegated by this Statement.
I. Provide the Fiduciary Committee with an annual written analysis of the impact of
the Board’s screening guidelines on investment.
J. Review not less than annually with the Fiduciary Committee that staff has applied
best practices for reporting the fair market value of all investments for which a
readily identified market price is not available.
K. Review annually with the Fiduciary Committee that staff is using best practices
for the pricing of the assets managed by the Board’s Positive Social Purpose
Investments Program.
L. Provide the Fiduciary Committee with a quarterly summary report on the
performance of investment funds and individual managers and other related
investment activities, such as social advocacy initiatives.

Issued: March 21, 2003

Revised: September 12, 2009 10
 M. Provide a report annually to the Fiduciary Committee of all investments that
generated Unrelated Business Taxable Income (UBTI) in the prior fiscal year for
which the Board is required to pay taxes to the appropriate federal and state taxing
authorities.
N. Within six months after each General Conference, staff will provide the UMC
Principles Committee with a listing of resolutions adopted by General Conference
that affect, either directly or indirectly, the Board’s investment program.
O. At least annually, staff will submit a strategic advocacy proposal to the UMC
Principles Committee that reflects United Methodist policies and positions. The
UMC Principles Committee will evaluate and approve the Board’s advocacy
program.
P. At least quarterly, staff will prepare and submit a report to the UMC Principles
Committee listing all corporate engagements and issues under discussion.
Q. At least annually, staff will prepare and submit a report to the UMC Principles
Committee that outlines the extent to which investment managers have integrated
environmental, social, and governance issues into their investment decision
processes.
R. At least annually, staff will prepare and submit a report to the UMC Principles
Committee listing all shareholder resolutions filed by the Board with respective
voting results. The report also will include withdrawn resolutions and the reason
for withdrawal.
S. Certify not less than annually to the Fiduciary Committee that staff has complied
with this Statement and list any exceptions.

Issued: March 21, 2003

Revised: September 12, 2009 11
 Exhibit A
Investment Strategy
Domestic Stock Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain long-term capital appreciation available from a broadly

diversified portfolio of primarily U.S. domiciled publicly owned companies

II. Fund Performance Benchmark: Russell 3000™ Index

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 75 basis points on average per year over a market cycle (three to five
years and net of management and fund administration expenses).

IV. Investment Strategy: The Fund employs a blended use of passive and active
investment management. For passive management, the fund includes investments that
are designed to closely match the performance of various indices representing
different market segments. Index funds are permitted to hold all, or a representative
sample, of the securities that comprise the target market index. For active
management, the fund employs different investment management firms to make
decisions about the fund's portfolio investments. The fund relies on the professional
judgment of its investment managers to seek investments in attractively valued
companies that, in their opinion, represent good long-term investment opportunities.
The fund primarily employs investment managers that will accomplish this objective
through fundamental analysis, including meeting with company executives and
employees, suppliers, customers and competitors. Securities may be sold when the
adviser no longer believes that they represent attractive investment opportunities.
Passive and active managers are subject to SRI restrictions.

V. Eligible investments and limits:

Asset Class Minimum Target Maximum

U.S. Equity Securities 85% 90% 100%
Cash Equivalents 0% 0% 5%
Alternatives Investments1 0% 10% 12%
1
Permitted Alternative investments include private real estate, timber and energy (real assets), private equity, and hedge funds.

VI. Active Risk Target: 36 month trailing standard deviation of benchmark relative
excess return equal to 2%. Permitted Active Risk range: Between 1% and 3%.

VII. Eligible Investors: There is no limitation on investors or plans.

Issued: March 12, 2007

Revised: September 12, 2009
12
 Exhibit B
Investment Strategy
International Stock Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain long-term capital appreciation from a diversified

portfolio of non-U.S. domiciled publicly owned companies.

II. Fund Performance Benchmark: Morgan Stanley Capital International All Country
World (MSCI ACWI) ex USA Index.

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 200 basis points on average per year over a market cycle (three to five
years and net of management and fund administration expenses).

IV. Investment Strategy: The Fund seeks a favorable long-term rate of return from a
broadly diversified portfolio of foreign stock domiciled in developed and emerging
market countries. The fund relies on the professional judgment of its investment
managers to decide how to allocate fund assets among different countries and/or
regions of the world and in which stocks the fund should invest. The investment
managers seek to invest in attractively valued companies that represent above-average
long-term investment opportunities. The investment managers accomplish this
objective primarily through fundamental analysis, which may include meeting with a
company's management, competitors, suppliers and customers in order to evaluate a
company's future prospects. Managers are subject to SRI restrictions.

V. Eligible investments and limits:

Asset Class Minimum Target Maximum

International Developed Market Equities 60% 82% 100%
International Emerging Market Equities 16% 18% 20%
Cash Equivalents 0% 0% 5%
Alternative Investments1 0% 0% 10%
Active Currency2
1
Permitted Alternative investments include private real estate, timber and energy (real assets), private equity, and hedge funds.
2
Active currency management is limited to no more than 15% of the notional value of the Fund

VI. Active Risk Target: 36 month trailing standard deviation of benchmark relative
excess return equal to 3%. Permitted Active Risk range: Between 2% and 4%.

VII. Eligible Investors: There is no limitation on investors or plans.

Issued: March 12, 2007

Revised: September 12, 2009
13
 Exhibit C
Investment Strategy
Domestic Bond Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To earn current income while preserving capital by investing in a

diversified mix of fixed income securities.

II. Fund Performance Benchmark: Barclays U.S. Universal Index (excluding

Mortgage-Backed Securities).

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 50 basis points on average per year over a market cycle (three to five
years and net of management and fund administration expenses).

IV. Investment Strategy: The Fund employs a blended approach of enhanced passive
and active investment management. For the enhanced passive management
component, the fund’s manager attempts to slightly exceed the return of the
performance of the benchmark (10 basis points). For active management, the fund
relies on investment management firms to exercise professional judgment in seeking
investments in attractively valued securities that, in their opinion, represent good
long-term investment opportunities. The Fund is intended to complement the Inflation
Protection Fund in terms of credit exposure. Accordingly, the Fund will tend to have
a lower allocation to U.S. Government debt than what is typical for a diversified bond
fund. Passive and active managers are subject to SRI restrictions.

V. Eligible investments and limits:

Asset Class Minimum Target Maximum

Fixed Income Securities 60% 70% 80%
Positive Social Purpose Investments 20% 30% 40%
Alternative Investments1 0% 0% 4%
1
Permitted Alternative investments include hedge funds.

VI. Active Risk Target: 36 month trailing standard deviation of benchmark relative
excess return equal to 2%. Permitted Active Risk range: Between 1% and 3%.

VII. Eligible Investors: There is no limitation on investors or plans.

Issued: March 12, 2007

Revised: September 12, 2009
14
 Exhibit D
Investment Strategy
Inflation Protection Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To provide investors with current income and to protect principal
from long-term loss of purchasing power due to inflation.

II. Fund Performance Benchmark: Barclays Capital U.S. Government Inflation-

Linked Bond Index.

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 25 basis points on average per year over a market cycle (three to five
years and net of management and fund administration expenses).

IV. Investment Strategy: The Fund employs a blended approach of passive and active
investment management. For the passively managed component, the fund’s manager
attempts to match the return of the performance benchmark. For the active
management component, the Fund’s manager(s) exercise(s) professional judgment to
seek attractively valued investments that, in their opinion, represent good long-term
investment opportunities. The Fund is intended to complement the Domestic Bond
Fund in terms of credit exposure as the Fund is comprised primarily of U.S.
Government and foreign government debt. The fund also attempts to modestly
improve investment returns by investing up to 10% of its assets in commodities.
Managers are subject to SRI restrictions.

V. Eligible investments and limits:

Asset Class Minimum Target Maximum

U.S. Treasury Inflation Protected Securities 0% 90% 100%
International Bonds1 0% 0% 20%
Cash Equivalents 0% 0% 30%
Commodities 9% 10% 11%
1
International bonds are limited to inflation linked securities

VI. Active Risk Target: 36 month trailing standard deviation of benchmark relative
excess return equal to 2%. Permitted Active Risk range: Between 1% and 3%.

VII. Eligible Investors: There is no limitation on investors or plans.

Issued: March 12, 2007

Revised: September 12, 2009
15
 Exhibit E
Investment Strategy
Stable Value Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To preserve both invested principal and earned interest, to earn a
stable fixed-income yield and to provide liquidity for participant-directed
disbursements.

II. Fund Performance Benchmark: Ryan Labs 3-Year GIC Index.

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 25 basis points on average per year over a market cycle (three to five
years and net of management and fund administration expenses).

IV. Investment Strategy: The Fund will invest in a broad range of high quality, low risk
fixed income instruments. The Fund will contract with highly rated insurance
companies that will provide the principal protection feature that assures participants
can transfer or withdraw the value of all contributions and accumulated interest.

V. Eligible investments and limits: The investment portfolio consists of a broad

selection of short and medium term fixed income securities including U.S.
government and agency bonds, corporate bonds, mortgages, and asset-backed
securities. Additionally, the fund may hold insurance company issued Guaranteed
Investment Contracts (GICs) or similar instruments as well as cash equivalents. The
Fund may also hold privately placed positive social purpose investments such as
loans to support affordable housing, microfinance, etc.

Asset Class Minimum Target Maximum

Short Term Bonds 50% 80% 100%
Core Bonds1 0% 20% 25%
Guaranteed Investment Contracts 0% 0% 40%
Positive Social Purpose Investments2 0% 0% 20%
Cash Equivalents 0% 0% 30%
1
Lehman Intermediate Aggregate Benchmark
2
Positive social purpose investments must have a maturity of five years or less

VI. Active Risk Target: Not applicable. The Fund will be managed to a duration target
set by the lead manager of the fund. In no case is duration permitted to exceed three
and one half years.

VII. Eligible Investors: Limited to individual participants in the Clergy Retirement

Security Program, Horizon 401(k), Ministerial Pension Plan, and United Methodist
Personal Investment Plan.

Issued: March 12, 2007 16

 Exhibit F
Investment Strategy
Balanced Social Values Plus Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain current income and capital appreciation by investing in a

broad mix of different types of investments with added emphasis on the socially
responsible investing objectives of The United Methodist Church.

II. Fund Performance Benchmark: The fund uses a blended benchmark to measure the
success of its performance. The benchmark includes the following: 60% Domini 400
Index, 30% Barclays Mortgaged Backed Securities Index, 10% Merrill Lynch 90-day
Government Index.

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 100 basis points on average per year over a market cycle (three to five
years and net of management and fund administration expenses).

IV. Investment Strategy: The Fund is intended to provide a specific group of socially
responsible investors averse to any investment exposure to the military industrial
complex with a balanced fund comprised of equity, fixed income, and short-term
money market investments. This Fund is actively managed and designed to
outperform a mix of commonly recognized indices representing the performance of
the U.S. stock and bond markets. The Fund also seeks exposure to fixed income
investments designed to accomplish a positive social purpose. These investments seek
to attain a market rate of return commensurate with risk while helping to provide
shelter to low- and moderate-income individuals and families. While adhering to the
social screens outlined in Section III of this Investment Policy, the Fund has
additional military restrictions with the following securities to be excluded from
investment: a) the currently listed and published top 100 companies receiving the
largest dollar volume of prime contract awards from the Department of Defense
(DOD) related to the production and distribution of conventional military armaments;
b) any company with an identifiable DOD contract award related to the production
and distribution of military armaments if that company’s ratio of DOD contracts to
gross revenues is larger than 5%; and c) any company with an identifiable nuclear
weapons contract. Finally, securities issued by the U.S. Government, except for short-
term liquidity needs, student loans, farm loans and government-backed mortgage
securities are also excluded.

V. Eligible investments and limits:

Asset Class Minimum Target Maximum

U.S. Equity Securities 57% 60% 63%
Positive Social Purpose Investments 27% 30% 33%
Cash Equivalents 7% 10% 13%

Amended: May 25, 2007

Revised: September 12, 2009
17
 VI. Active Risk Target: 36 month trailing standard deviation of benchmark relative
excess return equal to 4%. Permitted Active Risk range: Between 3% and 5%.

VII. Eligible Investors: There is no limitation on investors or plans.

Amended: May 25, 2007

Revised: September 12, 2009
18
 Exhibit G
Investment Strategy
Annuity Immunization Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To ensure that the forecasted cash inflows from Fund investments
closely match forecasted cash outflows of monthly benefit payments for certain
annuity obligations and ensure that the market value of fund assets exceeds the
settlement value of fund liabilities.

II. Fund Performance Benchmark: Plan liabilities

III. Performance Objective: To produce a return that matches or exceeds the

performance benchmark each and every year.

IV. Investment Strategy: The Fund invests in fixed income investments for the purpose
of preserving invested principal and earned interest in order to fulfill all annuity
obligations. The investment manager will align expected cash inflows from portfolio
investments to closely match expected cash outflows as forecasted by the General
Board’s Actuarial Department. The Fund may incur investment grade credit risk.

V. Eligible investments and limits: The investment portfolio consists of a broad

selection of fixed income securities including U.S. government and agency bonds,
corporate bonds, mortgages, and asset-backed securities.

Asset Class Minimum Target Maximum

Core Bonds1 80% 100% 100%
Positive Social Purpose Investments 0% 0% 20%
Cash and Equivalents 0% 0% 10%
1
Defined as securities that comprise the Lehman Aggregate Bond Index

VI. Active Risk Target: The performance of the investment assets must closely match
the performance of the liabilities the assets support. Permitted Active Risk range: Up
to 1%.

VII. Eligible Investors: Annuities established on or before December 31, 2004 for
participants in the Cumulative Pension Benefit Fund, the Defined Contribution
Organization Money, the Personal Investment Plan, and the Staff Retirement Benefit
Program.

Issued: March 12, 2007 19

 Exhibit H
Investment Strategy
Short Term Investment Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To preserve capital while earning current income higher than that of
money market funds.

II. Fund Performance Benchmark: Merrill Lynch 90 day Treasury Bill Index

III. Performance Objective: To produce a return that, on average, slightly outperforms the
performance benchmark by approximately 10 basis points (three to five years and net of
management and fund administration expenses).

IV. Investment Strategy: The Fund will invest in a broad range of short term, high quality,
low risk fixed income instruments.

V. Eligible investments and limits:

Asset Class Minimum Target Maximum

Short Term Bonds 0% 20% 50%
Positive Social Purpose Investments1 0% 5% 20%
Cash Equivalents 0% 75% 100%
1
Positive social purpose investments must have a maturity of three years or less

VI. Active Risk Target: 36 month trailing standard deviation of benchmark relative excess
return equal to 0.5% Permitted Active Risk range: Between 0% and 1%.

VII. Eligible Investors: Institutional investors, any plans offered by the General Board and
participants that are not eligible to invest in the Stable Value Fund.

Issued: March 12, 2007 20

 Exhibit I
Investment Strategy
Multiple Asset Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain current income and capital appreciation by investing in a

broad mix of different types of investments.

II. Fund Performance Benchmark: The fund uses a blended benchmark to measure the
success of its performance. The benchmark includes the following:
10% Barclays Capital U.S. Government Inflation Linked Bond Index
25% Barclays U.S. Universal Index, ex Mortgage-Backed Securities
45% Russell 3000 Index
20% Morgan Stanley All Country World Index, ex-USA

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 80 basis points on average per year over a market cycle (three to five years
and net of management and fund administration expenses).

IV. Investment Strategy: The Fund is intended to provide investors with exposure to a
broadly diversified universe of asset classes. The Fund will very closely adhere to a pre-
specified allocation comprised of four funds offered by the Board. The Board will
rebalance the Multiple Asset Fund to the pre-specified mix when the actual holdings fall
outside of the pre-specified range. Futures overlays may be used to temporarily adjust
allocations to align more closely with targets.

V. Eligible investments and limits:

Investment Funds Min Target Max

Domestic Stock Fund 42% 45% 48%
International Stock Fund 18% 20% 22%
Domestic Bond Fund 23% 25% 27%
Inflation Protection Fund 8% 10% 12%

VI. Risk Target: Not applicable.

VII. Eligible Investors: There is no limitation on investors or plans.

Issued: March 12, 2007

Revised September 12, 2009
21
 Exhibit J
Derivatives Investment Policy
I. Definition: A derivative is a financial instrument whose value is derived from, in
whole or part, the value of any one or more underlying securities or assets of an
index of securities or assets (such as bonds, stocks, commodities and currencies).
Mortgage-backed securities and asset-backed securities are not considered derivatives
for the purpose of this policy. Derivatives may be purchased through a national
exchange or through an over-the-counter direct arrangement with a qualified
counterparty.

II. Philosophy: The Board may use derivatives to manage asset exposure and risks in a
prudent, timely and cost effective manner. This is accomplished by using derivatives
to achieve exposure that could otherwise be achieved with physical securities as well
as strategies described in Section V below. Derivatives shall only be used to acquire
asset and risk exposures consistent with approved investment policies and portfolio
guidelines. Generally, derivatives are primarily to be used for tactical implementation
of the Board’s investment strategies. Long term strategic use of derivatives is
generally discouraged unless it is impractical to hold the physical assets represented
by the derivative contracts (e.g. commodities).

III. Objective: To facilitate cost-effective and timely investment and risk management,
provide for trading efficiency (i.e. speed of trade execution and lower cost), and to
optimize asset allocation in cases where using derivatives may be more cost -
effective than purchasing/selling physical securities in illiquid financial markets. In
addition, derivatives may be used to enhance or manage the risk/return profile of
individual securities or portfolios.

IV. Authorization for Executing Derivative Transactions: Qualified external

investment mangers specifically contracted by the Board may engage in derivatives
transactions only if the transactions are consistent with the overall investment
objectives of the manager’s investment mandate. Additionally, for the derivative
transactions the Board periodically directs to fulfill the Board’s asset allocation
objectives, Investments Staff will maintain detailed policy and procedures for
initiating, documenting, and monitoring directed derivative transactions. The
procedures shall require a Derivatives Strategy Form and Directed Exposure Form for
each transaction with multiple signoffs and reviews by Investments staff, including
the Chief Investment Officer.

V. Permitted Strategies: Derivative may be used to facilitate the following

strategies:
A. Manage overall asset allocation of a Fund, including rebalancing activities
B. Implement investment strategies in a low-cost and efficient manner
C. Construct portfolios with risk/return characteristics that could not be created
with cash market securities
D. Manage transition of assets between managers
E. Hedge cash balances in a fund to replicate the performance of a permitted
fund asset class within the fund

Issued: March 12, 2007

Revised: September 12, 2009 22
 F. Hedge or manage exposure to equity markets
G. Hedge or manage duration, total return, yield or credit exposure, sector and/or
country exposure
H. Hedge or manage the risk/return profiles of individual securities of a portfolio
I. Hedge or manage commodity exposures
J. Hedge or manage currency exposures

VI. Permitted Types of Derivatives:

A. Futures
B. Options
C. Forward Contracts
D. Credit Default Swaps
E. Interest Rate Swaps
F. Warrants

VII. Restrictions:
A. Derivatives shall not be used to replicate the performance of an asset class not
specifically listed in Section IV of the Statement of Administrative Investment
Policy.
B. Derivatives are not permitted for the purpose of leveraging a portfolio unless
specifically approved by the Oversight Committee.
C. Investment managers shall reconcile cash and margin requirements
concerning derivatives on a daily basis with the Board’s custodian bank.
D. Speculation with derivatives is prohibited.

VIII. Delegations of Authority: The Oversight Committee delegates to Staff the following
responsibilities for administering this policy:
A. Define the strategy parameters and guidelines for portfolios using derivative
strategies including risk assessment and counterparty guidelines.
B. Select investment managers to execute derivatives strategies.
C. Monitor on a daily basis all derivatives activities to assure that they comply
with this policy and are within strategy, asset class and overall fund
investment guidelines.
D. Report not less than annually to the Oversight Committee all derivative
strategies executed by the Board for the preceding year.

Issued: March 12, 2007

Revised: September 12, 2009 23
 Exhibit K
Securities Lending Policy

I. Definition: Securities lending is an agreement between a lender and a borrower to

temporarily transfer ownership of a security for a variety of strategies executed by the
borrower. Transactions are structured so that the lender retains the economic benefits
of the security and receives any distributions such as coupon interest and dividend
payments that occur with respect to the security during the life of the lending
transaction. The lender receives cash from the borrower as collateral to ensure that
the borrower returns the borrowed securities. Typically, the borrower provides
additional margin to collateralize the lending transaction. The lender pays the
borrower a rate of interest on the cash collateral called the “rebate” rate. The lender
in turn invests the cash collateral during the term that the securities are out on loan.
The lender transfers all ownership rights to the securities, such as the right to vote
proxies. The lender, however, has the ability to direct the lending agent to recall
securities for proxy voting. Such action allows the Board to execute its socially
responsible shareholder advocacy initiatives.

II. Philosophy: The Board may engage in securities lending activity for the purpose of
adding incremental value to the Board’s investment program. All publicly traded
fixed income and equity securities held by the Board are eligible for lending under
this program. The program is to be administered by highly-qualified third party
lending agents that incur minimal risk. Incremental value is attained from two
sources: the spread between the risk free rate and rebate rate paid to borrowers, and
additional earnings resulting from the reinvestment of the collateral.

III. Objective:
A. To generate incremental income from a high quality program that safeguards the
return of principal, maintains adequate daily liquidity, ensures diversification and
tightly controls exposure to fluctuating interest rates by lending securities to
qualified borrowers.
B. The lending portfolio should generate income primarily from the difference
between the risk free rate (U.S. Treasury Bills) and the rebate rate paid on cash
collateral received from the borrower. Additionally, by investing in cash
equivalent instruments other than U.S. Treasury Bills, the Board may be able to
earn an additional spread over and above the risk free rate, depending on market
conditions.
C. The securities lending program will be conducted in a manner so as not to
interfere with the management of the Board’s investment funds.

IV. Permitted Investments for Cash Collateral Reinvestment:

A. Reinvestment of cash collateral shall be in Cash Equivalents/
1. Instruments purchased with cash collateral must be rated in the three highest
investment grades assigned by a major rating agency. In the case of split-
rated securities, the lowest rating shall prevail.
2. No instrument purchased with cash collateral shall have a maturity in excess
of three months, with the exception of floating rate instruments, which can
have a two-year maturity.

Issued: March 12, 2007

Revised: September 12, 2009 24
 3. The lending agent is required to maintain prudent diversification across
reinvestment instruments, market sectors, industries and specific issuers.
B. During volatile financial market environments, Investments staff is directed by
this policy to further restrict cash reinvestment to overnight repurchase
agreements with Primary Dealers, as designated by the Federal Reserve Bank.
Additionally, each lending agent may have an amount further specified in its
guidelines that can be invested in commingled money market funds backed by the
full faith and credit of the U.S. government.
Certain securities may be grandfathered as exceptions to this if the securities were
purchased prior to the guidelines being further restricted, were in conformance to
existing guidelines at the time of purchase, or in cases where the lending agent
recommends holding with Board concurrence.
C. The issuers of the securities purchased for reinvestment must adhere to the
socially responsible investing guidelines outlined in Section III of this Statement.

V. Restrictions:
A. Borrowing of Board securities:
1. Permitted borrowers must meet the highest standards as outlined in formal
guidelines prepared and monitored by Staff.
2. The lending agent must ensure that the Board has sufficient collateral from
borrowers on a daily basis.
3. The following margins requirement apply for securities on loan:
a. 102% for domestic equity and fixed income securities; excluding U.S.
Treasury Inflation Protected Securities
b. 100% for U.S. Treasury Inflation Protected Securities
c. 105% for international equity securities.
4. The lending agent will be responsible for the preservation of the Board’s
voting rights for all domestic equity securities on loan.
5. Agents may lend international equity securities without preserving voting
rights unless the company is subject to a Board-sponsored resolution or a
resolution which involves an issue of high sensitivity to the Social Principles
Committee.
6. The Board has the right to recall any loaned security at any time.
B. Reinvestment in cash collateral instruments:
(See Section IV above.)

VI. Delegations of Authority: The Fiduciary Committee delegates to Staff the following
responsibilities for administering this policy:
A. Select and negotiate contract terms with securities lending agents to execute the
securities lending program.
B. Perform oversight and monitoring of the securities lending agents to ensure
compliance with this policy and all contractual securities lending guidelines.
C. Monitor daily all securities on loan to ensure that they are in compliance with
established program guidelines.
D. Maintain a list of approved borrowers and monitor to ensure that lending is
conducted only with approved borrowers.
E. Develop guidelines for prudent diversification of cash collateral reinvestment
with respect to types of instruments, market sectors, industries and issuers and
ensure compliance.
Issued: March 12, 2007
Revised: September 12, 2009 25
 F. Maintain a list of acceptable collateral instruments for repurchase agreements.
(See Section IV above).
G. Report quarterly to the Fiduciary Committee regarding the performance of the
securities lending program.
H. Develop and modify this securities lending policy as well as the detailed securities
lending guidelines in the Investments Procedures Manual where appropriate and
to keep current with best industry practices.

Issued: March 12, 2007

Revised: September 12, 2009 26
 Exhibit L
Investment Strategy
Long Duration Bond Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To closely match performance of Ministerial Pension Plan

Annuities liabilities so as to negate the impact of interest rate fluctuations on plan
funded status and to control the volatility of prospective monthly benefit payments for
MPP participants nearing retirement. Fund objective is accomplished by investing in
a diversified mix of Positive Social Purpose investments and fixed income securities.
Short term fixed income securities are also used as an interim funding mechanism to
offset binding but not drawn Positive Social Purpose Forward Commitments.

II. Fund Performance Benchmark: To be determined. The Fund is still being

constructed. Investments should have a liability driven investment approach and
consequently be benchmarked to the return of the liabilities.

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 50 basis points on average per year over a market net of management
and fund administration expenses.

IV. Investment Strategy: : The Fund invests in long-term Positive Social Purpose and
fixed income investments for the purpose of immunizing the impact that fluctuating
interest rates have on the value of liabilities or expected monthly retirement benefit
payments for MPP participants. For the fixed income portion, the Fund may incur
investment grade credit risk. Fund duration is targeted to be matched within a range
to the corresponding plan liabilities.

V. Eligible investments and limits: The investment portfolio consists of a broad

selection of Positive Social Purpose investments such as senior debt for affordable
housing and charter schools, and microfinance or other types of Positive Social
Purpose investments consistent with the Board’s socially responsible investment
initiatives. The portfolio also consists of a broad selection of investment- grade fixed
income securities including U.S. government and agency bonds, corporate bonds,
mortgages, and asset-backed securities.
.
VI. Eligible investments and limits:
Asset Class Minimum Target Maximum
To Be Determined
Fixed Income Securities
Positive Social Purpose Investments
Alternative Investments

Active Risk Target: Liability Driven investment approach with risk target for deviation
from benchmark to be determined.

VII. Eligible Investors: The fund is limited to MPP participants and MPP Annuities.
Issued: September 12, 2009 27
 Exhibit M
Investment Strategy
Domestic Private Equity Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain long-term capital appreciation available from U.S.-based

private equity funds.

II. Fund Performance Benchmark: Russell 3000™ Index

III. Performance Objective: To produce a return that exceeds that of the performance
benchmark by 500 basis points on average per year over a market cycle

IV. Investment Strategy: The Fund invests primarily in U.S.-based private equity fund-
of-funds, but can also invest in private equity funds and mezzanine investment funds
directly with notification to the Oversight Committee.

V. Eligible investments and limits: U.S.-based private equity funds-of-funds, private

equity and mezzanine investment funds.

VI. Active Risk Target: N/A

VII. Eligible Investors: This fund is only available for investment by other Board funds
and plans.

Issued: September 12, 2009 28

 Exhibit N
Investment Strategy
Domestic Private Real Estate Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain long-term capital appreciation available through

investment in U.S.-based private real estate debt and equity funds.

II. Fund Performance Benchmark: NCREIF NPI Index

III. Performance Objective: To exceed the NCREIF NPI Index by 300 bps over a
market cycle.

IV. Investment Strategy: The Fund seeks a favorable long-term rate of return through
investment primarily in U.S.-based private real estate debt and equity funds, but can
also invest in funds-of-funds.

V. Eligible investments and limits: Domestic private real estate debt and equity funds.

VI. Active Risk Target: N/A

VII. Eligible Investors: This fund is only available for investment by other Board funds
and plans.

Issued: September 12, 2009 29

 Exhibit O
Investment Strategy
International Private Equity Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain long-term capital appreciation available from

internationally private equity funds and funds-of-funds.

II. Fund Performance Benchmark: To be determined.

III. Performance Objective: To be determined.

IV. Investment Strategy: The Fund invests primarily in internationally-domiciled

private equity fund-of-funds, but can also invest in private equity funds and
mezzanine investment funds directly with notification to the Oversight Committee.

V. Eligible investments and limits: Internationally-domiciled private equity funds-of-

funds, private equity and mezzanine investment funds.

VI. Active Risk Target: N/A

VII. Eligible Investors: This fund is only available for investment by other Board funds
and plans.

Issued: September 12,, 2009 30

 Exhibit P
Investment Strategy
International Private Real Estate Fund
The strategy below is subject to review by the designated board committee no less than annually.

I. Fund Objective: To attain long-term capital appreciation through investments in

internationally-domiciled private real estate debt and equity funds.

II. Fund Performance Benchmark: To be determined.

III. Performance Objective: To be determined.

IV. Investment Strategy: The Fund seeks a favorable long-term rate of return through
investment primarily in internationally-domiciled private real estate debt and equity
funds, but can also invest in funds-of-funds.

V. Eligible investments and limits: International private real estate debt and equity
funds and funds-of-funds.

VI. Active Risk Target: N/A

VII. Eligible Investors: This fund is only available for investment by other Board funds
or plans.

Issued: September 12, 2009 31

 Exhibit Q
Managed Account Program

I. Definition: A managed account program is an algorithmic based methodology for

establishing and monitoring participant investment fund allocations among funds
offered by the Board and included in the program. The algorithm will consider:
participant indicative data, account balances and expected future benefits among
Board plans, present value of future expected Social Security benefits, participant
responses to an optional questionnaire, and other relevant information. The algorithm
produces target fund allocations that represent participants’ ideal allocation to the
appropriate Board funds.

II. Philosophy: For plan balances administered by the managed account program, the
Board will attempt to reasonably match the asset allocation that would be determined
by a qualified investment advisor. This includes setting a higher risk (equity)
allocation for younger participants during their asset accumulation years and
gradually lowering risk allocations as participants approach the de-accumulation
phase of their lives. It also includes evaluating other known assets (including
estimated current value of future social security benefits and employer defined benefit
programs). The managed account program should also consider unique participant
provided inputs such as psychological risk tolerance and future expectations
regarding the form of benefit received (such as annuities). The Board will engage the
services of a qualified external partner/consultant to assist it in developing the
algorithm to be applied against participant accounts.

III. Objective:
A. Develop an asset allocation algorithm that will invest participant balances among
funds representing diversified asset classes offered by the Board.
B. Design the algorithm in a manner that will allow the Board to consider certain
limited types of information unique to each participant to facilitate determination
of the optimal asset allocation for participant balances invested by the managed
account program algorithm.
C. Design the algorithm in a manner that will consider unique participant
information that is not available from data that resides elsewhere on the Board’s
systems but may influence the calculation of the optimal asset allocation (e.g.
psychological risk tolerance).
D. Design the managed account program so that it will periodically evaluate unique
participant data for changes and adjust a participant’s optimal asset allocation
accordingly.
E. Design the managed account program so that it will periodically rebalance
participant accounts in a controlled and cost-effective manner.
F. Design the managed account program in a manner that attempts to adhere to a
long-term investment approach by discouraging frequent changes by participants
to their election of the program or changing information provided by the
participant (e.g. psychological risk tolerance).
G. Periodically evaluate the algorithm to ensure that it reflects best practices for
managing participant account balances.

Issued: September 12, 2009 32

 IV. Quarterly Audits: Each quarter, the Board will evaluate target fund allocations and
actual allocations for all participants enrolled in the managed account program to
ensure that the algorithm is operating as intended.

V. Annual Review: Each year, Board staff will provide the Fiduciary Committee with
information regarding the implementation and operation of the managed account
program so that the committee can evaluate and assess the effectiveness of the
program. This information may include but is not limited to: asset allocation by age
group, investment returns for various asset allocation groupings, trends in participant-
controlled variables (e.g. psychological risk tolerance and expected ages for
converting balances to annuities). Staff will also provide the committee with
information regarding best industry practices and how the program does or does not
conform with industry practice.

Issued: September 12, 2009 33