Approved by the Executive Board March 11, 1995
Revised March 1, 1997 Executive Board
Revised July 8-9, 2004 Executive Board
Revised July 23, 2009 Executive Board
The Invested Funds of the American Association of Law Libraries, hereinafter referred to as the "Fund", is an investment portfolio generated from the net surpluses of the Association in prior years.
The Fund is held as an asset of the Association under the authority of the Executive Board, hereinafter referred to as the "Board" for the express purposes of providing realized investment income to support the programs and services of the Association, to serve as a reserve source of funds in the unforeseen event of a financial catastrophe or deficit, and to build the assets of the Association through reinvestment and capital appreciation.
The Fund shall not contain any assets which may be restricted as regards their investment, appreciation, or disposition.
The Board is responsible for the implementation of and adherence to the policies and objectives of the Fund as set forth in this document.
The Board may retain professional investment management to manage the investments of the Fund and to provide advice and counsel in such matters.
II. INVESTMENT OBJECTIVES
- Rate of Return Objectives: For the portion of assets invested in Equity securities, over the measured period as defined in Paragraph II C, the objective is to realize an annualized return, net of fees, to exceed the GDP Deflator by 1%–3%.
- Cash Income Requirements: The Permanent Investment Fund (PIF) shall be defined as the market value of the fund as certified in the annual audit for the fiscal year ended September 30, 1996 ($1,675,239) plus all compounded annual additions for each succeeding fiscal year which are based on the compounded value of the Fund multiplied by the Gross Domestic Product deflator (GDP) for the twelve months ended each September 30th thereafter.
The Value of the PIF shall be determined annually at the end of each fiscal year as an amount certified in the annual audit of the Association.
Any excess in the market value of the Association's investments greater than the certified value of the PIF, shall be eligible for transfer to the Current Reserve Fund at the discretion of the Board and shall be subject to the policies governing the Current Reserve Fund.
In the event that, at the end of any fiscal year, the market value of the Association's investments does not exceed the PIF, no transfers out shall be permitted.
The PIF as defined above shall not be diminished, except by a three-quarters (9 of 11 members) vote of the Board. (Revised March 1, 1997 Board Meeting Tab # 8 page 2363)
- Measured Period: For purposes of measuring a rate of return over a market cycle, the measured period shall be no less than three nor more than five calendar years.
- Fiduciary Standards: The assets of the Fund are to be invested and managed in accordance with the Total Return Concept without regard to current income versus capital gains and consistent with generally accepted standards of fiduciary responsibility. The safeguards which would guide a prudent investment manager are to be strictly observed. All transactions utilizing assets of the Fund are to be undertaken for the sole benefit of the Fund and the Association.
III. INVESTMENT GUIDELINES
- Permissible Investments: Assets of the Fund may be invested only in publicly-traded common and preferred stocks, convertible bonds, exchange-traded funds, open-end and closed-end mutual funds, and fixed income securities, whether interest bearing or purchased at discount, including money-market instruments, subject to any restrictions hereinafter specified. No other securities or instruments shall be presumed to be permissible investments without an amendment to this Policy.
- Asset Portfolio: The long-term financial requirements of the Association and preference of the Board implies a balanced portfolio of investments. Specifically, the Board intends that the Fund conform to the following asset allocations: Neither Equities (not including Cash Equivalents) nor Fixed Income instruments (not including Guaranteed return instruments), as measured by their market value, shall exceed 67% of the total Portfolio in any calendar quarter.
- Equity Portfolio Characteristics: The assets of the Fund invested in equity securities shall, as a group:
- Have a volatility, or risk level measured as beta not exceeding that of the overall stock market as measured by the S&P 500 Index;
- Reflect a decline in a falling market of a percentage decrease below that of the S&P 500 Index;
- Emphasize high quality stocks, i.e., common and preferred stocks of corporations that have a minimum of ten years of market performance, and a minimum capitalization of $250 million and that have consistently exhibited above average dividend yields;
- Be sufficiently diversified so as to moderate risk but not so excessive as to preclude attainment of optimal results;
- At time of purchase, not exceed 5% of the market value of the total managed portfolio in any one issuer, nor more than 20% within the same industry grouping.
- Fixed Income Portfolio Characteristics: The assets of the Fund invested in fixed income securities shall, as a group:
- Have a weighted average maturity as measured by their market value of between 2 and 10 years;
- Have a maximum maturity of any individual issue of not more than 20 years;
- Have an average portfolio quality as measured by market value of "A" or better as rated by Standard and Poors;
- Have no fixed income security rated at less than "B" grade by Standard & Poors;
- Maintain adequate diversification by issuer and sector except that this requirement shall not apply to instruments of United States government issue or backing which may be held in any amounts within this component of the Fund.
- Foreign Securities: Foreign equity investments shall include only those securities traded on principal United States stock exchanges. Fixed income instruments, in addition to meeting the quality standards previously set forth, shall include only securities denominated in U.S. dollars and registered with the Securities and Exchange Commission.
IV. INVESTMENTS AND TRANSACTIONS WHICH ARE NOT PERMITTED
- Equity Securities: The following are not permissible:
- Stock, common or preferred, in any non-publicly traded corporation;
- Short sales of any kind;
- Letter or restricted stocks;
- Buying or selling on margin.
- Fixed Income Instruments: The following are not permissible:
- Bonds issued by any tax-exempt authority;
- Instruments or other indebtedness which are privately placed and for which there is no public market;
- Corporate instruments rated at below "B" grade by Standard & Poors or an equivalent recognized bond rating agency;
- Commercial paper rated less than A1/P1;
- Master notes, unless the public debt of the issuer is rated at least "BBB" or the equivalent;
- Direct placement of mortgages on real property;
- Letters of Credit guaranteed by the Fund;
- Options or futures contracts of any kind.
V. INVESTMENT MANAGEMENT
- Investment Management: The Board, at its discretion, shall retain the services of one or more professional, licensed, investment managers to implement the policies set forth in this document. The managers will be furnished with, and expected to manage the Fund portfolio in accordance with this policy. The Board will inform the manager of any amendment to the policy. The management fees shall be set forth in a letter of agreement between the Association and the manager(s).
- Manager discretion: Managers retained by the Board will have full discretionary investment authority over that portion of the Fund assets for which they are responsible, subject to the guidelines herein set forth.
- Commingled Funds: Managers retained by the Board may not invest Fund assets in any commingled funds without prior specific approval of the Board, except that this provision shall not apply to money market funds where liquidity and short-term investing are prime considerations.
- Real Estate: The Board reserves the right to invest Fund assets in real property as a participant in commingled real estate funds managed by a bank, insurance company, or other professional real estate investment manager. Authority to make such investments shall be contingent upon an amendment to this policy.
- Securities Trading: All security trades shall be on a best execution basis emphasizing the highest proceeds to the Fund, and the lowest cost, net of all transaction fees and expenses. Placement of orders shall be based on the financial viability of the brokerage firm with the assurance of prompt and efficient execution. The Board reserves the right to require directed brokerage.
VI. REVIEW PROCEDURES
- Review and Amendments: The Board, or its appointed Committee, shall review this policy annually to determine if amendments or modifications are desirable. Amendments, when approved, shall be communicated promptly to all interested parties.
- Management Reporting: Managers retained by the Board are to be present at the annual meeting of the AALL Finance and Budget Committee. They will review the performance of the portfolio within the context of the Investment Policy. Managers are required to provide quarterly written reports regarding portfolio activity, investment strategy, performance, and economic and market analyses. Managers are required to submit a written report to the Board addressing the pertinent factors when the performance criteria set forth in Paragraph D below are not achieved for two consecutive quarters. Managers are also required to inform the Board regarding the investment firm's organization, decision-making process and style as well as any significant changes in the firm's personnel.
- Performance Measurement: The Board will annually review, at its spring meeting, the performance of the Fund and management for the prior calendar year in accordance with the policies and objectives set forth in this document.