Exhibit (d)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 12 day of October, 1999, by and between Commonfund
Institutional Funds a Delaware business trust (the "Company"), Commonfund Asset
Management Company, a Delaware Corporation (the "Investment Manager"), and
Wellington Management Company, LLP (the "Sub-Adviser").
WHEREAS, the Company is an open-end, management investment company registered
under the Investment Company Act of 1940, as amended, which may consist of
several series, each having its own investment policies; and
WHEREAS, one of those series is the Commonfund Short Duration Fund (the
"Fund"); and
WHEREAS, the Company has entered into an investment advisory agreement with the
Investment Manager pursuant to which the Investment Manager will act as
investment manager to the Fund; and
WHEREAS, the Investment Manager, acting with the approval of the Company,
wishes to retain the Sub-Adviser to render discretionary investment advisory
services with respect to that portion of the Fund that may be allocated by the
Investment Manager for management by the Sub-Adviser from time to time
(together with all income earned on those assets and all realized and
unrealized capital appreciation related to those assets (collectively, the
"Managed Assets"), and the Sub-Adviser is willing to render such services.
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF SUB-ADVISER. The Sub-Adviser shall manage the investment and
reinvestment of the Managed Assets and determine in its discretion, the
securities and other property to be purchased or sold and the portion of the
Managed Assets to retain in cash. The Sub-Adviser shall review all proxy
solicitation materials and shall exercise any voting rights associated with
securities comprising the Managed Assets in the best interests of the Fund and
its shareholders. The Sub-Adviser shall provide the Investment Manager and the
Company with records concerning the Sub-Adviser's activities that the Company
is required to maintain, and to render regular reports to the Investment
Manager and to the Company concerning the Sub-Adviser's discharge of the
foregoing responsibilities.
The Sub-Adviser shall discharge the foregoing responsibilities subject to the
written instructions and directions of the Company and its Board of Directors
and their agents, including the officers of the Fund and the Investment
Manager, and in compliance with (i) such policies as the Company may from time
to time establish and communicate to the Sub-Adviser, (ii) the objectives,
policies, and limitations for the Fund set forth in the Prospectus and
Statement of Additional Information as those documents may from time to time be
amended or supplemented from time to time and delivered to the Sub-Adviser (the
"Prospectus and Statement of Additional Information"), (iii) the Declaration of
Trust of the Company, and (iv) applicable laws and regulations including the
Investment Company Act of 1940 (the "40 Act") and the Internal Revenue Code of
1986. If a conflict in policies or guidelines referenced herein occurs, the
Prospectus and Statement of Additional Information shall control.
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The Sub-Adviser agrees to perform such duties at its own expense and to provide
the office space, furnishings and equipment and the personnel required by it to
perform the services on the terms and for the compensation provided herein. The
Sub-Adviser will not, however, pay for the cost of securities, commodities, and
other investments (including brokerage commissions and other transaction
charges, if any) purchased or sold for the Fund, nor will the Sub-Adviser bear
any expenses that would result in the Company's inability to qualify as a
regulated investment company under provisions of the Internal Revenue Code.
2. DUTIES OF INVESTMENT MANAGER. The Investment Manager shall continue to have
responsibility for all services to be provided to the Fund pursuant to the
Advisory Agreement between it and the Company and shall oversee and review the
Sub-Adviser's performance under this Agreement.
The Investment Manager shall furnish to the Sub-Adviser current and complete
copies of the Declaration of Trust and By-laws of the Company, and the current
Prospectus and Statement of Additional Information as those documents may be
amended from time to time.
3. CUSTODY, DELIVERY AND RECEIPT OF SECURITIES. The Fund shall designate one or
more custodians to hold the Managed Assets. The custodians, as so designated,
will be responsible for the custody, receipt and delivery of securities and
other assets of the Fund including the Managed Assets, and the Sub-Adviser shall
have no authority, responsibility or obligation with respect to the custody,
receipt or delivery of securities or other assets of the Fund including the
Managed Assets. In the event that any cash or securities of the Fund are
delivered to the Sub-Adviser, it will promptly deliver the same over to the
custodian for the benefit of and in the name of the Fund.
Unless otherwise required by local custom, all securities transactions for the
Managed Assets will be consummated by payment to or delivery by the Fund of cash
or securities due to or from the Managed Assets.
Repurchase agreements including tri-party repurchase agreements and other
trading agreements may be entered into by the Fund acting through designated
officers or agents; custodians under tri-party repurchase agreements will act as
sub-custodians of the Fund.
4. PORTFOLIO TRANSACTIONS.
(a) Selection of Brokers. The Sub-Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities and
other property for the Fund in a manner that implements the policy with respect
to brokerage set forth in the Prospectus and Statement of Additional Information
for the Fund or as the Board of Directors or the Investment Manager may direct
from time to time and conformity with federal securities laws.
In executing Fund transactions and selecting brokers or dealers, the Sub-Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any transaction,
the Sub-Adviser shall consider all factors that it deems relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In evaluating the best overall terms available, and in
selecting the broker-dealer to execute a particular transaction, the Sub-Adviser
may also consider the brokerage and research services provided (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent
with any
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guidelines established by the Board of Directors and communicated to the
Sub-Adviser, the Sub-Adviser is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund that is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if,
but only if, the Sub-Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer viewed in terms of that particular transaction
or terms of the overall responsibilities of the Sub-Adviser to the Fund. In
addition, the Sub-Adviser is authorized to allocate purchase and sale orders for
securities to brokers or dealers (including brokers and dealers that are
affiliated with the Investment Manager, Sub-Adviser or the Company's principal
underwriter) to take into account the sale of shares of the Company if the
Sub-Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified firms. In no instance,
however, will Fund assets be purchased from or sold to the Investment Manager,
Sub-Adviser, the Company's principal underwriter, or any affiliated person of
either the Company, the Investment Manager or the principal underwriter, acting
as principal in the transaction, except to the extent permitted by the
Securities and Exchange Commission ("SEC") and the 1940 Act.
b) Aggregating Orders. The Fund agrees that Sub-Adviser may aggregate orders for
purchase or sale of Managed Assets with similar orders being made concurrently
for other accounts managed by Sub-Adviser, if, in Sub-Adviser's reasonable
judgment, such aggregation shall result in an overall economic benefit to the
Fund, taking into consideration the transaction price, brokerage commission and
other expenses. The Fund acknowledges that the determination of such economic
benefit to the Fund by Sub-Adviser may represent Sub-Adviser's evaluation that
the Fund is benefited by relatively better purchase or sales prices, lower
commission expenses and beneficial timing of transactions or a combination of
these and other factors. In any single transaction in which purchases and/or
sales of securities of any issuer for the account of the Fund are aggregated
with other accounts managed by Sub-Adviser, the actual prices applicable to the
transaction will be averaged among the accounts for which the transaction is
effected, including the account of Fund.
5. COMPENSATION OF THE SUB-ADVISER. For the services to be rendered by the
Sub-Adviser under this Agreement, the Investment Manager shall pay to the
Sub-Adviser compensation at the rate specified in Schedule 1 as it may be
amended from time to time. Such compensation shall be paid at the times and on
the terms set forth in Schedule 1. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretations), the
Sub-Adviser may, in its discretion and from time to time, waive a portion of its
fee.
6. OTHER EXPENSES. The Company shall pay all expenses relating to mailing
prospectuses, statements of additional information, proxy solicitation material
and shareholder reports to shareholders.
7. REPORTS.
(i) The Company and the Sub-Adviser agree to furnish to each other, current
prospectuses, proxy statements, reports to shareholders, certified copies of
financial statements, and such other information with regard to their affairs as
each may reasonably request. The Investment Manager
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will furnish to the Sub-Adviser advertising and sales literature or other
material prepared for distribution to Fund shareholders or the public, which
refer to the Sub-Adviser or its clients in any way, prior to the use thereof,
and the Investment Manager shall not use any such materials if the Sub-Adviser
reasonably objects in writing within ten (10) business days (or such other time
as may be mutually agreed) after receipt thereof.
(ii) The Sub-Adviser shall provide to the Fund's custodian, on each business
day, information relating to all transactions in the Managed Assets and shall
provide such information to the Investment Manager upon request. The Sub-Adviser
will make aIl reasonable efforts to notify the Custodian of all orders to
brokers for the Managed Assets by 9:00 am EST on the day following the trade
date and will affirm the trade to the Custodian before the close of business one
business day after the trade date (T + 1).
(iii) The Sub-Adviser will promptly communicate to the Investment Manager and to
the Company such information relating to portfolio transactions as they may
reasonably request.
(iv) The Sub-Adviser shall promptly notify the Company and the Investment
Manager of any financial condition likely to impair the ability of the
Sub-Adviser to fulfill its commitments under this Agreement.
8. STATUS OF SUB-ADVISER. The Sub-Adviser is and will continue to be registered
as such under the federal Investment Advisers Act of 1940. The services of the
Sub-Adviser to the Company for the Fund are not to be deemed exclusive, and the
Sub-Adviser shall be free to render similar services to others so long as its
services to the Fund are not impaired thereby. The Sub-Adviser shall be deemed
to be an independent contractor and shall, unless otherwise expressly provided
on authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
9. CERTAIN RECORDS. The Sub-Adviser shall maintain all books and records with
respect to transactions involving the Managed Assets required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-I under the
1940 Act. The Sub-Adviser shall provide to the Investment Manager or the Board
of Directors such periodic and special reports, balance sheets or financial
information, and such other information with regard to its affairs as the
Investment Manager or the Board of Directors may reasonably request.
The Sub-Adviser shall keep the books and records relating to the Managed Assets
required to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Investment Manager all information relating to the
Sub-Advisers services under this Agreement needed by the Investment Manager to
keep the other books and records of the Fund required by Rule 31a-1 under the
1940 Act. The Sub-Adviser shall also furnish to the Investment Manager any other
information relating to the Managed Assets that is required to be filed by the
Investment Manager or the Trust with the SEC or sent to shareholders under the
1940 Act (including the rules adopted thereunder) or any exemptive or other
relief that the Investment Manager or the Trust obtains from the SEC. The
Sub-Adviser agrees that all records that it maintains on behalf of the Fund are
property of the Fund and the Sub-Adviser will surrender promptly to the Fund any
of such records upon the Fund's request; provided, however, that the Sub-Adviser
may retain a copy of such records. In addition, for the duration of this
Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any such records as are required to be maintained by it
pursuant to this Agreement, and shall transfer said records to any successor
sub-adviser upon the termination of this Agreement (or, if there is no successor
sub-adviser, to the Investment Manager).
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10. LIMITATION OF LIABILITY OF SUB-ADVISER. The duties of the Sub-Adviser shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Sub-Adviser hereunder. The Sub-Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in carrying out its
duties hereunder, except a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law or Federal securities law
which cannot be waived or modified hereby. (As used in this Paragraph 9, the
term "Sub-Adviser" shall include directors, officers, employees and other
corporate agents of the Sub-Adviser as well as that entity itself).
11. PERMISSIBLE INTERESTS. Agents and shareholders of the Company may be
interested in the Sub-Adviser (or any successor thereof) as directors, partners,
officers, or shareholders, or otherwise; directors, partners, officers, agents,
and shareholders of the Sub-Adviser are or may be interested in the Company as
shareholders or otherwise; and the Sub-Adviser (or any successor) is or may be
interested in the Company as a shareholder or otherwise. In addition, brokerage
transactions for the Company may be effected through affiliates of the
Sub-Adviser if approved by the Board of Directors of the Company subject to the
rules and regulations of the Securities and Exchange Commission.
12. DURATION AND TERMINATION. This Agreement shall be come effective upon its
approval by the Board of Directors of the Company and by a vote of the majority
of the outstanding voting securities of the Fund. This Agreement shall remain in
effect until two years from date of execution, and thereafter, for periods of
one year so long as such continuance thereafter is specifically approved at
least annually by the vote of a (a) majority of those Directors of the Company
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Directors of the Company, or by the vote of a majority of the
outstanding voting securities of the Fund; provided, however, that if the
shareholders of the Fund fail to approve the Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules and regulations
thereunder. The foregoing requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Directors of the Company or by vote of a
majority of the outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to the Sub-Adviser, by the Investment
Manager at any time without the payment of a penalty upon 90 days written notice
to the Sub-Adviser, or by the Sub-Adviser at any time without the payment of any
penalty on 90 days written notice to the Investment Manager. This Agreement will
automatically and immediately terminate in the event of its assignment or in the
event of the termination of the Investment Manager's advisory agreement with the
Company. Any termination of this Agreement in accordance with the terms hereof
will not affect the obligations or liabilities accrued prior to termination. Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postpaid, to the other party at any office of such party.
As used in this Section 12, the terms "assignment", "interested persons," and a
"vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the
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1940 Act and the rules and regulations thereunder; subject to such exceptions as
may be granted by the SEC under said Act.
13. NOTICE. Any notice required or permitted to be given by either party to the
other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice. At the
outset, such notices shall be delivered to the following addresses:
if to the Company, c/o Commonfund Asset Management Company, 000 Xxxx Xxxx Xxxx,
Xxxxxxxx, XX. attn: President, if to the Investment Manager, at the foregoing
address, and if to the Sub-Adviser at Wellington Management Company, LLP 00
Xxxxx Xxxxxx, Xxxxxx, XX 00000, attn: Regulatory Affairs.
14. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
15. GOVERNING LAW. This Agreement shall be construed in accordance with the laws
of the State of New York and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
16. MISCELLANEOUS. This instrument constitutes the sole and only agreement of
the parties to it relating to its object; any prior agreements, promises or
representations not expressly set forth in this Agreement are of no force and
effect. No waiver or modification of this Agreement shall be effective unless
reduced to writing and signed by the party to be charged. No failure to exercise
and no delay in exercising on the part of any party hereto of any right, remedy,
power or privilege hereunder shall operate as a waiver thereof. Except as set
forth in Section 12, this Agreement binds and inures to the benefit of parties,
their successors and assigns. This Agreement may be executed in more than one
counterpart each of which shall be deemed an original and both of which, taken
together, shall be deemed to constitute one and the same instrument. A copy of
the Declaration of Trust of the Company is on file with the Secretary of State
of the State of Delaware and notice is hereby given that the obligations under
this instrument are not binding on any of the Directors, officers or
shareholders of the Company. Where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is altered by rule, regulation or
order of the SEC, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
COMMONFUND INSTITUTIONAL FUNDS
By: /s/Xxxxxx X. Xxxx
Attest: /s/ Xxxx X. Xxxxxxxxxxx
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COMMONFUND ASSET MANAGEMENT COMPANY
By: /s/ Xxxx X. Xxxxxx
Attest: /s/ Xxxx X. Xxxxxxxxxxx
WELLINGTON MANAGEMENT COMPANY, LLP
By: /s/ Duncan M. McFarbre
Attest: /s/ Xxxxxxxxx X. Xxxxxx
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SCHEDULE 1
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
DATED OCTOBER 12, 1999
AMONG
Commonfund Institutional Funds
Commonfund Asset Management Company
AND
WELLINGTON MANAGEMENT COMPANY
FEES
Daily Accrual
FEES SHALL BE ACCRUED EACH DAY BY APPLYING TO THE NET ASSET VALUE OF THE MANAGED
ASSETS AT THE END OF THAT DAY, THE DAILY RATE, USING A 365 DAY YEAR, EQUIVALENT
TO THE FOLLOWING:
Rate
Managed Assets($) (% Per Annum)
----------------- -------------
First $ 100 million 0.10%
Next $ 100 million 0.075%
Over $ 200 million 0.055%
Quarterly Payment
Fees shall be paid within 30 days following the end of each calendar quarter.
COMMONFUND ASSET WELLINGTON MANAGEMENT
MANAGEMENT COMPANY COMPANY, LLP
By: /s/ Xxxx X. Xxxxxx By: /s/ Duncan M. McFarbre
------------------------- -------------------------
Name: Name:
Title: Title:
Date of this Schedule 1: October 12, 1999
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SCHEDULE 1
Investment Restrictions
The following investment restrictions shall in every case be binding on
the Sub-Adviser unless otherwise agreed by prior written consent of Commonfund
Asset Management Company.
The restrictions shall not be construed to permit investments or
transactions that do not fall within the Investment Program set forth in the
Prospectus and Statement of Additional Information.
A. Eligible Investments
Investments must be of the following type:
1. Obligations of, or fully guaranteed as to both principal and interest by, the
United States of America.
2. Obligations of, or fully guaranteed as to both principal and interest by, the
following agencies and organizations:
a.) Federal Home Loan Banks
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
b.) Asian Development Bank
Export-Import Bank
Federal Farm Credit Bank
Inter-American Development Bank
International Bank for Reconstruction and Development
Student Loan Marketing Association
Tennessee Valley Authority
3. Obligations of commercial banks and bank holding companies, corporations, or
other institutions, wherever organized provided that all such shall be subject
to the provisions of paragraphs A.6 and A.7 below.
4. Obligations of any entities other than those specified in paragraphs A.1
through A.3 above, including mortgage pass-through, asset-backed securities,
Collateralized Mortgage Obligations (C.M.O.'s) or Real Estate Mortgage
Investment Conduits (R.E.M.I.C's); provided that all obligations described in
this paragraph A.4 shall be further subject to the provision of paragraph A.6
below.
5. Repurchase agreements with banks or broker/dealers subject to the provisions
of paragraph D below.
6. The credit ratings applicable to all issues purchased under paragraphs A.3,
A.4, and A.5 above shall be equal to or better than the following ratings of
these sources:
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Duff & Xxxxxx, Inc.: DP-1/A-
Fitch/IBCA: F-1/A-
Xxxxx'x Investors Service: X-0(XXXX-0, XXX-0)/X0
Standard & Poor's Corporation: A-1/A-
Thomson BankWatch: TBW1/A-
Two approved rating agencies' ratings must be used in determining eligibility;
at least one of the rating services shall be Fitch, Moody's, Standard & Poor's
or Thomson BankWatch. In the event of a split rating, Standard & Poor's or
Moody's minimum of A-1/P-1 is to be observed. For securities with legal final
maturities of one year or less, the short term ratings of the underlying credit
may be used as a proxy for measuring the credit requirement.
Downgraded Securities: Securities that fall below minimum credit quality after
acquisition need not be sold in distress but shall be held for a time determined
by the Sub-Adviser in its discretion to permit sale on commercially reasonable
terms.
7. Obligations in the above categories may be either fixed rate or floating
rate. All obligations must be payable in United States Dollars.
B. Ineligible Investments and Investment Practices
Securities not itemized in paragraph A above are not eligible for investment.
Without limiting the generality of this restriction, the following may not be
purchased:
1. Securities that require leveraging of the Managed Assets, i.e., reverse
repurchase agreements and dollar rolls.
2. Securities that exhibit extreme volatility or illiquidity, such as inverse
floaters and mortgage-backed interest-only or principal-only strips.
3. Swap agreements
C. Diversification
1. Obligations specified in paragraph A.1 above may be held without limit.
2. No more than 25% of the Managed Assets, measured at the time of purchase, may
be invested in the securities issued or guaranteed by any one of the agencies or
organizations specified in paragraph A.2 (a) above. No more than 5% of the
Managed Assets, measured at the time of purchase, may be invested in the
securities issued or guaranteed by any one of the agencies or organizations
specified in paragraph A.2 (b) above. These limits apply in the aggregate to
agency debt and guarantees of pass-throughs issued by an agency or organization.
These limits do not apply to debt or pass throughs that collateralize repurchase
agreements.
3. No more than 5% of the Managed Assets, measured at the time of purchase, may
be invested in obligations of any one issuer, except in the case of securities
specified in paragraphs A.1 through A.2 above.
4. No more than 5% of the Managed Assets, measured at the time of a transaction,
may be committed to repurchase agreements with any single counterparty except
for repurchase agreements collateralized with securities issued or guaranteed by
the U.S. Treasury or its agencies. No more than 10% of the Managed Assets,
measured at the time of a transaction may be committed to repurchase agreements
with any single counterparty collateralized with securities issued or guaranteed
by the U.S. Treasury or its agencies.
5. No more than 50% of the Managed Assets, measured at the time of purchase, may
be committed to repurchase agreements.
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6. No more than 50% of the Managed Assets, measured at the time of purchase, may
be committed to tri-party repurchase agreements.
7. No more than 50% of the Managed Assets, measured at the time of purchase, may
be invested in floating-rate obligations with final maturities in excess of one
year; in the case of floating rate asset backed or mortgage backed securities,
final maturity shall be deemed to be average remaining life.
8. No more than 25% of the Managed Assets, measured at the time of purchase, may
be invested in Collaterized Mortgage Obligations (C.M.O.s) or Real Estate
Mortgage Investment Conduits (R.E.M.l.C.s).
D. Repurchase Agreements
1. Repurchase agreements shall be in writing. Repurchase agreements are
investments of cash by the fund and hence result in the holding of securities as
assets of the Fund subject to resale. 2. Repurchase agreements shall be
collaterized in each instance by securities otherwise eligible for investment
subject to the limitation on final maturity specified in paragraph E.1 below
having an initial market value at least equal to 102% of the amount invested in
the repurchase agreement, including accrued interest. The securities which are
the subject of each repurchase agreement must be delivered to the custodian for
the Fund either physically or in book-entry form and must be marked-to-market
daily to ensure that each repurchase agreement is fully collateralized.
E. Maturity
The annualized monthly variability of the actual total return on the Managed
Assets should be in the range of the variability of total returns on three-month
securities and never to exceed the variability of total returns on one-year
securities. The investment risk of the Managed Assets, as indicated by the
effective duration of the Managed Assets, shall always be within the range of
one day to one year.
1. The final maturity of any single investment shall be no more than 5.5 years
except in the case of securities identified in E.2 below.
2. The effective duration of C.M.O.'s, R.E.M.l.C.'s, mortgage backed and
asset-backed securities should not exceed 5.5 years. In the case of floating
rate securities the time until the next coupon reset shall not exceed 5.5 years.
The estimated volatility of any of the securities identified in this paragraph
E.2 shall not at any time exceed the volatility of a Treasury security with a
maturity of 5.5 years as measured by its effective duration.
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