TRS Glossary of Investment Terms

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					                                    TRS Glossary of Investment Terms
                                   Investment Policy Statement Adopted July 27, 2007

Accrual class - A CMO class that accrues interest that is not paid to the investor during the time of accrual. The
     accrued interest is added to the remaining principal amount of the bond and is paid at maturity. A Z-bond of a
     CMO is an accrual bond.
ACWI ex-US - See MSCI All Country World ex-US Index.
Agency Agreement – A legal agreement in which the Board grants delegated investment discretion to an external
     investment manager to act as the investment agent of the Board and which requires the agent to invest in
     accordance with the Board’s investment policies and state law subject to the oversight of the Board and the
     investment staff.
Agency mortgage-backed security - A mortgage-backed security issued or guaranteed by Fannie Mae, Freddie Mac,
     or Ginnie Mae.
Alternative assets - Class or classes of investment assets that do not fall in the major conventional asset groups (cash
      equivalents, fixed income investments, and equities). Generally refers to investments in securities and/or assets
      that are not publicly traded, including Private Equity investments, or to special trading strategies involving
      publicly- or institutionally-traded securities.
Application specific risk – The portion of total risk in a derivatives application which is due to factors unique to
     the application as opposed to more systematic, market-related factors. For example, in an option on a specific
     stock, the risk associated with the specific business results of the company which issued the stock underlying
     the option would be application-specific risk, as opposed to the overall risk of the stock market which would
     be Systematic Risk.
Arbitrage - Generally, the simultaneous buying and selling of the same security trading at two different prices in two
      different markets, with the intention of producing profits from the price difference with little or no risk. Perfectly
      efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist. See Convertible
      arbitrage; Fixed income arbitrage; Risk arbitrage.
Asset-backed security - A security supported wholly or mainly by a pool of assets in which the assets are
      separated through use of a trust or other special purpose entity from the credit risk of any entity (other than
      credit enhancers) involved in the financing. The collateral for asset-backed securities may include any asset
      with a relatively predictable payment stream such as commercial bank loans, franchise loans, royalty
      payments, home-equity loans, manufactured housing loans, trade receivables, credit card receivables,
      automobile loans, equipment leases, high yield bonds, subordinated classes of asset-backed securities,
      subordinated classes of mortgage-backed securities, etc.
Asset class - A major investment group; among financial assets the major asset classes are cash equivalents, fixed
      income securities, alternative assets, and equities.
Assets/equity ratio - The total assets of a company divided by the total stockholder equity of the company; a measure
      of financial leverage.
Asset mix - Specifies the percentage of assets in a portfolio invested in each major asset class.
Baseline portfolio – The cash-market based portfolio which will serve as the basis for calculating the relative risk
      level of an equivalent derivatives application.
Benchmark index - An index that measures the performance of a specific group of assets or subgroup of assets.
Basis Point - Equal to 1/100th of 1 percent; 100 basis points equal 1%.
Beta coefficient - Measure of a stock’s volatility relative to that of a specified index. The beta is the covariance of a
      stock in relation to the overall stock market. Any stock with a higher beta is more volatile than the market, and
      any stock with a lower beta can be expected to rise and fall more slowly than the market.
Buyouts (or “corporate restructurings”) - Refers to an investment strategy through which a fund invests sufficient
     sums to acquire some degree of influence and control over existing operating company. Also referred to as
     “going private” or, when debt is incurred, “leveraged buyout.” Financial returns come from (a) improving the
     management, operations, and performance of the company and/or (b) using the acquired company as a platform
     for further acquisitions to increase the company’s profitability through growth in operating scale and market
     position (known as a “buy-and-build” strategy).
Call option - The right to buy shares of a particular security or security index at a predetermined (strike) price over
      some preset time period.
Cash equivalents – Highly liquid and very safe assets which are readily convertible to known amounts of cash.
     For this Policy, cash equivalents include deposits at custodian banks, cash positions of external managers,
     variation margin, treasury bills, money market funds, and other short-term investments. For calculating the
     asset allocation relating to cash holdings, cash equivalents do not include cash in State Treasury, cash on
     hand, and other types of cash or deposits that are primarily used to meet the operating cash needs of TRS or
     short equivalent instruments that are used in conjunction with other financial instruments to alter the funds
     asset allocation or risk profile (e.g., using cash and futures to synthetically replicate a different market
     exposure or using cash and long duration bonds to express a particular yield curve view)..
Cash market - The physical market for a commodity or financial instrument.
Closed-end fund - A type of investment company that invests in the securities of other issuers. Closed-end funds
     have a fixed number of shares outstanding that trade publicly. Closed-end fund shares may trade at either a
     discount from or a premium to their respective underlying net asset values.
Co-investment - In private equity investing, a direct private investment in the same issuer alongside a private
     equity fund or investment vehicle in which the investor has also invested. That is, the investor invests directly
     in the issuer when it may also invest indirectly in the same issuer through the fund or vehicle. Co-investing
     permits the investor to acquire more exposure to the issuer’s business prospects and facilitates the raising of
     needed capital by the issuer.
Collateral – Assets pledged to secure payment of a party’s obligation under a transaction. Collateral is a risk
      reduction tool, which like many other such tools mitigates risk by reducing credit exposure.
Collateralized mortgage obligation (CMO) - A security that directs the total payment of principal and interest of
      the collateral pool (mortgage pass-through securities or pools of such securities) to structure different types
      and maturities of securities with different priority claims. The individual bond classes of a CMO are referred
      to as "tranches." An agency CMO is issued or guaranteed by the Federal National Mortgage Association
      (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or the Government
      National Mortgage Association (“Ginnie Mae”). Agency CMOs are backed by pools of agency pass-through
      securities. A “Private Label CMO” is a CMO issued by a private entity and whose underlying collateral is a
      pool of pass-throughs guaranteed by an agency of the United States or a government-sponsored enterprise.
      See Tranche; Mortgage-backed security.
Commercial mortgage-backed security (CMBS) - A bond or other debt instrument collateralized by loans which
   are secured by commercial real estate.
Commodities - Bulk goods such as grains, metals, and foods traded on a commodities exchange or on the spot
Companion class (support class) - A CMO bond that absorbs the prepayment volatility of bond classes which pay
    according to a principal payment schedule. The companion class provides prepayment protection to other classes

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      (PACs and TACs) as follows: the companions either absorb principal payments in excess of the PAC schedule
      (when prepayments are fast) or they delay in amortizing (when prepayments are slow).
Convertible arbitrage - Convertible bond arbitrage involves buying a fixed income security that is convertible into
     stock while simultaneously selling short the corresponding stock. Pricing inefficiencies between such related
     securities may permit the investor to profit whether the stock price rises or falls because of the cash flows
     involved and the residual investment value of the convertible security. An investment strategy designed to buy
     undervalued instruments that are convertible into equity and then hedge out the market risk through a short sale
     of the equity security or its functional equivalent.
Corporate restructurings - See Buyouts.
Correlation of return or correlation coefficient - A statistical measure, denoted by the letter “r”, ranging from -
     1.0 to +1.0, of the degree to which the returns of two assets are related. Perfect negative correlation (-1.0)
     indicates the returns of two assets move in exact opposite directions, i.e., when one asset’s return is positive,
     the other’s is negative. Perfect positive correlation (+1.0) means that the two assets’ respective returns move
     exactly in the same direction. No correlation (0.0) indicates that the respective returns of two assets fluctuate
Counterparty - The offsetting party in an exchange agreement.
Covariance - A statistical term computed as the correlation between the return of two securities multiplied by the
     standard deviation of returns for each of the securities; a measure of the co-risk of two securities.
Covered option writing (option overwrite) - An option contract backed by the shares underlying the option, i.e.,
     the seller (the writer) of the option owns the underlying shares to deliver to the purchaser in the event the
     option is exercised by the purchaser. A seller of covered options is selling options against owned stock to
     collect premium income. The seller will benefit from the premium income when the stock price remains
     stable or drops.
Debt service - Ongoing expenses associated with maintaining a debt position; the amount of debt service equals the
     sum of interest expenses and noncapitalized lease expenses.
Depositary receipt - A receipt issued by a custodial bank that represents indirect ownership of a certain number of
     shares of a specific foreign-based company held by the bank. American Depositary Receipts, or ADRs, allow
     U.S. investors to buy foreign shares in the U.S. Global Depositary Receipts, or GDRs, are issued and cleared by
     Euromarket depositaries. Global Depositary Receipts are a Euromarket analog of ADRs.
Derivative - Financial product whose value or return is based on, derived from, or linked to the value of a reference
     rate, exchange rate, interest rate, index, or currency or an underlying security, asset, commodity, or any
     combination of underlying rates, indices, currencies or securities.
Derivative application – A definition of the intended use of a derivative-based position such as replication or
     enhancing index returns, asset allocation or completion fund strategies, and various alpha transport strategies.
Derivative application portfolio – The portfolio including derivative instruments, cash equivalents, and other cash
     market assets established to replicate a specified baseline portfolio.
Distressed Securities - Debt or equity securities of an issuer in bankruptcy or perceived by the markets to be near
      bankruptcy or insolvency, frequently as a result of claims made or judgments awarded against the issuer or
      through mismanagement. In such cases, investors may conclude that the market price may not fully reflect
      the intrinsic or realizable value of the enterprise going forward.
Diversification - Spreading a portfolio over many investments to avoid excessive exposure to any one source of risk.
Duration - A measure of the average life of a bond, defined as the weighted average of the times until each
     payment is made, with weights proportional to the present value of the payment.
EBITDA - Earnings before interest, taxes, depreciation and amortization. EBITDA is a commonly used measure
    of the operating cash flow of a company.
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Economic exposure - The total effective exposure of a derivative position. The economic exposure is the product
     of the dollar value of the exposure and the market or systematic risk level of the exposure. A common
     method of measuring economic exposure is with risk management tools such as “value at risk.”
Equity-linked security - A security that tracks the performance of another security or portfolio of securities. An
     equity-linked security sometimes can be used to track the performance of foreign securities in countries for
     which direct investment is difficult.
Equity Market Neutral - A hedge fund strategy that seeks to exploit differences in stock prices by being long and
     short in stocks within the same sector, industry, market capitalization, country, etc. This strategy creates a
     hedge against market factors. To be successful, equity market neutral strategies require frequent portfolio
     rebalancing, liquidity, frequent trading, and effective cost controls.
Event-driven strategies - Strategies where the key deciding factor is some kind of capital market transaction or
Exchange traded derivatives - A derivative instrument traded on an established national or international
     exchange. These instruments “settle” daily in that cash exchanges are made between the exchange clearing
     house and parties to the contracts consistent with the change in price of the instrument. Fulfillment of the
     contract is guaranteed by the exchange on which the instruments are traded. Examples include S&P 500
     Index futures contracts and Goldman Sachs Commodities Index futures contracts.
Exchange-traded fund (ETF) - A basket of securities that trades like an individual stock listed on a public
     exchange. An ETF is analogous to a retail mutual fund, except that the holder sells the shares on the
     exchange instead of redeeming them through the fund, has lower costs and fees, and is passively managed.
     ETFs usually, but not always, trade at a market price approximating the net asset values of the underlying
     securities held by the ETF. Exchange-traded funds track a wide variety of sector-specific, country-specific,
     and broad-market indexes. Common of ETFs include SPDRs and i-shares. See i-shares; SPDRs.
External manager – An investment manager that steps into the shoes of the Investment Staff and the Board for the
     purpose of making investments on behalf of TRS pursuant to delegated authority under an Agency
     Agreement. An external manager assumes fiduciary responsibilities with respect to TRS assets. In contrast,
     the manager of a Hedge Fund or other commingled investment fund is not an “external manager” as to TRS
     and TRS is not a party to the management agreement between a fund and the fund’s investment manager. See
Financial futures contract - An agreement that obligates the buyer to purchase and the seller to sell a specified
     quantity of a particular financial instrument or security (such as U.S. Treasury bonds) on a specified date at a
     specified price. A futures contract is typically standardized (traded on organized exchanges), involves
     depositing margin, and affords the investor the opportunity to avoid actual delivery of the securities through
     an offset or liquidation procedure. Futures are normally used as a price-fixing mechanism for anticipated
     transactions or as a means of profiting from market movements without buying or selling physical securities.
Fixed income arbitrage - A type of arbitrage through which an investor seeks to profit from mis-matches in price and
      yield of fixed income securities. The arbitrage may consist of buying one fixed income security while selling
      another in anticipation of market changes in interest rates. An investment strategy seeking to exploit pricing
      anomalies among fixed income securities. See Arbitrage; Convertible arbitrage.
Floating rate class - A CMO bond class whose coupons reset periodically based on an index and may have a
      cap or a floor. The coupon varies directly with changes in the index. A floating rate class is in contrast to a
      fixed rate class in which the coupon is fixed throughout the life of the bond.
Forward contract - A non-standardized contract for the physical or electronic (through a bookkeeping entry)
    delivery of a commodity or financial instrument at a specified price at some point in the future.
Fund - Refers generically to an investment vehicle that is created as a separate legal entity, frequently a limited
    partnership, for the purpose of conducting and managing a program of investments pursuant to stated
    investment guidelines or objectives. A fund typically has independent management and is not a common-law
    agent of the investors, who are generally passive, although investors in the fund may have certain rights with

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      respect to fund management. Unless an exemption applies, funds are generally required to register as
      investment companies under the Investment Company Act of 1940. See Hedge; External manager.
Fund of funds - An investment vehicle that itself invests in other investment vehicles. For example, a mutual fund
     that invests in other mutual funds would be a “fund of funds.” A fund of funds may be useful as a means of
     providing an investor with an efficient means of employing or blending multiple investment strategies
     through one investment vehicle. Funds of funds may have lower volatility of returns and a correspondingly
     higher predictability of returns as a result of the blending of strategies.
Fundamental analysis - The analysis of financial statements of companies, industry considerations of companies,
    industry consideration, and broad economic and market factors in order to forecast their future stock price
    movements. Fundamental analysts consider past record of assets, earnings, sales, products, management, and
    markets in predicting future trends in these indicators of a company’s success or failure. By appraising a
    firm’s prospects, these analysts assess whether a particular stock or group of stocks is undervalued at the
    current market price.
Futures contract - A standardized contract for either the physical delivery of a commodity or instrument at a
     specified price at some point in the future, or a financial settlement derived from the change in market price
     of the commodity or financial instrument during the term of the contract.
General partner -When used in reference to an investment limited partnership, refers to the partner having general
     personal liability and responsibility for management and conduct of the investing business of the partnership.
     A general partner is frequently an entity affiliated with or created and controlled by a sponsor of the
     investment vehicle or series of investment vehicles. In contrast, a limited partner in an investment limited
     partnership enjoys limited liability for partnership obligations and is not personally liable for the tort
     liabilities or contract obligations incurred by the general partner on behalf of the partnership. However,
     general partners typically seek to limit or reduce their personal liability through risk-allocation provisions in
     the partnership and transaction documents to the extent permitted by applicable law. See Limited
     partnership; Limited partner.
Government-sponsored enterprise (GSE) -An entity that was established and chartered by the federal government to
     facilitate the flow of credit, primarily in the areas of housing, agriculture, and higher education.
Hedge - A term generally used to describe investment strategies other than the conventional long (buy and hold)
     investments in bonds and equity securities. “To hedge” generally means to reduce risk. Hedging strategies may
     employ the use of short sales, arbitrage, options, futures or forward contracts, leverage (margin), or out-of-favor,
     distressed, or undervalued securities, or special situations. Generally, hedging strategies may be expected to
     reduce a portfolio’s total risk by virtue of having a relatively low correlation to the other assets in the portfolio.
     See Arbitrage; Fund; Convertible arbitrage; Risk arbitrage; Special situations.
High-yield debt -Fixed income securities rated below investment grade due to the higher credit risk of the issuer, and
     accordingly the issuer must pay a higher yield to investors to raise capital.
i-shares - A series of exchange-traded funds (ETFs) designed to track the performance of certain domestic and
      international indexes (the international ETFs were formerly known as World Equity Benchmark Shares or
      WEBS). Funds of i-shares are available for all major indexes. The term "i-shares" is a registered trademark of
      Barclays Global Investors, N.A. See Exchange-traded funds (ETFs).
ISDA Netting Agreement - The International Swaps and Derivatives Association (“ISDA”) is the global trade
    association representing participants in the privately negotiated derivatives industry, covering swaps and
    options across all asset classes. ISDA has produced generally accepted “Master Agreements,” a 1992 ISDA
    Master Agreement (Single Currency – Local Jurisdiction) and a 2002 Master Agreement (Multicurrency –
    Cross Border), which all contain a Schedule thereto and may contain a Credit Support Annex attached
    thereto, that are used by most counterparties in OTC derivatives transactions. All ISDA Master Agreements
    entered into by TRS shall require Netting..
Index - A statistical composite that measures the changes in financial markets. A stock market index measures the
     ups and downs of stocks generally, reflecting market prices and the number of shares outstanding for
     companies in the index. See S&P 500 Index.
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Industry sector - For purposes of the diversification requirements for the active domestic stock portfolios, industry
     sectors are defined as the economic sectors in use by S&P for the benchmark indices, the S&P 500, the S&P
     400, and the S&P 600, respectively, as amended from time to time. Currently these industry sectors are as
     follows: Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials,
     Information Technology, Materials, Telecommunication Services, and Utilities.
Interest only strip (IO) - A CMO bond class that receives some or all of the interest from the underlying collateral and
      little or no principal. The IO strip of a CMO can be formed by stripping all or part of the coupon interest from a
      class or by stripping part of the coupon flows from the collateral before dividing it into classes. IOs benefit from
      slowing prepayments.
Internal rate of return (IRR) - The discount rate at which the present value of cash outflows of an investment equal
      the present value of cash inflows from the investment; a commonly used performance measure for private equity
International funds - With respect to the Alternative Assets Portfolio, refers to private or institutional investment
      funds that invest primarily in the securities of issuers domiciled outside of the U.S. and Canada and whose
      primary markets are outside of Canada and the U.S.A. A fund that invests primarily in issuers domiciled in
      Canada will not generally be considered to be in the international funds category.
Inverse floater -A floating rate CMO class whose coupon rate varies inversely with changes in the index.
Investment grade debt - Fixed income securities rated in one of the four highest rating categories (AAA or Aaa, AA
      or Aa, A, and BBB or Baa) by an independent rating agency.
Initial public offering (IPO) - The first sale of stock to the public by a previously private company; that is, a
       primary market equity security offering by a company whose stock is not publicly traded before the offering
Leverage – A condition where the net potential monetary exposure of an obligation exceeds the value of the
     underlying assets, which support the obligation. Leverage is inherent in derivatives since only a small cash
     deposit is required to establish a much larger economic impact position. Thus, relative to the cash markets,
     where in most cases the cash outlay is equal to the value of the asset acquired, derivatives applications offer
     the possibility of establishing substantially larger market risk exposures with the same amount of cash as a
     traditional cash market portfolio. Therefore, risk management and control processes must focus on the total
     risk assumed in a derivatives application, which is the sum of the application-specific risk and the market
     (systematic) risk established by the derivative application.
Leverage or margin - Leverage in investments is a means of attempting to enhance return or value through the use of
     borrowed funds. Buying securities on margin is an example of leverage.
Limited Liability Entity – For purposes of the TRS Investment Policy Statement, a legal entity created as a
     passive investment company, pool or investment fund and which limits the liability of investors to creditors
     of the entity. The constituent documents of such an entity define how capital contributed to the entity by
     investors will be invested by the manager of the entity. The entity, not the passive investors, contracts with an
     investment adviser or asset manager for investment management. Limited liability investors generally have
     no right to control the investment policies or activities of the investment entity. These entities are typically
     organized as limited liability partnerships, limited liability companies, investment trusts, corporations, or
     other entities organized under laws that limit the liability of passive investors to third-party creditors of the
     entity. See Agency Agreement; External Manager.
Limited offering - See Private placement.
Limited partner - Refers to an investor in a limited partnership who receives a limited partnership interest in exchange
     for investment of capital and the investor’s agreement to fund certain partnership obligations.
Limited partnership - A limited liability entity formed under the laws of a particular state to operate a business,
     hold assets, or conduct investment-related activities. A limited partnership must have at least one general
     partner who is responsible for management and operations of the partnership, but may have one or more

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      limited partners whose liability for partnership obligations is limited. An interest in a limited partnership is
      usually, but not always, a security. See General partner; Limited partner.
Long/short strategies - Strategies designed to invest in equity and/or fixed income securities, and combine long
     investments with short sales (using securities borrowed from others for the purpose) to reduce market risk
Margin transaction -      The purchase of an asset using borrowed funds.
Mark-to-Market – A method of determining the value of securities by applying current trading prices of similar or
    identical securities to the securities being valued.
Market capitalization or “cap” - Value of a corporation as determined by the market value of its issued and
    outstanding common stock. It is calculated by multiplying the number of outstanding shares times the
    current market price per share.
Market neutral strategies - Strategies that attempt to exploit pricing inefficiencies between related securities.
    Balancing long and short exposures is intended to reduce the market risk.
Maturity date - The date on which the principal amount of a note, draft, acceptance, bond, or other debt instrument
    becomes due and payable.
Mezzanine financing - Late-stage venture capital, usually one of the final rounds of financing prior to an Initial
    Public Offering. Generally the financing is in the form of unsecured debt provided by merchant banks and
    development capital fund managers to companies that are in a growth phase, but that may not have access to
    equity capital or are unwilling to dilute their existing equity shareholders. Mezzanine financing may also
    have attached warrants, rights or options that allow the lender to participate in equity appreciation, usually in
    connection with an initial public offering. See Initial public offering; Subordinated debt.
MidCap SPDRs - Standard & Poor’s Depositary Receipts that are designed to track the performance of the S&P 400.
    These securities are similar to Standard & Poor’s Depositary Receipts (SPDRs) except that the underlying
    security for the Mid Cap SPDR is the S&P 400, while that for the SPDR is the S&P 500. See Standard & Poor’s
    Depositary Receipts (SPDRs).
Morgan Stanley Capital International (MSCI) Indices - MSCI Indices are used worldwide to measure the
    performance of international securities. Over 3,500 indices are calculated consistently to allow comparisons
    across regions, countries, and industries. MSCI’s consistent approach to index construction is intended to
    ensure the proper representation of the countries' underlying industry distribution and market capitalization,
    and allows investors to accurately compare equity performance across markets, regions, and sectors. The
    consistent construction methodology of the country indices allows for simple aggregation of the country
    indices to form regional indices. The regional indices published by MSCI represent investable areas in both
    developed and emerging markets as determined by global investment managers.
Mortgage-backed security - An obligation that is secured by or represents an interest in residential or commercial
     mortgages that have been assembled in a pool to represent or secure payment of the obligation. Mortgage-backed
     securities may be structured as pass-through securities (an undivided ownership interest in the mortgage loan
     pool securing the securities); pay-through securities (debt obligations which are secured by a pool of mortgage
     loans pledged as collateral); or mortgage-backed bonds (a general obligation of the issuer collateralized on the
     basis of the liquidation value of the property). Mortgage-backed securities may be structured as single class or
     multi-class obligations such as an investment trust pool. See Tranche.
MSCI All Country World Index Free ex-US (ACWIF ex-US) - Equivalent to the EAFE Index plus the MSCI
    Canada country index plus the MSCI Emerging Markets Free Index. See Morgan Stanley Capital International
    (MSCI) Indices.
MSCI EAFE - Formerly the EAFE index: Europe, Australia, Far East Index which is currently based on stock
    performance in the following 21 countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
    Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, U.K., Australia, Hong Kong, Japan, New Zealand,
    and Singapore. This index is maintained by Morgan Stanley Capital International (MSCI) and may change
    occasionally. See Morgan Stanley Capital International (MSCI) Indices.
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MSCI Emerging Markets Free (EMF) - MSCI defines emerging markets generally as those markets that have low
    GDP per capita relative to EAFE markets. Other important factors are considered including local
    government regulations, limits or bans on foreign ownership, adequacy of the regulatory environment, and
    even general perception of the markets risk by the investment community. Free indices reflect the actual
    buyable opportunities, adjusted for local market restrictions on share ownership by foreigners. See Morgan
    Stanley Capital International (MSCI) Indices.
Mutual fund (open-end fund) - A type of investment company that invests in the securities of other issuers. Mutual
    funds have a variable number of shares outstanding that can be purchased and redeemed only through the
    respective funds at net asset value.
Naked call (put) option - See Uncovered call (put) option.
NASDAQ - National Association of Securities Dealers (“NASD”) Automated Quotation (“AQ”) market. The market
    where most domestic over-the-counter (unlisted) securities are traded. The NASDAQ National Market System
    (NMS) is the market that comprises the greatest portion of over-the-counter trading.
National Market System (NMS) - See NASDAQ.
Net asset value (NAV) - The market value of securities held by an investment company minus the amount of
     liabilities; often expressed on a per share basis. See Closed-end fund; Mutual fund.
Netting - The process set forth in the ISDA Master Agreements by which the parties aggregate the amounts owed
      by each of them under all outstanding transactions under such ISDA Master Agreement and replace such
      amount with a single net amount payable by one party to the other party. See ISDA Master Agreement.
New and Emerging Managers - Generally refers to less established general partners of private equity funds
    believed to possess the requisite underwriting disciplines and investment skills to provide top-quartile
    investment returns and, ultimately, develop into direct relationships for the TRS portfolio. New and
    Emerging Managers generally include:
      1.     Newer, independent private equity investment management firms having three (3) or fewer funds under
             management, a performance track record shorter than five years, or both.
      2.     Private equity funds led by a group of individuals who are raising outside, third-party capital for the
             first time. These include:
             •   Established firms with an experienced team and an attributable track record; or
             •   Experienced private equity investors that have left an established firm, as a group, in order to form
                 a new management firm; or
             •   Individuals with prior private equity investment experience, but limited experience working
                 together, who have formed a new management firm; or
             •   Individuals with prior industry or sector experience, e.g., corporate executives or investment
                 bankers, but limited private equity investment experience who form a firm to invest in private
                 equity strategies similar to and consistent with their prior experience.
Non-U.S. Dollar Bonds - Government, supranational, subnational, or corporate debt issued and payable in
    currency other than U.S. Dollars.
Non-agency mortgage-backed security - Any mortgage-backed security, the principal and payment of which are
     not guaranteed by any government agency or government-sponsored entity or enterprise. Also referred to as
     “whole loans,” these loans consist primarily of home mortgage loans that do not meet federal agency
     purchase or pooling criteria, frequently because of their size or underwriting standards.
Notional Value – The value of a derivative's underlying assets at the spot price. In the case of an options or futures
     contract, this is the number of units of an asset underlying the contract, multiplied by the spot price of the
     asset. For example, one S&P 500 Index futures contract obligates the buyer to 250 units of the S&P 500
     Index. If the index is trading at $1,000, then the single futures contract is similar to investing $250,000 (250 x
     $1,000). Therefore, $250,000 is the notional value underlying the futures contract. In the case of a swap, the
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      “notional value” may be the agreed principal amount on which the swap is based, but which neither party is
      obligated to pay to the other.
Option - An instrument that conveys the right but not the obligation to buy or deliver the subject of the contract, which
     may be a financial instrument, at a specified price, at a specified future date. An “American-style option” may
     be exercised on any business day prior to expiration. A European-style option may be exercised only on a
     specified day or days, usually near or on expiration date. Notwithstanding the name, most options listed on
     European exchanges are “American-style.”
Over the counter (OTC) derivatives - A derivative instrument which result from direct negotiation between a
     buyer and a counterparty. The terms of such instruments are non-standard and are the result of specific
     negotiations. Settlement occurs at the negotiated termination date, although the terms may include interim
     cash payments under certain conditions. Examples include currency swaps and forward contracts, interest rate
     swaps, and collars.
Planned amortization class (PAC) - A CMO bond class that has a principal payment schedule which can be
     maintained over a range of prepayment rates. The schedule is based on the minimum amount of principal cash
     flow produced by the collateral at two constant prepayment rates known as the PAC bands. Because a PAC bond
     pays according to a pre-established schedule from segregated cash flows, it protects against prepayment risk
     (reinvestment risk) and weighted average-life volatility associated with prepayments.
Portfolio attributes - Features or characteristics of a portfolio that distinguish the portfolio from the comparative
      benchmark. These portfolio attributes often are identified through the use of quantitative analysis. Common
      attributes include such features as price-earnings ratio, dividend yield, price-to-book ratio, earnings growth
      rate, market capitalization, etc.
Portfolio optimization - Constructing a portfolio in order to achieve the best, or optimal, risk-return profile for a given
Principal-only strip (PO) - A CMO bond class that does not receive any interest. The PO is formed by stripping
      coupon-bearing collateral into interest-only and principal-only segments. Since POs represent a stream of
      principal payments purchased at a discount, POs benefit from faster than expected prepayments.
Private equity investments - Refers generally to private investment transactions between issuers of unregistered
     equity securities such as common and preferred stock, but the term is also used with respect to debt having
     some equity characteristics or that are convertible into equity securities through warrants, rights, options, or a
     conversion feature. By definition, a private equity transaction involves a limited number of qualified
     investors pursuant to a private placement or limited offering by the issuer. Although an issuer may have sold
     other securities to the public pursuant to a public offering, the securities purchased in a private transaction are
     typically not offered to the public and may not be publicly traded in the public securities markets until an
     effective registration occurs under the securities laws (hence, “private”). Because the securities are
     unregistered and transferability is limited, private equity investments tend to be illiquid. Qualified
     institutional investors may invest in private equities directly or through funds such as limited partnerships or
     similar investment vehicles that in turn invest in private equity or equity-like securities that, at the time of the
     investment, are not publicly traded or offered to the public. See Co-investment; Fund; Fund of funds; Initial
     public offering; Limited partnership; Mezzanine financing; Private placement; Subordinated debt.
Private placement (or “limited offering”) - An issue of securities that is exempt under applicable regulations from the
      registration requirements of the Securities Act of 1933 because of the manner in which the offering is made. As
      a general rule, securities sold to the public pursuant to a general solicitation must be registered. The exemption
      from registration for a private placement is available only if requirements under SEC and state regulatory agency
      regulations are met. SEC regulations permit certain limited offerings (in number and type of investors as well as
      dollar value of the issue) of unregistered securities to a limited number of qualified investors. TRS is generally
      considered a “qualified investor” for most purposes because of the investment expertise of its investment staff
      and the size of its assets under investment management.
Put option - The right to sell shares of a particular security or security index at a predetermined (strike) price over
     some preset time period.

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Quantitative analysis - Analysis dealing with measurable factors as distinguished from such qualitative
    considerations as the character of management or the state of employee morale. A valuation methodology
    that relies on the analysis of historical and/or predicted data to identify portfolio attributes that have added
    value to a portfolio over a business cycle. By tilting the composition of the portfolio toward these positive
    attributes, the expected return of the portfolio relative to the return of the benchmark index is enhanced.
R² or r-squared - A statistical measure of how much of a portfolio's performance can be explained by the returns from
      the overall market (or a benchmark index). A measure of how much of a portfolio’s risk characteristics is
      explained by the market (systematic risk). If a portfolio's total return precisely matched that of the overall market
      or benchmark, its r-squared (relative to the chosen variable) is 1. If a portfolio's return bore no relationship to the
      market's returns, its r-squared is 0. In technical terms, the coefficient of determination, which is the square of the
      correlation coefficient between two variables, measures the explanatory power of the regression (i.e., a statistical
      technique for fitting a straight line to a set of charted data points). R-squared measures the percentage of the total
      variation in the dependent variable (i.e., the portfolio) that is explained by the variation in the independent
      variable (i.e., the benchmark index), as shown by the regression line.
Real estate investment trust (REIT) - A publicly-traded company or business trust that invests its equity capital and
      debt in income-producing real estate and/or mortgages and that meets Internal Revenue Code requirements for
      qualification as a REIT.
Repurchase agreement - An agreement (contract) by one party to purchase securities at a specified price from
    another party and a simultaneous agreement by the first party to sell the securities back to the other party at a
    specified price and a specified time or on demand. The resale price includes "interest" on the implicit
    secured loan. A repurchase agreement from the investor's perspective always begins with a purchase of
    securities and ends with a resale.
Residual - The cash flows of a CMO which remain after meeting all debt service, deal structure, and trustee
     expenses. A residual may be retained by the CMO issuer or be sold. The residual may be structured as a
     payment or "no payment" residual.
Return (rate of return) - The sum of current income such as interest or dividends on a security or capital investment
     and the change in the value of that security or capital investment, usually expressed as an annual percentage rate.
Risk - In investing, the measurable possibility of losing or not losing value, particularly in the shorter term. Risk is
      not the same as uncertainty, which is not measurable. Using statistical measures of risk, Modern Portfolio
      Theory attempts to structure a portfolio on the “efficient frontier” so as to produce maximum returns without
      incurring risk that is not commensurate with the expected return. It is impossible to eliminate risk, which is
      inherent in every investment transaction. As a general proposition, a prudent investor who incurs additional risk
      in a single investment expects a higher corresponding return from that investment. A prudent investor may also
      seek to reduce overall portfolio risk through diversification, which might result in higher-risk single investments
      that have a low correlation of market risk with other elements of the portfolio, thereby reducing overall portfolio
Risk arbitrage (or “merger arbitrage”) - Arbitrage that includes the element of risk by virtue of the strategy
     employed, such as when a trader buys the stock of a company being acquired in a merger (expecting an increase
     in value) while simultaneously selling the stock of the acquiring company (expecting a decrease in value). If the
     merger does not occur, significant losses may occur. Risk arbitrage does not have the relatively low-risk
     characteristics associated with buying and selling the same security on two different markets in order to exploit
     immediate price differences (market inefficiency). A strategy seeking to capture the price spread between
     current market prices and the value of securities upon successful completion of a takeover or merger transaction.
     See Arbitrage.
Secondary Investments - Secondary investments (“Secondaries”) refer to the acquisition of existing private equity
     limited partnership interests from investors motivated to sell their positions for liquidity, shifts in investment
     strategy, or other portfolio management objectives. Secondaries provide the investor with an opportunity to
     conduct due diligence on not only the general partner, but also on existing portfolios of portfolio company
     investments. Secondary opportunities may be presented in the form of an individual, “one-off” limited
     partnership interest or in a collective pool of limited partnership interests.
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Sequential pay class - A type of CMO that allocates cash flow sequentially to a series of bonds whereby all initial
     principal amortization and prepayments from the collateral are paid to the shortest maturity class until it is fully
     retired, then to the next shortest class and so on until all classes are paid down, i.e., the bond classes or tranches
     pay down in sequential order with no concurrent pay components. Each regular class receives interest payments
     beginning in month one except for the accrual class. See Accrual class.
S&P 500 Index (S&P 500) - WA recognized standard for measuring large-cap U.S. stock market performance that
    is used extensively by money managers. The S&P 500 includes a representative sample of leading
    companies in leading industries. The S&P 500 is calculated using a market capitalization index
    methodology, meaning the level of the index reflects the total market value of all 500 component stocks
    relative to a particular base period. The index holds each stock in proportion to its total value, or market
    "capitalization," in the stock market. Therefore, if a stock rises in price, its market capitalization rises and its
    share in the S&P 500 increases. Likewise, if a stock price falls, its market value and its weight in the index
S&P MidCap 400 Index (S&P 400) - Similar to the S&P 500 Index and the S&P 600 SmallCap Index, this index
    measures the performance of the mid-size company (generally $250 million to $1 billion capitalization) segment
    of the U.S. equities market. See S&P 500 Index.
S&P SmallCap 600 Index (S&P 600) - Similar to the S&P 500 and the S&P 400, this index measures the
    performance of the small company (generally under $250 million capitalization) segment of the U.S. equities
    market. See S&P 500 Index.
Short sale - The sale of an asset not owned by the seller in order to take advantage of an expected decline in the asset’s
      price or to protect a profit position in an owned asset. For example, in a short sale of stock the investor borrows
      shares of stock from someone who owns them and sells the stock in the market for the current price, hoping to
      repurchase the stock later (to return it to the person from whom the stock was borrowed) at a lower price than the
      price at which the shares were originally sold. The profit or loss on a short sale is the difference between the
      price at which the stock was sold and the price at which it was repurchased.
Soft dollars - Means of paying brokerage firms for their services through commission revenue, rather than through
      direct payments, known as hard-dollar fees.
Special situations - Refers to company-, securities-, market-, or industry-specific strategies designed to exploit mis-
      pricing, corporate financial conditions, or market reactions or misunderstandings in a way that has affected short-
      term values so as to create significant investment opportunities. Targets of a special-situations strategy may
      include companies or securities that are under-researched, involve newly-deregulated industries, are turnaround,
      merger, buyout, or bankruptcy reorganization candidates, or are simply out of favor in the markets.
Spin-off - Form of corporate divestiture that results in a subsidiary or division becoming an independent company. In a
      traditional spin-off, shares in the new entity are distributed to the parent corporation’s shareholders of record on a
      pro rata basis.
Standard & Poor’s Depositary Receipts (SPDRs) - Exchange-traded securities that represent an ownership interest in
     a long-term unit investment trust that holds a portfolio of common stocks designed to track the performance of
     the S&P 500. The market value of a SPDR should approximate 1/10th the value of the underlying S&P 500. A
     SPDR entitles a holder to receive proportionate quarterly cash distributions corresponding to the dividends that
     accrue to the S&P 500 stocks in the underlying portfolio, less trust expenses. See Exchange-traded fund (ETF).
Standard deviation of returns - Statistical measure of the degree to which an individual value in a probability
     distribution tends to vary from the mean (average) of the distribution; a commonly used measure of variability of
Stratified sampling - A common investment technique used in passive portfolio construction and maintenance to
      replicate a portion of the targeted index. The portfolio manager chooses a subset of stocks within the targeted
      index instead of holding each and every stock in its index proportion. The subset of stocks is chosen using an
      optimization technique that takes stock return, risk, and economic sector into consideration. This technique is
      particularly cost and time efficient when there are a large number of stocks with low liquidity in the targeted
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Style - A specific type of investment approach employed to select assets.
Subnational - Any issuer that is a political subdivision of a nation, including provinces, regions, states, and local
     authorities and municipalities, or an enterprise owned by a subnational entity whose debt-servicing capacity is
     directly dependent on or strongly supported by its links to that governmental unit.
Supranational - A multilateral development bank, multilateral lending institution, or European Union institution.
Swap - A contract whereby the parties agree to exchange cash flows of defined investment assets in amounts and
    times specified by the contract.
Systematic risk – The non-diversifiable risks associated with an investment in a particular asset market. For
     example the financial, political, and other risks associated with a portfolio of common stocks are known as
     “market” or systematic risks.
Tactical trading - An investment strategy based upon the prediction of the short- or medium-term direction of market
      prices for various securities.
Targeted amortization class (TAC) - A CMO bond class that repays principal according to a predetermined schedule
     derived by assuming a single constant prepayment rate. Like PACs, TACs provide protection against contraction
     risk, i.e., the risk that prepayments will occur when interest rates decline and force the investor to reinvest the
     cash flow at a lower rate. Unlike PACs, TACs do not protect against extension risk, i.e., the risk that
     prepayments will slow down when interest rates increase, causing the investor to realize less cash flow than could
     otherwise be realized by reinvesting the cash flow at a higher rate.
Technical analysis - Research into the demand and supply for securities and commodities based on trading volume
     and price studies.
Tenor – The agreed term or maturity of a privately-negotiated, over-the-counter derivative instrument.
Tracking error - Tracking error predicts the difference in returns between the managed portfolio and an equal
     investment in the market. Tracking error includes the effect of residual risk (risk not attributable to market
     influence) and market or systematic risk (beta is a measure of market risk).
Tranche - One of a related series of security issues, each with different cash flows, expiration dates, or return patterns,
     created to meet differing investor or issuer requirements or to carve up the returns from a set of underlying cash
     flows, such as from a pool of mortgages, in a marketable way. Different tranches will have different payment
     and market risks. For example, a principal-only tranche has a higher risk of prepayment before stated maturity.
     If market interest rates drop, borrowers generally pre-pay their underlying mortgages in greater numbers, and the
     holder of the tranche may have its investment terminated before maturity. See Collateralized mortgage obligation
     (CMO); Mortgage-backed security; Z bond.
Turnover - The percentage of purchases and sales of securities in a portfolio during a given period of time. The Trust
     Universe Comparison Service (“TUCS”) calculation is as follows:

               (Total purchases + total sales - net additions - income) ÷ beginning market value

Uncovered call (put) option - The purchase or sale of a call (put) option without owning the offsetting long (short)
     position in the underlying security.
Value at risk (VAR) – An established method of measuring economic exposure risk. The measure conveys the
     maximum potential loss (in dollars or percent of total assets) for a particular investment position, for a
     particular period of time, for a particular level of confidence.

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Variability of return - The degree to which an asset’s value fluctuates over time; the beta coefficient and standard
     deviation of returns are commonly used statistical measures of variability of return.
Venture capital - Generally refers to a fund’s investments in relatively small, young companies that develop new
     products, services and processes, primarily in technology-oriented ventures in varying stages of development
     (e.g., seed, early-stage, mid-stage, later-stage). Investments are made in diverse areas of anticipated growth
     such as information technology (hardware and software), internet-related technology, life sciences,
     biotechnology, and medical services.
Very accurately defined maturity class (VADM) - A type of CMO that is derived from the Z-bond accrual, i.e.,
     derives all of its cash flows from the interest accretions of a Z-bond. VADMs protect against extension in
     average life if rates rise and prepayments are lower than expected. VADMs also protect against increases in
     prepayments because the Z-bonds that support them are usually the last classes to begin repaying principal.
     VADMs are also known as “accretion-directed bonds.”
Vintage year - A term used in relation to a fund or investment vehicle and referring to the calendar year in which the
     fund or vehicle had its first capital call.
Warrant - A security entitling the holder to buy a proportionate amount of underlying stock at some specified
    future date at a specified price. A subscription warrant typically has an exercise price higher than the
    current market price of the stock, while subscription rights or rights have an exercise price lower than the
    current market price of the stock. Warrants are most commonly traded as securities whose price is closely
    related to the value of the underlying stock. Issuing companies often bundle their warrants with another class
    of security to enhance the marketability of the other class. Unlike call options, which typically have terms of
    less than one year and are not written by the issuer of the underlying security, warrants usually have terms
    longer than one year. Warrants are usually issued by the corporate issuer of the underlying stock, but may be
    issued by third parties against an underlying stock, basket of stocks or an index of stocks. See Derivative.
Yankee bond - The debt of a foreign issuer denominated in U.S. dollars.
Yield - The current income (dividends or interest) generated by a security expressed as a percentage of the market value
      of the asset; yield is one component of return.
Z-bond - A CMO class (tranche) with a period of interest and principal lockout on which interest accrues, with the
     accrual amount added to the principal balance of the bond. The Z-bond holder begins to receive principal and
     accrued interest after the classes which precede the Z-bond are fully paid down. A Z-bond is also known as
     an accrual bond or accretion bond. See Collateralized mortgage obligation (CMO); Tranche.

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