Docstoc

Custody Services RFP

Document Sample
Custody Services RFP Powered By Docstoc
					                 Global Custody and Securities Lending
                          RFP Questionnaire
                                  - Submitted by -
                                Korte Consulting



Request for Proposal
State of Oregon, Office of the State Treasurer
July 14th, 2011

Issue Date: Thursday, July 14, 2011

Notice of Intent to Bid: Wednesday, July 20, 2011

Protest of Mandatory or Contractual Requirements Due: Thursday, July 21 2011

Written Questions Due: Tuesday, July 26, 2011

Q&A Responses Delivered: Thursday, August 4, 2011

Submission Deadline: Thursday, August 18, 2011, electronic and hard copies

Formal Follow-up Notification provided by: September 15, 2011
Designated Contacts

Oregon State Treasury:   Michael Mueller, CFA, CPA
                         Deputy Chief Investment Officer
                         Oregon State Treasury--Tigard Office
                         971-673-2800
                         Mike.Mueller@ost.state.or.us

                         Andrea S. Belz, CPA, CISA, CIDA
                         Controller
                         Oregon State Treasury
                         (503) 378-2752
                         Andrea.Belz@ost.state.or.us


Consultant Contacts:     Greg Korte
                         President, CEO
                         Korte & Associates Consulting
                         5118 104th Ave. Ct. Nw.
                         Gig Harbor WA, 98335
                         253-265-8949
                         gk@korteconsultants.com


                         Jeff Kearny
                         Managing Director, Consulting
                         Korte & Associates Consulting
                         1820 North Harrison Blvd
                         Boise, ID 83702
                         208-954-9696
                         jeff.kearny@korteconsultants.com




                                                                2
                                OREGON STATE TREASURY
                                 REQUEST FOR PROPOSALS
                        GLOBAL MASTER CUSTODY & LENDING SERVICES

                                                  TABLE OF CONTENTS
SECTION I: INTRODUCTION
          Purpose ........................................................................................................................ 4
          Background ................................................................................................................. 4
          OST Investments ......................................................................................................... 5
          Services Requested ...................................................................................................... 6

SECTION II: STATEMENT OF WORK
          Scope of Work ............................................................................................................. 8
          Services to be Provided ............................................................................................... 8
          Project Organization and Contract Management ...................................................... 18

SECTION III: OFFEROR QUALIFICATIONS
          Minimum Qualifications ........................................................................................... 19

SECTION IV: GENERAL INFORMATION
          Definitions ................................................................................................................. 20
          Compensation and Payment ...................................................................................... 20
          Expected Time Period for Contract .......................................................................... 20

SECTION V: PROPOSAL PREPARATION AND EVALUATION
          Introduction ............................................................................................................... 21
          Timeline..................................................................................................................... 21
          General Proposal Information ................................................................................... 21

SECTION VI: CONTRACTUAL PROVISIONS/GENERAL TERMS AND CONDITIONS
          Table of Contents ...................................................................................................... 29

APPENDIX I          QUESTIONNAIRE
APPENDIX II         SECURITIES LENDING QUESTIONNAIRE
APPENDIX III        PRICING MATRIX
                    PROVIDED IN SEPARATE ELECTRONIC WORKSHEET FORMATS

EXHIBIT “A”         OST INVESTMENT FUND OVERVIEW AND PERFORMANCE
EXHIBIT “B”         GOVERNANCE POLICY DOCUMENTS




                                                                                                                                               3
                                           SECTION I
                                         INTRODUCTION

PURPOSE

The Oregon State Treasury (“Treasury” or “OST”) is seeking a qualified firm to provide master
custodial services for safekeeping, delivery, securities valuation, investment performance reporting,
securities lending and other specified services. This document will provide a prospective offeror with
the information necessary to assess the ability of their organization to meet the needs of the OST in
providing master custody services.

BACKGROUND

The Oregon State Treasurer is a constitutional officer and a statewide elected official. The Treasurer
serves as the chief investment officer for the state and is responsible for the prudent financial
management of state and some local government and public trust fund moneys.

OST’s mission is to provide financial stewardship for Oregon. Over the years, OST has developed
into a highly sophisticated organization with a wide range of financial responsibilities, including:
managing the state’s investments, issuing all state debt, and serving as the central bank for state
agencies. OST is managed like a business, striving to save taxpayers’ money and earning the highest
risk adjusted return on funds’ investments. The OST’s Investment Division is responsible for the
prudent investment of all state funds, with a mission of generating the highest returns prudently
possible for the various fund beneficiaries.

OST currently provides investment management and reporting services for the Oregon Public
Employees Retirement Fund (OPERF), the State Accident Insurance Fund (SAIF), the Department of
State Lands’ Common School Fund (CSF), the Oregon Short Term Fund (OSTF) and numerous
smaller funds. OST manages approximately 18 separate agency investment funds. As of December
31, 2010, the market value of the combined portfolio was approximately $74 billion, however, not all
of these are custody assets (e.g., commingled funds, private equity, and real estate). OPERF comprises
approximately 77% of the total, or $56.7 billion. As of December 31, 2010, total custodied assets
were approximately $55 billion. See Exhibit A for details, as of December 31, 2010.

OST currently utilizes the services of State Street Bank and Trust for the custody of all marketable
securities and for all securities lending. OST retained State Street in 1997 after having simultaneous
relationships with three different custodians.




                                                                                                     4
OST INVESTMENTS

Pursuant to statute and Oregon Investment Council (“Council” or “OIC”) policy, OST currently
invests in the following: OST Bills, discount notes, repurchase agreements, reverse repurchase
agreements, banker’s acceptances, commercial paper, U.S. Government and Agency securities, non-
dollar bonds, corporate bonds, publicly traded mortgage-backed securities, asset-backed securities,
privately placed mortgages, private placements of corporate debt, U.S. and foreign common stock,
U.S. preferred stock, convertible securities, bank loans, mutual funds, exchange traded funds and
commingled vehicles, private equity, real estate and derivative securities including futures contracts,
options, forward contracts, and swap transactions.

OST has an established asset allocation policy for OPERF, as follows:

                OPERF                             Target

 Domestic Equity                                   24%
 International Equity                              19%
 Private Equity                                    16%
 Total Equity                                      59%

 Total Fixed                                       25%

 Real Estate                                       11%

 Alternatives                                       5%

 Cash                                               0%

 TOTAL OPERF                                      100%


   OPERF retains approximately 20 domestic equity managers, 22 international equity managers
   (including six dedicated to emerging markets), and four core-plus fixed income managers and two
   high-yield and bank loan managers. Real estate and alternative investments are invested through
   corporate and partnership structures and/or through the use of advisors. A total of five managers
   invest in public REITS. OST currently manages short-term fund investments (approximately $11
   billion) internally.

   A detailed listing of current OST investments and funds is included in Exhibit A: “Oregon State
   Treasury Roster of Managers (12/31/2010)”. Additional information about OST and the
   Investment Division can be found on the internet at: www.ost.state.or.us/. Treasury makes no
   assurances that future amounts invested and the types of investment will not change and be
   materially different from those described in this RFP.




                                                                                                     5
SERVICES REQUESTED

It is the intention of OST to select a Master Custodian from proposals submitted in response to this
RFP by qualified firms to provide the following:

A. Domestic and International Custody and Record Keeping

   Provide master custodial services for all assets of OST, including international and global
   portfolios. The master custodian will provide consolidated accounting and reporting for all
   assets, including assets processed by any other custodians (e.g., investments in commingled
   funds) or sub-custodians and non-custodial assets (e.g., real estate, alternative investments,
   mortgages, etc. on a line-item basis) in formats requested by OST. Such information shall also
   be able to be provided in a format that can support data extracts to external data warehouse,
   trading, and compliance systems (e.g., Bloomberg, Charles River).

B. Securities Lending Investment Management

   This RFP also includes a request for securities lending services, including cash collateral
   reinvestment. As a result of the securities lending responses, the custodian selected may also be
   selected to lend securities on behalf of OST. Alternatively, other securities lending agent(s) (a
   maximum of two) may be selected by OST. Custodians may also submit bids for securities
   lending as a stand-alone proposal. The Master Custodian proposals will be evaluated in
   conjunction with the Securities Lending proposals to determine the best overall solution for
   OST.

   If selected, the custodian (or lending agent(s)) will perform securities lending investment
   management functions, including, but not limited to: the lending of securities, receiving of
   collateral, accounting, reporting, and reinvestment of cash collateral within the terms of a
   separate contractual agreement with OST.

C. Performance Measurement and Analytics

   The custodian will be required to provide comprehensive performance measurement, analytics,
   and a compliance reporting and monitoring system for custodied, sub-custodied and/or non-
   custodied assets. Non-custodied assets will be reported only on a line-item basis by the
   custodian, with detailed data and performance measurement being maintained and supplied by
   various advisors and consultants. However, the custodian may provide a response relative to
   their ability to provide accounting and reporting for the non-custodial assets (i.e., private equity
   and real estate).

D. Agent Lending Coordination

   Up to two securities lending agent may be selected to provide securities lending services in
   addition to, or instead of, the custodian. In this situation, the custodian will be required to
   coordinate all securities lending activities related to the third party lending agent including, but
   not limited to: trade settlement, custody of loaned assets and collateral received and reinvested,
   delivery of securities, marking of collateral, accounting, and reporting for all agent lenders


                                                                                                     6
   under contract with OST. This service should be considered part of basic “Custodial Services”
   when submitting fee proposals.

E. Cash Management

   The custodian will provide a daily sweep of net cash flows, by account, to the custodian’s
   short-term investment fund or external short-term investment fund(s), as directed by OST.

F. Transition Management

   The custodian must be able to provide investment manager transition services, including
   assistance to OST staff responsible for managing transitions internally. However, transition
   management services are NOT being requested at this time.

G. Investment Guideline Compliance Monitoring

   The custodian must be able to provide investment guideline compliance monitoring services.




                                                                                                7
                                                           SECTION II

                                                  STATEMENT OF WORK

    SCOPE OF WORK

    The selected financial institution will provide full master custody services for OST. In addition, the
    financial institution will be required to manage and/or support OST’s securities lending
    program(s). The custodian shall furnish all services, materials and personnel necessary to provide
    custody services in compliance with those professional and fiduciary standards established as
    reasonable and customary by the industry for similar services. In the provision of custodial bank
    services, the custodian shall conform to all applicable local, state and federal laws, rules and
    regulations governing such services.

    It is anticipated that future developments in custody services will include additional interpretation
    of data, analysis of performance and style attribution, and a move toward consulting to add value
    for clients. OST expects its custodian to stay abreast of, and lead in, industry trends.

    Those items noted in this Section II below, represent those requirements that must be
    satisfactorily met (as determined by the evaluation committee) by the offeror in order to be
    considered a responsive bid.

    SERVICES TO BE PROVIDED

    I.       Services to be Provided

           The Custodian will provide, at a minimum1, the following for the OST:

              A. Accounting and Auditing

                  1.    Trade date accounting for all securities and full accrual accounting for all assets.

                  2.    Accounting services for all investments in the OST portfolio including, but not
                        limited to the following:

                            a) All income and security transactions (cash and non-cash); domestic and
                               international equity, fixed-income securities, commingled trusts, securities-
                               lending income, and tax receivables;

                            b) Capital changes, including mergers, acquisitions, tenders, stock splits,
                               warrants, and spin-offs;

                            c)     Options, futures, swaps, and any other derivative instruments;



1 Other services which might be brought to the attention of the OST during this procurement process may be set forth in the
resulting contract with the successful offeror in addition to those set forth here. The negotiated fee for such services, if any,
will be incorporated into the final contract.


                                                                                                                                    8
        d)    Leveraged buy-outs, venture capital, real estate, and various other private
              equity and debt investments; and,

        e)    Forward exchange contracts.

3.   Accounting will be on a fiscal year basis, July 1 to June 30, but reporting shall also
     support a calendar year-end for the preparation of State Accident Insurance Fund
     (SAIF) statutory and GAPP basis financial statements.

4.   Unless otherwise directed by the OST, book all investments at cost and report them
     with updated market values. Gains and losses on securities sold shall be
     recognized on an average cost, or other industry standard, basis.

5.   Report, for specific funds identified by the OST, the book value of fixed-income
     securities at the amortized cost with discounts or premiums amortized/accreted
     using the scientific method. For funds managed on behalf of the State Accident
     Insurance Fund (SAIF), provide statutory accounting and reporting in compliance
     with Statement of Statutory Accounting Principles (SSAP) issued by the National
     Association of Insurance Commissioners (NAIC).

6.   A comprehensive pricing system ensuring the accuracy of the prices received from
     various external sources (e.g., external investment managers) as of each month
     end, by employing procedures to verify the primary price to a secondary pricing
     source, if necessary.

7.   Fund accounting and monthly (with daily capabilities) pricing of portfolios for the
     purpose of computing monthly net asset values for various portfolios.

8.   Monthly plan accounting for three OST plans: OPERF, SAIF, CSF.

9.   Daily valuation and unitization for three internally managed OST equity portfolios.

10. Portfolio accounting for the Oregon Opportunity Portfolio, including the following
    services:
             a) Cash reconciliation on T+1.
             b) Record subscriptions/contributions       and    redemptions/distributions
                to/from each underlying fund.
             c) Calculate final month-end rates of return and net asset values for each
                individual underlying fund.
             d) Provide month-end reconciliation of positions to each underlying hedge
                fund administrator statement and to the custody statement.
             e) Provide monthly final holdings and rates of return by strategy.
             f) Perform variance reporting comparing the estimated net asset value of
                each underlying fund to the final net asset value of each fund.
             g) Load and maintain portfolio data, including capital account balances and
                performance for fund investments on a monthly basis. Currently

                                                                                         9
                 performed using a fund of funds administration platform with online
                 reporting and modeling capabilities.
  11. Daily position reconciliation and income verification for OST’s internally managed
      short-term fund (OSTF).

  12. Notification of corporate actions such as bond puts, calls and other non-scheduled
      redemptions in a timely manner.

  13. Price securities and provide updated values for the OST’s fixed-income portfolios
      utilizing independent means, information and sources.

  14. Monthly commingled fund “look-through” reporting.

  15. An automated monthly reconciliation between the Custodian’s system and the
      OST’s external investment managers. Information to be reconciled includes
      holdings, market value, and accrued income. The monthly reconciliation tolerance
      between the custodian and the manager’s net asset value is 20 basis points.

  16. Monthly manager        reconciliation   reporting   that   highlights   and   explains
      discrepancies.

  17. Provide technical expertise and assistance to OST investment accounting and
      portfolio administration personnel including, but not limited to:

         a)    Assistance in identifying ways in which the Custodian’s resources,
               products, and information can be used to maximize efficiency of
               investment accounting and trade settlement procedures;

         b)    Providing ongoing updates, information, and training concerning new
               investment instruments and accounting issues surrounding various
               investment types;

         c)    Providing technical assistance in interpreting and implementing recently
               released accounting pronouncements issued by the Governmental
               Accounting Standards Board (GASB) and the Financial Accounting
               Standards Board (FASB);

         d)    Providing direct access to designated individuals to assist with technical
               questions; and,

         e)    Providing an account administrator(s) available by telephone between the
               hours of 6:00 a.m. and 4:00 p.m. Pacific Time.

B. Trade Settlement and Custody

  1.   On-line security clearing at the DTC, Federal Reserve and other clearing agents.

  2.   On-line trade affirmation capabilities with DTC for OST’s internal investment
       management staff.


                                                                                          10
  3.   Settle and safekeep physically-held securities.

  4.   Execute foreign exchange transactions.

  5.   File, monitor, and collect all foreign tax reclaims.

  6.   Process private equity stock distributions.

  7.   Process donated stock.

  8.   Electronic access to trade data by the OST, consultants and investment managers,
       and any other third party approved in advance by the OST.

  9.   Settlement on a delivery versus payment basis. Free delivery settlement must
       receive prior written approval by the OST unless it complies with established
       policies and procedures for the security and market in question.

  10. Settlement of international equity, fixed income, and derivative instruments. The
      Custodian shall provide a comprehensive system for selecting sub-custodians and
      evaluating and monitoring their internal control structures, performance, and
      financial condition. The Custodian shall be liable for any and all financial losses
      as it relates to the actions or inactions of the sub-custodians and their agents.
      Contractual settlement shall be provided in all markets, unless otherwise identified
      by the Custodian in response to this RFP.

  11. Provide an on-line trade entry system, if requested.

C. Cash Management

  1.   Provide an automated daily sweep of net cash flows, by account, to Custodian
       short-term investment fund (STIF) or external short-term investment fund, as
       directed by the OST.

  2.   Provide daily cash flow projections and other cash management reports.

  3.   Provide overnight investment management services for the funds received after the
       occurrence of the daily sweep.

  4.   Perform cash receipt and cash disbursement processing, including investment
       management fees for external advisors.

  5.   Daily capital call oversight, tracking, and processing for all private equity
       investments.

  6.   Reconcile cash positions on a daily basis.

D. Securities Lending

  Alternative A



                                                                                       11
  Coordinate and report on all activity with regard to a securities lending program
  operated by the Custodian.

  Alternative B

  1.   Coordinate and report on all custodial activities related to any third-party lending
       program(s). This coordination includes, but is not limited to, the delivery of loaned
       securities, custody of collateral received and reinvested, pricing of securities, and
       accounting and reporting of the collateral accounts; and,

  2.   Cooperate with any third-party lender, selected by the OST, to coordinate the
       establishment and maintenance of such third-party securities lending program
       including the execution of procedures and flowcharts structured to facilitate the
       most advantageous operation of such program while maintaining the exclusive
       custodial relationship between the Custodian and OST. The OST acknowledges
       the Custodian has neither responsibility nor control over income collection,
       corporate action processing or trade settlements for securities, which are out on
       loan through a third-party securities lending program.

   Note: OST’s current securities lending guidelines are provided as a separate Adobe
   Acrobat (PDF) file “OST Cash Collateral Reinvestment Guidelines.PDF”.

E. Corporate Actions and Proxy Processing

  1.   Within a timeframe sufficient for relevant receipt, analysis and vote determination,
       provide proxies and proxy statements to the OST or their designee prior to annual
       and special meetings for U.S. corporations. For foreign corporations such proxies
       and proxy statements will be provided subject to local market practice for
       international assets, but at minimum, for the relevant market, in such a manner
       consistent with the practice of the Custodian’s industrial peers.

  2.   Provide data feed(s) to support OST’s proxy voting agent, Broadridge.

  3.   Process voluntary and non-voluntary corporate actions, including notification and
       status reporting on pending corporate actions.

  4.   Provide on-line access to corporate action notification, response, and response
       tracking platform.

  5.   Identify, track, file, and monitor the collection of all relevant securities class-action
       claims and related litigation notices.

F. Technology/Systems Requirements

  1.   Interface with the OST Local Area Network (LAN) for purposes of data entry by
       OST staff for OSTF trade settlement, downloading reports and extracted data for
       analysis using software products such as Microsoft Excel, and “inquiry only”
       access by various internal and external users.



                                                                                             12
2.   Interface with the OST’s external equity investment managers and with those
     managers which may be added by the OST from time-to-time. The custodian shall
     discontinue exchanging data related to OST with any such manager if directed to
     do so by the OST.

3.   Provide a daily file (in acceptable media) of all transactions, general ledger activity
     and balances, security master records, and holdings in all OST accounts to the OST
     investment accounting section.

4.   Provide on-line, real-time access to data held in the Custodian’s records utilizing
     personal computers connected to the OST LAN and from authorized remote
     workstations. Complete histories of investment activity of all OST holdings shall
     be maintained throughout the term of the custodial relationship. For performance
     evaluation purposes, total rates of return will be back-loaded for the time periods
     provided by the incumbent custodian.

5.   Provide all standard reports requested by the OST. In addition, ad hoc query and
     reporting functions shall be available, and the Custodian shall, by mutual
     agreement, and in a timely manner, provide additional custom reports (complying
     with industry-standard report formats developed in the future) as requested by the
     OST, at no additional charge.

6.   Provide on-site training to OST staff during the initial conversion process and at
     any time when substantial changes have been made to the master trust/custody
     software or other information-delivery software.

7.   Provide adequate protection, based on the highest industry standards, against
     unauthorized access to OST records under the Custodian’s control.

8.   Safeguard records against potential loss or destruction by fire, theft, vandalism,
     storm, earthquake, or any other hazard, by retaining backup data in a secure
     location so that records can be recreated which are current at least to the prior
     month-end and the end of the day preceding the occurrence of such event.

9.   Have an established and proven plan for business continuation in emergency
     situations; have the capability to recreate records and resume operations within
     twenty-four hours of any occurrence of any major disaster or other cause which
     destroys records and/or interrupts normal operation of the Custodian’s systems,
     and must guarantee such continuation of service within twenty-four hours.

10. Provide access to management information and accounting systems utilizing
    personal computers at OST with the capability of providing the following
    information on a monthly (prefer daily) basis:

        a)   underlying exposure to asset holdings in commingled funds;
        b)   current and historical performance;
        c)   current and historical prices and exchange rates;
        d)   composite portfolios;

                                                                                         13
          e)   current and historical transactions;
          f)   current and historical holdings in any aggregation;
          g)   performance aggregate data and (custom) benchmarks;
          h)   performance and analytic databases;
          i)   customized reports as required; and
          j)   ad hoc holdings and performance reports.
  11. Retain computer records of all audited investment transactions in accordance with
      industry standards.

  12. Provide all audited month-end accounting reports in CD-ROM format.

G. Report Requirements

  1.   Provide monthly audited accounting reports no later than three (3) business days
       after month-end for all OST-managed accounts and seven (7) business days after
       month-end for all accounts custodied at the Custodian for on-line and hard copy
       reports.

  2.   Provide tracking of brokerage commissions paid to specific brokers by account,
       consolidation of accounts, and manager.

  3.   Provide such other reports as may be requested by the OST, at no additional
       charge.

  4.   Provide monthly and quarterly real estate reporting, including the following:

          a. Monthly cash flow and unfunded commitment reporting.
          b. Quarterly performance reporting, including: executive summary,
             diversification and leverage review, investment summaries by fund, and
             schedule of exited investments.
          c. Quarterly, 1, 3, and 5 year time weighted returns.
          d. Benchmark comparisons against NCREIF, NAREIT, and EPRA/NAREIT
             Global indexes.

H. Performance Measurement and Analytics

  1.   Provide monthly performance reports detailing the market values, cash flows and
       returns of each portfolio, including both custodied and non-custodied assets as well
       as any consolidations deemed necessary by the OST at gross, net of management
       fees, and net of all fees using CFA Institute compliant calculation methods.
       Monthly unaudited “flash” performance to be delivered by the 5th business day.
       Audited performance reporting to be provided by the 10th business day each month.

  2.   Provide daily performance for OST’s three internally managed equity portfolios.



                                                                                         14
  3.   On a monthly basis, transmit raw performance data, transactions data, rates of
       return or any other information concerning the OST’s accounts to vendor(s)
       selected by the OST.

  4.   Provide quarterly access to Trust Universe Comparison Service (TUCS) reports.

  5.   Provide monthly performance analytics and attribution analysis for OST accounts
       versus agreed-upon benchmarks. Two levels of attribution analysis are required:

        Plan Attribution attributes the net-of-benchmark returns of the total plan across
          the various asset classes, in terms of weighting, selection and timing criteria.

        Single Factor attribution breaks down the excess return (vs. the benchmark) of
          the investment managers (as well as composites) across various elements --
          depending on the asset class -- such as economic sectors, industries,
          characteristics, and global regions.

  6.   Provide monthly performance reports detailing market performance, portfolio
       performance, and any level of detail or any aggregate deemed necessary by the
       OST. These reports are to include current as well as historical data (e.g., 1 through
       5 years, annualized performance).

  7.   Provide a quarterly “Investment Performance Analysis” across all OST funds in a
       format to be agreed upon between the parties. This report will be due forty-five
       (45) days after the close of the calendar quarter reported upon and will be delivered
       to the OST in hard copy and electronically.

       This will be a customized, enhanced report and will include:

       a.   Management and coordination of detailed holdings information for external
            commingled trust funds which will require the Custodian to obtain security
            holdings data on a monthly basis from external managers in a variety of
            formats and to conduct research on the securities to obtain accurate security
            characteristics. The goal of this processing is to provide a “look-through” of
            the external commingled funds to analyze the type, number and
            characteristics of the fund and to incorporate this information into
            performance reporting. The Custodian’s timely delivery of this service is
            contingent upon its receipt of the necessary data from all of the OST’s
            commingled managers.

       b.   Imbedded graphics with custom tables and graphs. The Custodian will
             integrate ideas, approaches and examples from its inventory of customized
             client reporting which are appropriate both for the quarterly “Investment
             Performance Analysis” and the monthly board report presentation.

I. Compliance Monitoring and Reporting

  1.   Provide periodic reports, in such form and at such frequency as determined by the
       OST, and mutually agreed to, of exceptions to investment management guidelines
       and investment policies for specified accounts and consolidations of accounts.
                                                                                         15
  2.   Provide a “front end” compliance monitoring and reporting system, which will
       identify, based on previous day holdings, and notify the OST of investment trades
       which are outside of established tolerances for the Oregon Short-term Fund.

  3.   Compliance monitoring and reporting systems shall be capable of tracking
       internally-managed fixed-income portfolios and equity portfolios as well as
       external public equity, fixed income and bank loan management activities. The
       system shall be capable of tracking custom parameters.

J. Transition

  1.   Should this search result in the selection of a new custodian bank, perform all
       procedures necessary to convert from the current custodian’s (State Street Bank)
       system to the new Custodian’s system of record:

         a)     The Custodian shall present to OST management a detailed plan for, as
                well as schedule of, the transition from the current custodian, State Street
                Custodian, to the Custodian. The plan and schedule must include the
                timing of each phase of the transition as well as the proposed involvement
                of the Custodian’s employees in the process, the level of involvement
                anticipated from the OST’s employees and the proposed involvement of
                the current Custodian in the transition process.

         b)     The Custodian will reconcile custody positions to the prior custodian’s
                records, research all reconciling items, and correct all position
                discrepancies.

         c)     All interfaces, including, but not limited to, those to OST, outside
                investment managers, pricing services and others must be ready and
                adequately tested prior to conversion or an acceptable alternative provided
                as mutually agreed.

         d)     The conversion must be audited by an independent auditing firm, at
                the Custodian’s expense.

  2.   Upon termination of this contract, the Custodian shall cooperate fully with the
       successor custodian to facilitate the transition from the Custodian’s system to the
       successor’s system:

              a) During transition, the Custodian shall provide to the OST and the
                 successor any information about the Custodian’s system as may
                 reasonably be needed by the successor to prepare for and effect the
                 transition. Such information might include data formats, data element
                 definition, update frequencies, etc. The Custodian shall not be expected
                 to provide proprietary information about its internal systems.

              b) The Custodian shall provide to the successor a copy of all OST data in a
                 mutually agreed form and format for test purposes.



                                                                                         16
               c) On the effective date of the conversion from the Custodian to the
                  successor custodian, the Custodian shall provide a complete final copy
                  of all current OST files to the successor. To complete close-out of
                  transactions in process, suitable and mutually agreed arrangements shall
                  be made between the Custodian, the OST, and the successor for
                  processing of such transactions received subsequent to the effective date
                  of conversion.

               d) The Custodian shall make a continued effort to collect tax reclaims due
                  the OST and coordinate with the successor custodian on outstanding
                  claims.

K. Custodian Corporate Audit

   1. Afford necessary OST staff and its internal auditor (also including, when mandated,
      external auditors) continued access to both internal and external corporate audit
      reports.

   2. Name the OST as an end-user to the annual Custodian’s Public Fund Services
      Statement on Auditing Standards No. 70 (SAS 70) report. Provide copy of the SAS
      70 report to the OST when it is available.

   3. Provide OST with audited financial statements for the Oregon Short-term Fund
      Securities Lending Collateral Pool account as of June 30th each year.

L. Personnel

  The Custodian shall make appropriate personnel available to meet with OST staff on
  site, at dates and times determined by the OST, at least quarterly, or more frequently if
  required by the OST, to discuss services related to the OST’s needs. Additionally, the
  Custodian shall provide an on-site administrator in Salem or Tigard, Oregon, at the
  OST’s premises, if requested by OST. Custodian shall provide direct access to
  appropriate computer system technical staff for assistance with computer system
  problems.

M. Settlement and Income Crediting Policies

  1.   For all items custodied at the Custodian, the following will apply:

          a)    All trades (buys and sells) will be settled on a contractual settlement basis
                in all markets where the practice is permissible.

          b)    All income will be credited on payable date, unless otherwise identified in
                the RFP response.

  2.   Securities on loan through any program other than the Custodian’s lending
       program will be settled (buys, sells and income) on an actual settlement basis.
       Securities eligible for lending by a third-party but not currently on loan will be
       settled on a contractual settlement basis.


                                                                                          17
        3.   Contractor agrees to pay sale fail compensation in an amount equal to the daily
             earnings for the cash sweep vehicle of the account for all securities that are settled
             under actual settlement procedures, provided that: the security is not on loan
             through a third party, the security was in the contractor’s possession, eligible for
             contractual settlement, and proceeds were not credited on contractual settlement
             date.

PROJECT ORGANIZATION AND CONTRACT MANAGEMENT

   The OST’s Deputy Chief Investment Officer is designated as the contract manager. The
   contract manager will be responsible for:

   A.   Clarifying with the Contractor the expectations of the OST, how the OST envisions the
        relationship working on a day-to-day basis.

   B.   Overall direction and planning.

   C.   Monitoring Contractor progress against contractual commitments and approving
        payment.

   D.   Designating specific OST staff as Project Director for day-to-day liaison with
        Contractor.




                                                                                                18
                                           SECTION III

                                 OFFEROR QUALIFICATIONS

MINIMUM QUALIFICATIONS

As of December 31, 2010, the offeror must meet ALL of the following minimum requirements in
order to be considered for the contract:

   1) The offeror must accept the written contract as supplied in this RFP. Any concerns with
      any part of the contract should be addressed before submitting a response.

   2) The offeror must currently be providing domestic custodial services to at least five (5) U.S.
      based institutional clients each with U.S. marketable security trust assets (i.e., domestic
      equity and domestic fixed income) having a market value in excess of $20 billion.

   3) The offeror must currently maintain a proprietary global subcustodian network, and have
      done so for at least five (5) years, to at least five (5) U.S. based institutional clients each
      with international marketable security trust assets having a market value in excess of $5
      billion.

   4) For third party securities lending agent proposals: The offeror of third party securities
      lending services must have a minimum of 10 domestic clients with current total domestic
      on loan balances in excess of $10 billion.




                                                                                                        19
                                           SECTION IV

                                   GENERAL INFORMATION

DEFINITIONS

   “Offeror” shall mean an entity intending to submit or submitting a proposal in response to this
      RFP.

   “Apparent Successful Offeror(s)” shall mean the offeror(s) selected by OST as the most
     qualified entity to perform the stated services.

   “RFP” shall mean this Request for Proposal, any addendum or erratum thereto, offeror’s
     written questions and the respective answers, and any related correspondence that is: (1)
     addressed to all offerors and (2) signed by the RFP coordinator.

Contract definitions are provided in Section VI.

COMPENSATION AND PAYMENT

The compensation for the duration of this contract shall be fixed by negotiation from the fees set
forth under separate cover of offeror’s response (in the format of Appendix III hereto). Once the
custodian is selected, the fee may be negotiated further. In no event shall the fee exceed that set
forth in the offeror’s proposal.

EXPECTED TIME PERIOD FOR CONTRACT

The initial contract term shall be for a period of four (4) years renewable for additional terms of
two years each (at the option of OST), projected to be effective May 1, 2012.




                                                                                                      20
                                          SECTION V

                    PROPOSAL PREPARATION AND EVALUATION


A. INTRODUCTION

  Proposals should include all the activities and costs required to provide the services
  described in the previous Sections and enclosures of this RFP. Special care should be
  taken by the Offeror in responding to this request as the Proposal Document submitted
  will be incorporated into the final contract between OST and the Offeror.

  This document is intended to provide Offerors the opportunity to present their qualifications
  and approach clearly and succinctly while providing OST with comparable information from
  each offeror. Responses to this document must conform to exhibits provided herein. Financial
  institutions wishing to provide alternative responses should demonstrate the financial
  institution’s unique, cost-effective, or innovative approach to the requested services where
  feasible or additional services offered which may not be specifically requested.

B. TIMELINE

  SCHEDULE:
   Issue Date: Thursday, July 14, 2011
   Protest of Mandatory or Contractual Requirements Due: Tuesday, July 19 2011
   Notice of Intent to Bid: Wednesday, July 20, 2011
   Written Questions Due: Tuesday, July 26, 2011
   Q&A Responses Delivered: Thursday, August 4, 2011
   Submission Deadline: Thursday, August 18, 2011, electronic and hard copies
   Formal Follow-up Notification provided by: September 15, 2011

  OST, at its sole discretion, may revise these dates, and will notify offerors of any changes.


C. GENERAL PROPOSAL INFORMATION

  OST, reserves the right, at its sole discretion: (1) to amend the RFP; (2) to extend the deadline
  for submitting proposals; (3) to decide whether a proposal does or does not substantially
  comply with the requirements of this RFP; (4) to waive any minor irregularity, informality, or
  nonconformance with this RFP; (5) to obtain from and/or provide to other public agencies,
  references upon request, regarding the offeror’s contract performance; and (6) at any time prior
  to contract execution (including after announcement of the apparent awardee): (a) to reject any
  proposal that fails to substantially comply with all prescribed RFP procedures and
  requirements; and (b) to reject all proposals received and cancel this RFP upon a finding by
  OST that there is good cause therefore and that such cancellation would be in the best interests
  of OST.       ALL OFFERORS WHO SUBMIT A RESPONSE TO THIS RFP
  UNDERSTAND AND AGREE THAT OST IS NOT OBLIGATED THEREBY TO
  AWARD A CONTRACT TO ANY OFFEROR AND, FURTHER, HAS ABSOLUTELY
  NO FINANCIAL OBLIGATION TO ANY OFFEROR. IN ADDITION, EACH

                                                                                                  21
OFFEROR UNDERSTANDS AND AGREES THAT OST SHALL UNDER NO
CIRCUMSTANCES BE RESPONSIBLE FOR ANY COSTS AND EXPENSES
INCURRED IN PREPARING AND SUBMITTING A RESPONSE TO THIS RFP;
EACH OFFEROR WHO RESPONDS TO THIS RFP DOES SO SOLELY AT THE
OFFEROR’S COST AND EXPENSE.

1. Protest of Requirements

   Protests of the minimum requirements (Section III) or the Contractual Provisions contained
   in Section VI or requests for procedural changes or clarifications of the Request for
   Proposal, shall be in writing and delivered by email by 5:00 p.m., on July 19, 2011, to:

   Greg Korte                               Jeff Kearny
   President, CEO                           Managing Director, Consulting
   Korte & Associates Consulting            Korte & Associates Consulting
   5118 104th Ave. Ct. Nw.                  1820 North Harrison Blvd
   Gig Harbor WA, 98335                     Boise, ID 83702
   253-265-8949                             208-954-9696
   gk@korteconsultants.com                  jeff.kearny@korteconsultants.com

   Protests of minimum requirements or contractual requirements shall include the reason for
   the protest and any proposed changes to the requirements. No oral, telegraphic, telephone,
   or facsimile protests will be accepted.

   The purpose of this requirement is to permit OST to correct, prior to the opening of
   proposals, technical or contractual requirements that may be unlawful, improvident, or
   which unjustifiably may restrict competition. This requirement, by permitting corrections
   prior to the opening of proposals, will eliminate the waste inherent in protests and in the
   possible rejection of proposals. In order to have their complaints considered, the offeror
   must submit them within the time established in this Section. OST shall not at any
   subsequent time consider an offeror’s objections to technical or contractual requirements or
   specifications unless those objections have been presented timely to OST under this
   Section.

   OST will consider all requested changes and, if appropriate, amend the Request for
   Proposal. If any part of this Request for Proposal is amended, updates and changes will be
   posted on the OST web site for dissemination.

2. Proposal Preparation and Submission

   OST will not negotiate with Offerors prior to OST’s announcement of the selected Offeror
   and, therefore, the Offeror should submit its best price for consideration. It is provided,
   however, that in the event OST determines that it is necessary to tailor the selected
   Offeror’s offer to more closely meet OST’s needs, OST may negotiate the offer with the
   selected offeror. No negotiations, however, shall constitute a counteroffer by OST, and if it
   is in the best interest of OST, it may discontinue negotiations at any time. Upon
   discontinuation of negotiations, OST may, at its sole discretion, either require the Offeror
   to execute a contract based on the Offeror’s original proposal, or abandon negotiations with

                                                                                             22
the Offeror, and commence negotiations with the Offeror earning the next highest
evaluation. OST shall not be bound to any contract until and unless its authorized
representative has executed a written contract with the Offeror.

The following items explain the format requirements for Proposal preparation and
submission. OST reserves the right to eliminate from consideration any Offeror
proposal which does not follow this format.

   Proposals and pricing Proposals shall be printed and signed by an authorized
    representative of the offeror. Alterations or erasures shall be initialed, in ink, by the
    person signing the Proposal. Electronic versions should be submitted using MS Word
    and Excel formats.

   AT LEAST ONE PROPOSAL SUBMITTED BY OFFEROR MUST BEAR AN
    ORIGINAL SIGNATURE OF AN OFFICER OR AGENT OF THE OFFEROR WHO
    HAS THE AUTHORITY TO BIND THE OFFEROR.

   Five (5) copies of the proposal must be submitted Oregon State Treasury in a sealed
    package(s) or envelope(s). To ensure proper identification and handling, each
    package(s) or envelope(s) must be clearly marked with: “Global Master Custody &
    Lending - Request for Proposal Response”.

    One copy of the proposal must be submitted to each of two Korte Consulting contacts
    (Greg Korte and Jeff Kearny, contact information provided above) in a sealed package
    or envelope. To ensure proper identification and handling, each package or envelope
    must be clearly marked with: “Global Master Custody & Lending - Request for
    Proposal Response”.

   In Order To Evaluate Each Proposal Without Consideration Of Cost Estimates, Two (2)
    Copies Of The Pricing Proposal Must Be Submitted To OST And One Each of two
    Korte Consulting contacts (Greg Korte and Jeff Kearny, contact information provided
    above) In A Separate Sealed Envelope. It Should Be Clearly Marked "Confidential –
    Master Custody & Lending Pricing Proposal" And Submitted With The Proposal
    Response Document. Pricing Must Not Appear Elsewhere In The Proposal As It Will
    Be Reviewed And Scored Independently Of The Technical Evaluation.

   Proposals submitted must be responsive. Nonresponsive submittals will not be
    considered and cannot be supplemented by submissions delivered after the closing time
    and date of the Request for Proposal.

    Electronic and printed RFP proposals along with pricing proposals must be received by
    OST at OST offices: 6650 SW Redwood Lane, Suite 190, Tigard OR 97225 and both
    Korte Consulting contacts (contact information provided above) by 5:00 p.m. PST, on
    Thursday August 18, 2011. Failure to submit a proposal before the deadline will
    result in the rejection of the proposal. Late proposals and/or modifications will not be
    considered. It is recommended that offeror provide sufficient time for delivery, since
    offeror will be held accountable for proposals not received in a timely manner.


                                                                                                23
3.     Proposal Content and Sequence

     Proposals shall be in sufficient detail to permit evaluation and shall include tabs separating
     the following sections:

     Section 1:      Cover Letter
     A cover letter, which shall be considered an integral part of the proposal package, shall be
     signed by the individual(s) who is (are) authorized to bind the offeror contractually. This
     cover letter must indicate the signer is so authorized and must indicate the title or position
     the signatory holds in the proposing firm. An unsigned proposal will be rejected.

     Section 2:    Table of Contents
     The proposal must contain a table of contents showing the proper order using a numeric
     format.

     Section 3:      General Information
             Name, mailing address, phone number, and FAX number of legal entity with
                which the contract would be executed
             Name, title, mailing address, email address, and phone number(s) of principal
                officer(s)
             Name, title, mailing address, email address, and telephone number of the
                account administrator
             The location of the facility from which the offeror will operate
             Minimum Qualifications Certification

     Section 4:      Executive Summary
     The primary objective of the executive summary is to provide an overview of the key
     points in the proposal for executive management. It should be concise, not to exceed five
     pages.

     Section 5:      Questionnaire
     Complete and include the Questionnaire attached as Appendix I and II (Question section
     and number followed by the text of the question followed by the response). All responses
     to the questionnaire shall be subject to verification for accuracy. Proposals containing false
     or misleading information, determined to be material, will be rejected.

     Section 6:      References
        a) Provide the name, title, email address, and telephone number of the primary client
            contact for five current master trust/master custody and securities lending clients as
            listed in the Questionnaire (Attachment A) Section I.D.4. Include at least three
            public fund clients and one institutional client, if possible. OST will use this
            information as a source of references. OST, at its option, may contact other known
            proposer customers for references. The Evaluation Committee will attempt to
            contact the same number of references listed by each proposer. All references
            contacted will be asked the same questions related to the services performed.



                                                                                                24
      b) Submit at least two references for each of the personnel being proposed for the
         engagement as identified in the Questionnaire (Appendix I and II) Section I.C.1. It
         is preferable that the reference contact be one of those listed in item a) above.

   Section 7:          Acceptance of Contractual Requirements
   Section VI of this RFP contains the General Terms and Conditions that must be included in
   the final negotiated contract with the successful offeror. To be considered responsive to this
   RFP, the offeror must indicate, in writing, their complete acceptance of all provisions.
   However, the offeror may propose revisions to the contract terminology for clarification
   and procedural purposes ONLY. Such proposals must be submitted as a protest of the RFP
   requirements as described in Section V.C.1. The substantive and philosophical aspects of
   the contract are non-negotiable.

   To be considered responsive to this RFP, the offeror must include a copy of any contracts
   the Custodian requires as attachment(s) to the overall contract, as well as any language for
   Global Master Custody Services the offeror requires.

   In the event of a conflict between the clauses required by OST and this RFP and the clauses
   submitted with the proposal, the clauses required by OST and this RFP will govern. Any
   substantive difference between a clause in offeror’s standard contract and this RFP should
   be raised as a protest under Section V.C.1.

   Section 8:      Supplemental Information
   This section is optional. In the event the offeror would like to submit additional
   information (such as promotional material, including brochures), it may be included in this
   section. Do not include any information that is in direct response to the requested service
   requirements. The offeror may also provide supporting documentation, as necessary, for
   evaluators to determine relevance and value.

   Section 9:         List of Exceptions
   This section should contain any exceptions to or deviations from the requirements of the
   RFP that pertain to Offeror’s business operations and qualifications. Offeror must clearly
   state and explain any exceptions. If there are no exceptions, a statement to that effect must
   be made. Any deviations from contractual terms required under this RFP must be raised as
   a protest under Section V.C.1.

Fee Proposal:

   SUBMITTED UNDER SEPARATE COVER

   Fees must be submitted in U.S. dollars in the format(s) prescribed in Appendix III hereto.
   Any deviation from the prescribed format(s) which, in the opinion of the Korte &
   Associates Consulting, LLC is material, may result in the rejection of the proposal.

   The services detailed in Section II of this RFP are the basis for the proposed fees. The
   proposed fees shall include all costs for providing services to the State as described and
   shall be guaranteed for four years (the period of time necessary for conversion shall not be
   computed in the four-year term). Once the custodian is selected, the fees may be further

                                                                                              25
         refined depending on factors which may affect the proposed fee. In no case will the final
         fee be higher than the fee contained in the proposal.

         All prices, delivery schedules, interest rates, and any other significant factors contained in
         the proposal shall be valid for 90 days from the proposal closing date, unless otherwise
         specified in the Request for Proposal. OST may request that offerors extend this time in
         writing. Prices quoted shall include all costs for services provided under this contract. Any
         unspecified costs shall be borne by the Offeror.


I.    Communications with Oregon State Treasury

         Offeror shall not contact, directly or indirectly, any OST employee regarding this
         procurement for a period dating from the release of this RFP to the close of contract
         execution. The only exceptions to this restriction will be:

               The point of contact, Michael Mueller, Deputy Chief Investment Officer, or Andrea
                Belz, Controller.
               Individuals identified by the point of contact for this procurement to address a
                specific procurement related issue. Contact shall be limited to addressing the
                specific issue in question.
               If communication with one offeror results in the release of significant information,
                additional information will be provided thru postings on the OST web site.

II.   Evaluation of Proposals

         Proposals will be evaluated by a committee (hereafter referred to as “Evaluation
         Committee”) selected by OST, including Korte & Associates Consulting, LLC. The
         evaluation will determine if the proposed services meet the minimum qualifications
         (Section III) and the extent to which they meet the mandatory desirable features of the
         Request for Proposal as specified in Section II. The following process will be used:

            a) Initially, the evaluation Committee will review each proposal for completeness and
                to verify compliance with the minimum requirements (Section III) as stipulated
                within the RFP.

            b) The proposals will then be reviewed to determine whether they meet those
               requirements denoted in the Statement of Work (Section II of the RFP) and in the
               Questionnaire (Appendix I and II).

            c) Incomplete proposals and those not satisfying the requirements discussed in
                items 6a) and b) above, may be rejected from further consideration.

            d) Proposals passing preliminary review will be evaluated by the Evaluation
                Committee. The committee members will evaluate each proposal not rejected and
                assign numeric scores to the various categories. The committee reserves the right,
                during this process, to request additional information from an offeror. The offeror

                                                                                                    26
          will be given at least five (5) working days from notification to provide such
          additional information.

       e) The evaluation team will select a group of the highest scoring offerors for final
           evaluation.
       f) Final evaluations will also be conducted by select members of the Evaluation
           Committee. The Evaluation Committee reserves, in its sole discretion, the right to
           conduct on-site visits and interviews using these members. The ranking of the final
           evaluation in conjunction with the score for the response to the RFP, will be used to
           determine the Apparent Successful Offeror.


News Release

   News releases pertaining to this procurement and any resulting contract may be made only
   with the prior written consent of OST, and then only in coordination with OST.

Public Records

   This Request for Proposal and one copy of each original proposal received in response to it,
   together with copies of all documents pertaining to the award of a contract, shall be kept by
   OST and made a part of a file or record, which shall be open to public inspection. If a
   proposal contains any information that is considered a trade secret under ORS 192.501(2),
   or may be considered exempt from required disclosure under the Oregon Public Records
   Law for any other reason, each sheet of such information must be marked with the
   following legend:

   “This data constitutes a trade secret under ORS 192.501(2), and shall not be disclosed
    except in accordance with the Oregon Public Records Law, ORS Chapter 192.”

   The Oregon Public Records Law exempts from disclosure only bona fide trade secrets, and
   certain other specified types of information. The trade secrets and many other exemptions
   from disclosure applies only “unless the public interest by clear and convincing evidence
   requires disclosure in the particular instance.” ORS 192.502(2). Therefore, non-disclosure
   of documents or any portion of a document submitted as part of a proposal may depend
   upon official or judicial determinations made pursuant to the Public Records Law.

Investigation of References

   OST reserves the right to investigate the references (both listed and unlisted in offeror’s
   response) and the past performance of any offeror with respect to its successful
   performance of similar projects, compliance with specifications and contractual
   obligations, its completion or delivery of a project on schedule, and its lawful payment of
   suppliers, sub-contractors, and workers. OST may postpone the award or execution of the
   contract after the announcement of the apparent successful offeror in order to complete its
   investigation. OST reserves its right to reject any proposal or to reject all proposals at any
   time prior to OST’s execution of a contract.


                                                                                              27
Prior Acceptance of Defective Proposals
   Due to the limited resources of OST, OST generally will not completely review or analyze
   proposals which on their face fail to comply with the requirements of the Request for
   Proposal or which clearly are not the best proposals, nor will OST generally investigate the
   references or qualifications of those who submit such proposals. Therefore, neither the
   return of a proposal, nor acknowledgment that the selection is complete, shall operate as a
   representation by OST that an unsuccessful proposal was or was not complete, sufficient,
   or lawful in any respect.

Joint Ventures
   Joint ventures will not be considered in this procurement. However, respondents may
   subcontract with another organization to provide a subset of the services to be provided. If
   any respondent chooses to propose with one or more subcontractors, the respondents must
   clearly and completely describe the intended subcontractors and the subcontracting
   relationship. Such respondent must propose as the prime contractor and retain all
   responsibility for delivery of all services provided under the contract.

Post-Selection Review
   Competing offerors shall be notified in writing of the selection of the apparent successful
   offeror and shall be given seven (7) calendar days to review the Request for Proposal file
   and evaluation report at OST. Any questions or concerns about the selection process must
   be in writing and must be delivered to Oregon State Treasury, 6650 SW Redwood Lane,
   Suite 190, Tigard OR 97225, within seven (7) calendar days after the date of the selection
   letter. OST will respond to any offeror questions or concerns within fourteen (14) calendar
   days. OST’s response is final.




                                                                                            28
                                          SECTION VI

                                CONTRACTUAL PROVISIONS
                              GENERAL TERMS AND CONDITIONS

  Offerors will be expected to agree to the following contractual provisions unless an objection is
  raised as a protest under Section V.C.1.

                                       TABLE OF CONTENTS

      I.   Appointment of Custodian……………………………………………………………….. 28
     II.   Definitions……………………………………………………………………………….. 28
    III.   General…………………………………………………………………………………….29
    IV.    The Agreement/Merger Clause……………………………………………………………29
     V.    Representations and Warranties………………………………………………………….. 30
    VI.    Establishment of Custody Account………………………………………………………. 30
   VII.    Powers and Duties of the Custodian………………………………………………………31
   VIII.   Powers and Duties of the Custodian Related to External Investment Managers………… 33
    IX.    Standard of Care………………………………………………………………………….. 34
     X.    Custodian Liability……………………………………………………………………….. 34
    XI.    Investment Transactions………………………………………………………………….. 35
   XII.    Accounts, Books and Records……………………………………………………………. 36
   XIII.   Audit requirements……………………………………………………………………….. 36
  XIV.     Governing Law…………………………………………………………………………… 37
   XV.     Termination………………………………………………………………………………. 37
  XVI.     Assignment……………………………………………………………………………….. 37
  XVII.    Severability and Force Majeure………………………………………………………….. 37
 XVIII.    Waivers…………………………………………………………………………………… 38
  XIX.     Indemnification……………………………………………………………………………38
   XX.     Risk of Loss or Damage………………………………………………………………….. 39
  XXI.     Bond Requirements………………………………………………………………………. 39
  XXII.    Compensation……………………………………………………………………………. 39
 XXIII.    Dual Payment…………………………………………………………………………….. 39
 XXIV.     Authorized Personnel and Staff…………………………………………………………...39
 XXV.      Nondiscrimination………………………………………………………………………...40
 XXVI.     Financial Reports………………………………………………………………………… 40
XXVII.     Timely and Accurate Reports…………………………………………………………….. 40
XXVIII.    Notice…………………………………………………………………………………….. 40




                                                                                               29
The State of Oregon, acting by and through the Office of the State Treasurer (“OST”), and the
                     (“Custodian”) agree as follows:

I.    Appointment of Custodian

      A.   OST hereby appoints the         as Custodian for such assets of the State of
             Oregon as OST may from time to time deposit to Custodian’s care.

      B.   The term of this Custody Agreement (“Agreement”) shall be for four (4) years,
              beginning on the ____ day of _________ 2012, renewable for additional terms of
              two (2) years each at the option of OST. Custodian understands and agrees that
              OST’s ability to perform its obligations under this Agreement in that portion of the
              initial term after June 30, 2012 is contingent on OST’s receipt from the Oregon
              Legislative Assembly of sufficient appropriations, limitations or other expenditure
              authority to perform OST’s obligation hereunder. If the Legislative Assembly fails
              to approve sufficient appropriations, limitations or other expenditure authority,
              OST may terminate this Agreement, without prejudice to the rights of Custodian
              that have accrued prior to such termination, effective upon delivery of notice
              thereof to Custodian.

II.   Definitions

“Account” or “Accounts” shall mean collectively the accounts created pursuant to Section VI
hereof.

“Assets” shall mean cash, securities and any other property from time to time held in the Account,
and any interest, dividends, or other earnings thereon.

“Business Day” shall mean a day of the year which is not a Saturday or Sunday or a day on which
banking institutions located in New York or Oregon are required or authorized to remain closed.

“Custodian” shall mean the              or its successor, which will perform the duties and services
detailed in the Agreement.

“DTC” shall mean the Depository Trust Company book entry system.

“Fiscal Year” shall mean the fiscal year of the State of Oregon, July 1 to June 30.

“FRBE” shall mean the Federal Reserve Book Entry system.

“Investment Manager” shall mean the Treasurer of the State of Oregon or his designee.

“Response” shall mean the Custodian’s response to the RFP and any additional documents
submitted in support of it as described in Section IV.

“RFP” shall mean the Request for Proposal issued by OST and dated July 14, 2011.

“OST” shall mean the Office of the State Treasurer of Oregon.

                                                                                                  30
“State” shall mean the State of Oregon.

III.   General

To the extent that additional work, not foreseen at the time this Agreement is executed, must be
accomplished, OST and the Custodian shall negotiate in good faith for the performance of such
additional work and the compensation thereof. The Custodian and OST agree to execute such
additional documents as may be reasonable and necessary to carry out the provisions of this
Agreement.


IV.    The Agreement/Merger Clause

       A.    This Agreement consists of:

             1.   The RFP;
             2.   The Custodian’s response to the RFP;
             3.   This Terms and Conditions;
             4.   Amendments agreed to in writing subsequent to this document.

             These documents establish the services to be performed by the Custodian to the extent
                that the Custodian’s Response, this document, or any subsequent amendments agree
                to such services. The services are set forth in Section II of the RFP, and the
                compensation due for said services, are set forth in Appendix 1. In the event one
                portion of the Agreement is found to conflict with another, the document with the
                most recent date will be held to supersede an earlier document, with this agreement
                superseding the other documents.

       B.    THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE
                PARTIES. NO WAIVER, CONSENT, MODIFICATION OR CHANGE OF
                TERMS OF THIS AGREEMENT SHALL BIND EITHER PARTY UNLESS IN
                WRITING AND SIGNED BY BOTH PARTIES. SUCH WAIVER, CONSENT,
                MODIFICATION OR CHANGE, IF MADE, SHALL BE EFFECTIVE ONLY IN
                THE SPECIFIC INSTANCE AND FOR THE SPECIFIC PURPOSE GIVEN.
                THERE    ARE    NO   UNDERSTANDINGS,     AGREEMENTS,    OR
                REPRESENTATIONS, ORAL OR WRITTEN, NOT SPECIFIED HEREIN
                REGARDING THIS AGREEMENT.

            C. Subject to the provisions of Section IV.A., the parties shall have no duties or
               responsibilities beyond those specifically set forth in the Agreement. No implied
               covenant or obligation shall be read into the Agreement against any of the parties
               hereto.




                                                                                                31
V.    Representations and Warranties

      A.   The Custodian warrants that its performance under this Agreement shall, in all respects,
              meet or exceed the requirements and specifications of the Agreement. The
              Custodian further warrants that its performance under this Agreement shall, in all
              respects, meet or exceed the performance standards and specifications stated in its
              Response.

      B.   The Custodian warrants that, to the best of its knowledge, all equipment and software it
              provides shall be free from defects in materials and workmanship and shall meet or
              exceed the performance standards and specifications stated in the Response.
              Equipment or software or components thereof which do not conform to the
              foregoing shall be repaired or replaced by the Custodian without cost to OST.

      C.   The Custodian warrants it will not delegate responsibilities under this Agreement
              without the prior written approval of OST. Such approval will not be unreasonably
              withheld.

      D.   The Custodian warrants it will not assign this Agreement or any payments arising from
              it without the prior written approval of OST.

      E. The Custodian warrants that the services required of it in the contract shall be performed
             in a prompt, competent and professional manner by properly trained individuals in
             accordance with the standard of care set forth in Section IX.

VI.   Establishment of Custody Account

      A.   The Custodian will establish, at the written direction of OST, a number of custody
              accounts, which will consist of such money and other assets of the owning fund of
              the State as shall from time to time be paid or delivered to the Custodian and the
              earnings and profits thereon. OST will provide the Custodian with written
              instructions regarding the allocation of amounts so paid or delivered to the
              Accounts when they are established.

      B.   The Custodian shall hold the assets received under this agreement exclusively for the
              State. Except as specifically noted otherwise in this Agreement, any claims by the
              Custodian to the assets are subordinate to the State’s claims and/or rights to those
              assets. Assets in the Accounts will not be commingled with assets owned by the
              Custodian in its individual capacity, nor will they be pledged or hypothecated by
              the Custodian without the written authorization of OST, except subject to the
              provisions of a securities lending agreement as described in Section VII.G.

      C.   The Custodian will, at any time and from time to time as directed in writing by OST,
              establish one or more new Accounts, each of which shall be invested and reinvested
              as provided in Sections VII and X.




                                                                                                32
      D.   When an Account is established, OST will inform the Custodian in writing as to which
             fund owns the assets in the Account. The books and records of the Custodian will
             at all times show that the assets in the Account are owned by that fund. The
             Custodian may rely on, and shall be fully protected in relying on, such notice by
             OST of ownership.

      E.   Except as specifically noted otherwise herein, transfers between Accounts will be made
              only upon the written instructions of OST.

      F. OST will, upon execution of this document and from time to time thereafter, provide the
            Custodian a list of those persons authorized to give instructions to the Custodian
            relative to the Accounts. Such lists will include the signatures of all authorized
            personnel and shall automatically be incorporated into this Agreement.

VII. Powers and Duties of the Custodian
        The following items are in addition to the duties specified under Section II of the RFP:
        Services to be Provided.

      A.   The Custodian is hereby authorized by OST to deposit in a domestic or foreign central
              depository or clearing corporation, in noncertified form with the issuer, on Federal
              Book Entry at a Federal Reserve Bank or, with the prior authorization of OST, at
              any other location, all securities eligible for such deposit. Securities and monies so
              held shall be identified at all times on the Custodian’s books and records as owned
              by the appropriate fund of the State as established in Section VI above, and held in
              the appropriate custody account. Securities not eligible may be held by the
              Custodian in its own name or in the name of its nominee; securities and monies so
              held shall be identified at all times on the Custodian’s books and records as owned
              by the appropriate fund of the State as established in Section VI above, and held in
              the appropriate custody account.

      B.   The Custodian shall disburse money credited to an Account only on written instruction
              from OST.

      C.   The Custodian shall furnish OST with confirmations and a summary of all transfers to
              or from the Accounts, in addition to other reports required by the Agreement.

      D.   With respect to all securities held in the Accounts, the Custodian, by itself or through
              the use of a domestic or foreign central depository or clearing corporation, in
              noncertified form with the issuer, on Federal Book Entry at a Federal Reserve Bank
              or, with the prior authorization of OST, at any other location, shall:

           1.   Collect all income due or payable.

           2.   Present for payment and collect the amount payable upon all securities which may
                   mature or otherwise become payable and advise the Investment Manager, as
                   promptly as practicable, of any amounts not paid when due whether upon
                   maturity or otherwise.


                                                                                                 33
     3.   Surrender securities in temporary form for definitive securities.

     4.   Execute, as custodian, any certificates of ownership, declarations or other
             certificates required under any tax laws or governmental regulations now or
             hereafter in effect.

     5.   Hold directly, or through a domestic or foreign central depository or clearing
             corporation, in noncertified form with the issuer, on Federal Book Entry at a
             Federal Reserve Bank or, with the prior authorization of OST, at any other
             location, for securities deposited therein, all rights and similar securities issued
             with respect to securities already held by the Custodian hereunder.

     6. Take any administrative action with respect to the Accounts that the Custodian
            deems necessary in carrying out the purposes of this Agreement.

E.   Upon written instruction from the Investment Manager responsible for managing the
        Account, the Custodian, directly or through the use of a domestic or foreign central
        depository or clearing corporation, in noncertified form with the issuer, on Federal
        Book Entry at a Federal Reserve Bank or, with the prior authorization of OST, at
        any other location, shall, with respect to such Account:

     1.   Take delivery of assets purchased and make payment therefor from the Account
             designated after verifying the assets delivered correspond to the description
             and quantity of the assets purchased and deliver assets sold to the designated
             purchaser against payment into the designated Account.

     2.   Deliver any securities in exchange for other securities or cash issued or paid in
             connection with the liquidation, reorganization, refinancing, merger,
             consolidation or recapitalization of any corporation, or the exercise of any
             conversion privilege.

     3.   Deliver any securities to any protective committee or other person in connection
             with any reorganization, refinancing, merger, consolidation, recapitalization or
             sale of assets of any corporation, and receive and hold under the terms of this
             Agreement such certificates of deposit, interim receipts or other instruments or
             documents as may be issued to it to evidence such delivery.

     4.   Take action to effect collection of any amount if the securities on which such
             amount is payable are in default, or if payment is refused after due demand or
             presentation, provided that the Custodian shall first be assured to its
             satisfaction of reimbursement of its costs in connection with any such action.
             However, the Custodian may not be authorized to take court action to make
             any collection on the State’s behalf without the approval of the Oregon
             Department of Justice.

F.   The parties recognize that OST, by statute, is the primary custodian of the assets in all
        the Accounts. The Custodian therefore agrees to disclose fully and promptly to
        OST any material activity it undertakes affecting the Accounts. Where such

                                                                                              34
               activity is reported in the reports delivered to OST under the terms of this
               Agreement, the reports shall be deemed to satisfy this requirement. The Custodian
               agrees to deliver to such persons as may be designated by OST proxies, consents,
               authorizations, and any other instruments whereby the authority of the State as
               owner of any securities may be exercised.

     G.   The Custodian may be authorized and empowered to lend securities held in an Account
             by separate agreement.

VIII. Powers and Duties of Custodian Related to External Investment Managers

          A.    OST shall inform Custodian in writing of the appointment of an external
               investment manager or managers (“External Investment Manager”) and the amount
               to be allocated on behalf of OST to the Account of such External Investment
               Manager. Custodian shall keep a separate Account for each External Investment
               Manager for whom cash is deposited and shall record the individual amounts
               deposited and the totals of cash in such Account.

          B.    Custodian shall not sell, exchange nor otherwise dispose of any property, nor
               purchase or sell any security for the OST, except as provided in Section VIII A.
               above and this Section VIII C. or as the OST shall direct. Except as provided
               herein, Custodian shall have no duties with respect to securities in an Account other
               than for their safekeeping and the collection of income there from. In the event
               subscription rights with respect to any securities are received by the Custodian,
               Custodian shall exercise or sell such rights as directed by the External Investment
               Manager for the Account in which such securities are held. Notwithstanding the
               foregoing, however, the Custodian may round out holdings of securities to full
               shares by purchase or sale of fractions, as it shall deem advisable, without the
               approval or direction of OST or an External Investment manager.


          C.    Custodian shall credit the Accounts with all money due and owing on the
               securities in such account on each payable date, whether or not received. Custodian
               shall use its best efforts to collect sums which are due and owing with respect to the
               securities held in an Account. When the Custodian is unable to make a collection
               pursuant to this Section, it will notify the appropriate External Investment Manager
               as promptly as practicable of such inability and the reasons therefor, insofar as such
               reasons are known to the Custodian. Custodian shall not be liable for money due
               and owing on any Account if securities upon which such payment is due are in
               default or if payment is refused after due demand and presentation.


          D.    OST may in writing appoint External Investment Managers and unless and until
               directed in writing to the contrary, Custodian shall act on instructions, directions,
               notices and affirmations from the authorized representatives of such External
               Investment Manager. Custodian may rely on the continuance of the authority of
               each of such authorized representatives, and such other persons as may from time to


                                                                                                  35
                time be designated by an External Investment Manager in writing, until receiving
                written notice to the contrary from the External Investment Manager.


           E.    Custodian shall submit to OST and each External Investment Manager monthly
                statements reflecting all cash transactions in such External Investment Manager’s
                Account for the prior month and the securities contained in such Account.


IX.   Standard of Care

The Custodian hereby agrees to perform its duties hereunder with due care, that is, with the same
degree of care, skill, prudence and diligence that it exercises for the care of its own assets or for the
care of assets held by it as a fiduciary, provided, however, that nothing contained herein shall
cause the Custodian to be deemed to be a fiduciary with respect to the Accounts or the assets held
therein or with respect to any matter whatsoever arising under the Agreement or otherwise.

X.    Custodian Liability

      A.   Unless otherwise specifically set forth in the Agreement, the Custodian shall be fully
              liable for any loss or expense incurred by the Accounts as the result of the fraud,
              negligence or failure to act with due care, as defined in Section IX, of any of its
              officers, employees, agents or subcontractors. However, the Custodian shall not be
              liable for any loss or expense incurred by reason of acting in accordance with the
              specific instructions of OST or any Investment Manager as herein provided, or for
              failing to act in the absence of instructions with respect to actions that are to be
              taken under this Agreement by the Custodian on the instructions of OST. The
              Custodian shall not be liable for any loss to or diminution of the Account resulting
              from any action taken or omitted by the Custodian, other than upon the instruction
              of OST or an Investment Manager, except if due to Custodian’s fraud, negligence or
              failure to act with due care, as defined in Section IX.

      B.   The Custodian shall not be liable for any expense incurred by an Account that is not the
              result of the fraud, negligence or failure to act with due care, as defined in Section
              IX, of any of its officers, employees, agents or subcontractors. To the extent that
              any Foreign (non-United States) Subcustodian (as hereinafter defined) is deemed to
              be a subcontractor of Custodian for purposes of this Agreement, with respect to any
              losses or expenses incurred by an Account as a result of the acts or failure to act by
              any such Foreign Subcustodian, Custodian shall take appropriate action to recover
              such losses or expenses from such Foreign Subcustodian; and Custodian’s sole
              responsibility and liability to OST shall be limited to amounts so received from
              such Foreign Subcustodian (exclusive of costs and expenses incurred by
              Custodian). A “Foreign Subcustodian” shall mean those branches of United State
              banks located outside of the United States and banking institutions organized under
              the laws of their countries which hold securities of Foreign issuers and cash in
              countries in which such Foreign Subcustodians are located.




                                                                                                      36
      C.   The Custodian is not under any duty or responsibility to supervise the investment, or to
              make any recommendation for the purchase, sale, retention or other disposition of
              securities held by it in any Account, nor is it responsible for determining the legality
              or propriety of instructions it receives from the Investment Manager responsible for
              managing an Account.

      D. Unless otherwise specifically set forth in the Agreement, the Custodian shall have no
             liability to OST arising out of or resulting from the Custodian’s acts undertaken on
             and in accordance with the written or verbal instructions of personnel authorized
             pursuant to Section VI which Custodian reasonably believes to be genuine.

XI.   Investment Transactions

      A.   The Accounts shall be invested and reinvested as directed by the Investment Manager
              of the Account. Trade affirmation shall be made through the Custodian by the
              Investment Manager of the Account. In the absence of direction or authorization
              from OST, the Custodian shall have no power, duty, or authority to invest the
              Accounts except as expressly provided herein.

      B.   An Investment Manager, at any time and from time to time, may issue orders directly to
              a broker for the purchase or sale of securities for its Accounts and will promptly
              give or cause to be given to the Custodian notice of the issuance of such order.

      C.   If so directed in writing by OST, the Custodian shall segregate an Account or Accounts
               for management by an Investment Manager. The Custodian may rely on the
               authority of such Investment Manager to issue orders affecting the Account or
               Accounts over which they have been given authority until notified to the contrary in
               writing by OST.

           OST understands that when the Custodian is directed to deliver property against
             payment, delivery of the property and receipt of payment may not be simultaneous.
             The risk of nonreceipt of payment shall be the Account’s and the Custodian shall
             have no liability therefor. All credits to the Account of the anticipated proceeds of
             sale and redemption of property and of anticipated income from property shall be
             conditional upon receipt by the Custodian of final payment and may be reversed to
             the extent of final payment, if not received. At the discretion of the Custodian, the
             Account may make use of such conditional credits. To the extent such credits do
             not become unconditional by receipt of final payment, the Account shall reimburse
             the Custodian upon demand for the amount of such conditional credits so used.
             When the Custodian is instructed to receive property, it is authorized to accept
             documents in lieu of such property as long as such documents contain the
             agreement of the issuer thereof to hold such property subject to the Custodian’s sole
             order. The Custodian in its discretion may advance funds to the Account to
             facilitate the settlement of any trade. In the event of such an advance, the Account
             shall immediately reimburse the Custodian for the amount thereof.




                                                                                                   37
XII. Accounts, Books and Records

     A.   The Custodian shall keep accurate and detailed accounts of all investments, receipts,
             and other transactions hereunder, accounting separately for each Account.

     B.   The Custodian’s accounts, books and records relating to the Accounts shall be open for
             inspection on reasonable advance notice during normal business hours by any
             person or entity authorized by OST.

     C.   Within 60 days after the close of each fiscal year (June 30) or such other date as may be
             agreed upon in writing between OST and the Custodian, and within 60 days after
             the effective date of the termination of this Agreement as provided in Section XVI,
             hereof, the Custodian shall file with OST a written account, setting forth all
             investments, receipts and other transactions affected by it during the year (in the
             case of termination, the portion of a year) ending on such date. Such written
             account shall incorporate by reference any statements that the Custodian has
             furnished to OST prior to the filing of such written account. To the extent that the
             Custodian shall be required to value the assets of the Accounts for any purpose,
             including any accounting as provided for herein, such valuation may be made either
             by the Custodian itself or by such person or persons believed by the Custodian to be
             competent to make such valuation, but in accordance with a method consistently
             followed and uniformly applied. The Custodian may rely, for all purposes of this
             Agreement, upon any certified appraisal with dates certain or other form of
             valuation submitted to it by the Investment Manager of the Account.

     D. The Custodian shall also submit such other reports as described in its Response, or as
            otherwise agreed in writing. It is agreed that all reports will be examined promptly
            and any exceptions will be filed in writing within 18 months. In the absence of the
            timely filing of such exceptions, the reports will be deemed finally approved and
            accepted.

XIII. Audit Requirements

     A.   The Custodian will, upon reasonable notice, provide audit access (including working
             space to auditors) to OST and the Division of Audits of the Secretary of State’s
             Office, State of Oregon, or their designated agents, to perform financial and
             compliance audit and review of the Custodian’s records of operation, accounting
             and administrative systems and procedures, and any other operating or non-
             operating areas as considered reasonable and necessary under the circumstances.

     B.   The Custodian shall maintain an internal audit division that will perform, at the
             Custodian’s expense, an annual internal control audit of management ability,
             procedural compliance and physical security, and periodically, but in no event less
             frequently than annually, audit the Custodian’s trust division.

     C.   The Custodian shall employ independent certified public accountants who will perform,
             at the Custodian’s expense, an annual financial audit of the Custodian’s financial
             position as of the end of its preceding year. Custodian shall also provide an annual

                                                                                                38
               independent examination of its trust services (including custody operations), related
               to the policies and procedures placed in operation and tests of operating
               effectiveness (SAS 70 Report, or then applicable Standard).

XIV. Governing Law

This Agreement and the performance hereunder shall be construed in accordance with, and the
rights of the parties governed by, the laws of the State of Oregon. Further, the State of Oregon, its
Office of the State Treasurer, and their officers, employees and agents shall be subject to no
liability or obligation arising out of this Agreement that would not be recognized and enforced
against them by the courts of the State of Oregon. OST represents that ORS 30.320, which permits
suits and actions to be maintained against the State by and through and in the name of a state
agency, including OST, upon a contract made by such state agency, including OST, is applicable
to the Agreement. OST further agrees to notify the Custodian in the event that ORS 30.320 is
substantially modified or repealed.

Any party bringing a legal action or proceeding against any other party arising out of or relating to
this Agreement shall bring the legal action or proceeding in the Circuit Court of the State of
Oregon for Marion County. Each party hereby consents to the exclusive jurisdiction of such court,
waives any objection to venue, and waives any claim that such forum is an inconvenient forum.

XV. Termination

OST may terminate the Agreement at any time upon the delivery of 60 days’ written notice to the
Custodian.

XVI. Assignment

The Custodian shall not assign this Agreement in whole or in part or any payment arising
therefrom without prior written consent of OST.

XVII. Severability and Force Majeure

           A. Should any provisions of this Agreement be declared or found by a court of law to
              be illegal, unenforceable, ineffective or void, then each party shall be relieved of
              any obligations arising in such provision; the balance of this Agreement, if capable
              of performance, shall remain in full force and effect.

          B. Notwithstanding any other provision of this Agreement to the contrary, neither the
             Custodian nor OST shall be liable to the other for any delay in, or failure of
             performance of, any part of this Agreement, nor shall any delay in, or failure of
             performance, constitute default, or give rise to any liability for damages if, and only
             to the extent that, such delay or failure is caused by “Force Majeure”. As used in this
             section, “Force Majeure” is defined as follows: Acts of God or other natural
             disasters, beyond the control of the parties to the contract, which are extraordinary in
             nature such that the party’s services are rendered disabled and inoperable thereby;
             acts of government or of other entities beyond the control of the parties to the
             contract, which are of so severe a nature that it becomes completely impossible to

                                                                                                  39
             operate OST or to conduct the custody services. The existence of such causes of
             such delay or failure shall extend that period of performance to such extent as may be
             necessary to enable complete performance in the exercise of due care after the cause
             of delay or failure have been removed. The affected party shall, however, take
             reasonable good-faith measures in order to resume the performance of its obligations
             under this agreement.

XVIII.     Waivers

      A.   No covenant, condition, duty, obligation, or undertaking contained in or made a part of
              this Agreement shall be waived except by the written agreement of the parties, and
              forbearance or indulgence in any other form or manner by either party in any regard
              whatsoever shall not constitute a waiver of the covenant, condition, duty,
              obligation, or undertaking to be kept performed, or discharged by the party which
              the same may apply; and until complete performance or satisfaction of all such
              covenants, conditions, duties, obligations, and undertaking, the other party shall
              have the right to invoke any remedy available under this Agreement or under law or
              equity, notwithstanding any such forbearance or indulgence.

      B.   Waiver of any default shall not be deemed to be a waiver of any subsequent default.
             Waiver of any breach of any provision of this Agreement shall not be deemed to be
             a waiver of any other or subsequent breach and shall not be construed to be a
             modification of terms of this agreement unless stated to be such in writing signed
             by OST and the Custodian.

XIX. Indemnification

Subject to the limitations of Section X of this Agreement, the Custodian agrees to indemnify and
hold harmless the State of Oregon, the Office of the State Treasurer, their officers, employees and
agents from and against any and all damages, liabilities, actions and claims resulting, directly or
indirectly, in whole or in part, from any negligence or wrongful act of the Custodian or of any
employee or agent of the Custodian that may result from or arise out of the Custodian’s
performance and administration of this Agreement. It is provided, however, that the Custodian
shall not be required to indemnify or hold OST, its employees or agents harmless from any claim
or liability of whatever nature resulting from or arising out of the wrongful acts of OST, its
employees or agents.


XX. Risk of Loss or Damage

All risk of loss or damage to any equipment or property provided, utilized or held in storage by the
Custodian in its performance under this Agreement, wherever the same is located, shall be borne
by the Custodian. OST shall have no responsibility or liability therefor; provided, however, that
OST shall be responsible to the Custodian for any loss of or damage to equipment, reasonable wear
and tear excepted, which is in the possession of OST at any of its offices.




                                                                                                 40
XXI. Bond Requirements

The Custodian shall maintain, and upon request furnish to OST evidence of, a bond in the amount
of $_____________ that would cover any loss to the State due to fraud or negligence on the part of
any officer, employee, agent or subcontractor of the Custodian.

XXII. Compensation

The Custodian shall be compensated for its services and related expenses as set forth in
Appendix III.

All brokerage costs and transfer taxes incurred in connection with investment and reinvestment of
the Account, all expenses incurred in connection with the acquisition or holding of real or personal
property, any interest therein or mortgage thereon, all income taxes or other taxes of any kind
whatsoever which may be levied or assessed under existing or future laws upon or in respect of the
Account, shall be charged to the Account, with an advice of charge provided to OST, and, until
paid, shall constitute a charge upon the Account.

XXIII.      Dual Payment

Custodian shall not be compensated for services performed under this Agreement from any other
division, board or agency of the State of Oregon.

XXIV.       Authorized Personnel and Staff

       A.   The Custodian will submit a current list and specimen signatures of the persons who are
               authorized to act on its behalf pursuant to this Agreement.

       B. In accordance with Section VI, specimen signatures of persons from time to time
              authorized to act under this Agreement on behalf of OST, including any Investment
              Managers, will be incorporated into this Agreement.

       C. The parties shall be entitled to rely upon such lists, specimen signatures, and Delegations
               of Authority until written notice of revocation or modification is received and
               accepted.




XXV.        Nondiscrimination

Custodian agrees to comply with Title VI of the Civil Rights Act of 1964, with Section V of the
Rehabilitation Act of 1973, and with all applicable requirements of federal and state civil rights
and rehabilitation statutes, rules and regulation. Custodian also shall comply with the Americans
with Disabilities Act of 1990 (PUB L No. 101-336), ORS 659.425, and all regulations and
administrative rules established pursuant to those laws.


                                                                                                  41
XXVI.      Financial Reports

The Custodian shall provide OST with the following reports and statements as soon as available:

           A. Copies of Custodian’s quarterly financial statements prepared in accordance with
              generally accepted accounting principles;

           B. Copies of all financial statements and reports the Custodian generally makes
              available during the quarter, or is required to file with the Securities and Exchange
              Commission and other regulatory institutions; and

           C. Annual financial statements, including the auditor’s letter to management on
              internal controls, accompanied by the report, certificate, or opinion of an
              independent certified public accountant and prepared in accordance with generally
              accepted accounting principles on a basis consistent with prior year or years.

           D. Copies of annual independent examination of trust services related to the policies
              and procedures placed in operation and tests of operating effectiveness (SAS 70, or
              then applicable report).

XXVII.     Timely and Accurate Reports

The custodian shall produce and deliver timely, sufficient and accurate reports as scheduled by
mutual agreement between OST and the Custodian.

Notice

Any notice or other instrument in writing authorized or required by this Agreement shall be
sufficiently given if received by the Custodian or OST, as the case may be, addressed as follows,
or at such other address as the Custodian or OST, as the case may be, may from time to time
designate in writing.

For notice to the Custodian:

             ___________________
       ___________________
            ___________________
      Attn:    _________________

For notice to OST:

      Office of the State Treasurer
      6650 SW Redwood LN
      Suite 190
      Tigard, OR 97224-7192
      Attn: Deputy Chief Investment Officer




                                                                                                  42
Tax Certification.

By signature on this Contract for Custodian, the undersigned hereby certifies under penalty of
perjury that the undersigned is authorized to act on behalf of Custodian and that Custodian is, to
the best of the undersigned’s knowledge, not in violation of any Oregon Tax Laws. For purposes
of this certification, “Oregon Tax Laws” means a state tax imposed by ORS 320.005 to 320.150
(Amusement Device Taxes), 403.200 to 403.250 (Tax For Emergency Communications), 118
(Inheritance Tax), 314 (Income Tax), 316 (Personal Income Tax), 317 (Corporation Excise Tax),
318 (Corporation Income Tax), 321 (Timber and Forest Land Taxation) and 323 (Cigarettes And
Tobacco Products) and the elderly rental assistance program under ORS 310.630 to 310.706 and
any local taxes administered by the Department of Revenue under ORS 305.620.

Custodian and OST, by the signature below of its authorized representatives, hereby acknowledge
having read this agreement, understanding it and agreeing to be bound by its terms and conditions.

Oregon State Treasury


By:              _____       Date: ____
  Michael Mueller
  Deputy Chief Investment Officer

(Custodian)

By:       _____                Date: _____
  Authorized Representative

Approved as to form:                    Office of the Attorney General


                                 By:      _______

                                        Date: ___         ______




                                                                                               43
Blank Page




             44
       Appendix I
       State of Oregon
       Office of the State Treasurer

       Custody RFP Services Questionnaire

I.      Organizational Background ............................................................................................... 46

II.     Client Servicing.................................................................................................................... 50

III.    Custody and Asset Administration .................................................................................... 51

IV.     Investment Manager Support ............................................................................................ 53

V.      Accounting, Reporting, and Valuation .............................................................................. 54

VI.     Cash/Foreign Exchange Management ............................................................................... 57

VII. Technology/Systems Support ............................................................................................. 59

VIII. Private Equity and Real Estate .......................................................................................... 60

IX.     Conversion Planning (Incumbent does not need to complete) ...................................... 61

X.      Investment Performance and Analytics Reporting .......................................................... 62

XI.     Compliance Monitoring ...................................................................................................... 63




                                                                                                                                                  45
I. Organizational Background
1. Provide a brief overview of your firm’s history, corporate structure and ownership, including
   any significant mergers or acquisitions affecting the businesses that will be responsible for
   providing the services requested in this RFP.

2. If you have had any significant mergers or acquisitions in the past five years, provide an update
   on any remaining integration or consolidation activities. Also discuss the impact of the merger
   or acquisition on your systems infrastructure, and whether any legacy systems are still being
   maintained.

3. Provide an overview of your asset servicing group’s management structure, including reporting
   lines to senior executives of the firm.

4. Describe any significant changes to the asset servicing group’s management structure in the
   last three years.

5. Provide an overview of the geographic locations from which you provide or support your asset
   servicing business. For each location, describe the operations or services performed, including
   the locations of your client servicing offices.

6. Provide a description of any material joint ventures, partnerships, or alliances your firm utilizes
   to deliver the services requested in this RFP.

7. For how long has your firm provided institutional trust and custody services? Discuss the
   history and development of your asset servicing business, including the dates of significant
   acquisitions/mergers and major service or technology enhancements.

8. Provide the following financial information about your bank holding company or parent
   company as of 12/31/10. Also describe any changes that have occurred since year-end 2010.

     Capital
     Total risk-adjusted capital
     Total risk-weighted assets

     Risk-weighted capital ratios
     Tier 1 risk-adjusted capital ratio
     Total risk-adjusted capital ratio
     (Tier 1 + Tier 2)
     Leverage ratio

     Credit Ratings                              S&P        Moody’s         Fitch
     Short-term credit ratings
     Long-term credit ratings
     Rating outlook

                                                                                                    46
9. What is the total annual revenue derived from your global asset servicing business for each of
   the last three years? Provide a breakout of the revenue components. Add additional rows as
   necessary.

     Revenue Components                             2010          2009           2008
     1.
     2.
     3.
     4.
     5.
     6.
     7.
                    Total Annual Revenue:

10. What percentage of the bank holding company’s (or parent company’s) total revenue is derived
    from asset servicing? Does this figure include foreign exchange and securities lending
    income?

11. Has your firm been the subject of any litigation regarding asset servicing or securities lending
    in the last three years? If so, please describe fully, including any settlements or judgments.

12. Has your firm been the subject of any regulatory sanctions in the last three years? If so, please
    describe fully, including any settlements or judgments.

13. List the regulators that supervise your trust/custody and asset servicing businesses in the U.S.
    and provide your regulatory status for each.

14. Provide a copy of your most recent SAS 70 Report as an exhibit in your response. Comment
    on any adverse findings, deficiencies, or corrective recommendations identified in your SAS
    70 Report in the last two years. Discuss the remediation efforts undertaken, including current
    status and expected resolution.

15. Provide the following information about the insurance coverage maintained in support of your
    asset servicing and related businesses.

   Type of Policy           Policy      Policy     Limit per      Underwriter(s) Expiration
                            Limit       Deductible Claim                         Date




                                                                                                       47
16. Summarize (as of 12/31/2010) your asset servicing client base in the table below:

                                                       Number of          Market Value
                                                        Clients             ($MM)
   Total global custody assets under
   administration
   U.S. institutional custody assets under
   administration
           U.S. public funds
           U.S. ERISA-qualified retirement plans
           U.S. endowments/foundations
           U.S. investment managers
           U.S. insurance clients
           Other U.S. clients (describe)
           Total U.S. clients


                                                       Number of          Market Value
   U.S. Public Fund Clients
                                                        Clients             ($MM)
   Public fund custody clients < $1 billion
   Public fund custody clients between $1 and $10
   billion
   Public fund custody clients > $10 billion
   State OST custody clients


17. Provide the following information about your public fund client base as of 12/31/2010.

                                                    Market Value           Length of
   Top 10 largest US public fund clients
                                                      ($MM)               Relationship
   1.
   2.
   3.
   4.
   5.
   6.
   7.
   8.
   9.
   10.

                                                                                             48
   Average public fund client size
   (all public funds)
   Median public fund client size
   (all public funds)


18. Discuss your firm’s resource commitments to the institutional trust and custody business in
    terms of technology, staffing/training.

19. What specific institutional trust and custody products or service capabilities set you apart from
    other global custodians?

20. How do you rate amongst the four largest US Trust/Custody providers in the following
    industry surveys? Provide rankings for each survey below.

       o Global Investor Global Custody Awards
       o Global Custodian Magazine
       o R&M Survey

21. Discuss the specific asset servicing product, service, or technology enhancements that are
    currently planned or in process?

   a. When are these enhancements going to be complete and available to your clients?
   b. What improvements do you expect to achieve, and how will clients benefit?

22. Provide the number of institutional trust/custody accounts gained or lost as specified for the
    periods listed below. Report corresponding market values in U.S.$ millions as of initiation
    date for accounts gained and as of termination date for accounts lost. Describe the
    circumstances behind each lost account identified in 2010 and through 6/30/2011.

                       INSTITUTIONAL TRUST/CUSTODY CLIENTS
                                   Gained                 Lost
             Year          Clients      Mkt Value Clients      Mkt Value
             2008
             2009
             2010
          6/30/2011


23. Provide contact information for five client references that utilize the services requested in this
    RFP. References for clients of similar size and complexity as our organization and who
    currently work with members of the proposed client service team are preferred. One of your
    five client references should include a former client that has left your firm within the past three
    years.




                                                                                                     49
II. Client Servicing
24. Attach an organizational chart for your client service and relationship management functions.
    Include reporting lines – both within the client service organization and to senior management.
    Identify where client teams and support staff are located.

25. Discuss your proposed client servicing arrangement for this client. Include all members of
    your organization who will interact with this client, including:

       a.   Executive management;
       b.   Relationship management
       c.   Day-to-day client servicing
       d.   Accounting
       e.   Performance and analytics
       f.   Compliance monitoring
       g.   Online reporting support
       h.   Trade support for the client’s in-house investment management staff
       i.   On-site personnel;
       j.   “Back-up” client service personnel
       k.   Other staff

26. For each member of the proposed client service team, provide a biography and the following
    information:
        a. Title
        b. Office location
        c. Years with your firm
        d. Years in the industry
        e. Number of other client relationships (currently)
        f. Number of other client relationships (upon appointment as OST’s custodian)
        g. One client reference

27. Describe your plan for providing this client with initial training and on-going training for your
    online accounting and reporting systems and other tools? How often do you typically conduct
    training sessions with clients like OST?

28. Comment on the personnel turnover your organization has experienced in the client service
    group in the past three years. Indicate whether individuals left the firm moved to other internal
    departments.

29. How frequently do you formally assess staffing levels and client servicing capacity within
    client service teams? Who is responsible for making changes? How do you ensure service
    continuity?

30. How frequently do you formally assess client relationships to ensure that client needs and
    expectations are being met? What is the nature of the assessment? Who performs the
    evaluation? Do you intend to utilize a service level agreement with this client?



                                                                                                    50
 31. Describe your efforts to attract and maintain qualified administrators and client service
     officers. How does your firm handle the training of replacements for existing client
     relationships?

 32. How do you propose to coordinate the delivery of service with staff located in different time
     zones and geographic locations? Where will OST’s service team be located? During what
     hours will client service teams be available?

 33. Describe how your client service team will respond to client inquiries, including first point of
     contact, inquiry routing/tracking, and resolution.

 34. How do you ensure that all members of the client service and accounting teams are aware of
     customized operating procedures, deliverables, and other unique features

 35. Describe how your firm will ensure compliance with applicable laws and regulations including
     the Sarbanes-Oxley Act. What groups or individuals are responsible for monitoring
     compliance? How is compliance related information communicated to clients?

 36. How do you determine your (or your agent’s) responsibility for compensation for losses due
     processing errors, operational outages, or other issues?


III. Custody and Asset Administration
 37. Describe your core custody and securities movement and control (SMAC) systems
     infrastructure.

 38. Do you operate more than one core custody or SMAC system, either for different client or
     asset types? Discuss your systems strategy and indicate which system(s) will be used for this
     client.

 39. Provide a brief history of your recent major systems enhancements to your core custody or
     SMAC system.

 40. List each country/market for which you offer custody services, both directly and through a
     contracted subcustodian.

 41. In how many of these countries/markets do you currently hold assets on behalf of your clients?
            a. Provide the USD market value of assets you hold in each country/market as of
               12/31/2010.
            b. Provide your average fail rate for each country/market for equities and fixed income
               trades.

 42. Describe your global subcustody network management process, including subcustodian
     selection and on-going monitoring and contingency planning for local market disruptions or
     subcustodian underperformance.



                                                                                                        51
43. How do you inform clients and their investment managers of changes to local market
    requirements, such as registration requirements, appointment of local agents, or depository
    requirements?

44. Discuss your operational procedures for settling trades in U.S. and foreign markets.

45. Describe your procedures for ensuring that securities held in omnibus accounts are accurately
    attributed to the correct client accounts.

46. How do you ensure the timeliness and accuracy of income and corporate action information
    reported by your subcustodians?

47. What is your process for reconciling cash and securities holdings with subcustodians and local
    depositories? Indicate the frequency with which you reconcile cash and securities in each
    country/market.

48. Identify those markets in which you offer contractual income collection and contractual
    settlement. Describe your policies surround contractual income collection and settlement,
    including situations in which you have (or will) rescind contractual income collection and
    settlement arrangements.

49. Discuss how you ensure consistency and accuracy between information maintained in your
    custody or SMAC systems and your accounting systems. Describe your management process
    for reference data that supports your accounting and SMAC systems, including pricing feeds
    and other information.

50. Describe your procedures for processing trade instructions. Provide a flow chart showing the
    processes, systems, and functional groups involved.

51. Describe special procedures you employ for processing, valuing, and reporting derivative
    products, including collateral management support.

52. Describe your systems and procedures for providing clients and/or their investment managers
    with proxy information for U.S. and foreign investments. What are your procedures for
    following up with managers (or the client) for unvoted proxies?

53. List the third party proxy voting administrators or voting services you currently work with.

54. Describe how you will support OST’s third-party proxy voting agent, Broadridge. How
    frequently will you provide data feeds? Are there any additional charges for this service?

55. Describe your class action administration services, including the location of your operations,
    systems and sources used to collect class action information, track outstanding claims, and
    communicate the status of class actions to clients.

56. Describe your control procedures surrounding voluntary corporate actions. How do you
    ensure accurate and timely communication of corporate action information to investment
    managers and facilitate timely responses?

                                                                                                     52
 57. Discuss how you account for U.S. and foreign corporate actions, including the calculation of
     entitlements or accruals.

 58. What is your policy for providing assistance to former clients with respect to class actions
     proof of claims that took place while you were custodian? Describe any limitations you
     impose (e.g., length of time, number of requests) and any related fees for providing support to
     former clients.

 59. Describe your foreign tax reclaim services, including markets in which you offer tax reclaim
     services. Indicate whether the level of service differs by market. List any exceptions.

IV. Investment Manager Support
60. How do you ensure that your clients’ external investment advisors’ needs are met?

61. Do you have a dedicated group responsible for servicing investment managers? Describe the
      organization, staffing, and locations of your investment manager liaison group (IMLG)?

62. Provide the following information requested in the table below (copy table and add columns as
      needed):

  IMLG Service Locations                   Location 1    Location 2     Location 3    Total All
                                                                                      Locations
  Number (#) of total investment
  manager relationships
  # of portfolios/accounts

  Investment Manager Service Staff
  # of IMLG Relationship Managers
  # of IMLG Account Officers
  # Other IMLG Service Staff
  (describe)
                   Total IMLG Staff:

63. How are investment manager service teams organized – i.e., by firm, by asset class, by region,
     or other?

64. How do you allocate work volumes within investment manager service teams – i.e., by number
     of portfolios, by asset size, by asset class, etc.?

65. Describe how relationship management is structured. Are relationship managers involved in
     day-to-day manager support, or is the position more strategic in nature? If strategic, how does
     the relationship manager keep apprised of day-to-day activities and issues?

66. Describe your process for communicating, monitoring, and resolving failed trades with
     investment managers.


                                                                                                    53
67. Do you conduct regular surveys of investment managers to solicit critical feedback concerning
     your services and technology? Describe the frequency and nature of your survey process.
     Describe some key findings.

68. What improvements have you made as a result of feedback from the investment management
    community?

69. How do you believe investment managers rate your services with respect to collateral
     management and accounting for OTC derivatives? What enhancements are in development?

70. How do you believe investment managers rate your services with respect to portfolio asset and
     performance reconciliations?

71. What actions are you taking to further improve the accuracy and timeliness of monthly
    custodial/manager reconciliations across your client base?

72. How do you encourage your clients’ investment managers to adopt market best practices with
     respect to trade communications (e.g., adopting SWIFT, reducing faxed trades, etc.)?

73. Describe the range of specialized investment manager support services you offer with respect
     to the following:

                   a.   Prime brokerage and/or “prime custody”
                   b.   Real estate administrative support
                   c.   Private equity administrative support
                   d.   OTC derivatives and collateral management
                   e.   Foreign exchange
                   f.   Repo and tri-party repo


V. Accounting, Reporting, and Valuation
74. Provide an overview of the organizational and operating structure of the group that is
    responsible for accounting and reporting service delivery, including reporting lines to senior
    management.

75. Provide an overview of the organizational and operating structure of the group that is
    responsible for securities pricing and valuation.

76. Provide a schematic that provides an overview of your SMAC and accounting and reporting
    systems, including all supporting systems for securities lending and collateral management,
    multicurrency accounting, derivatives management and accounting, performance and analytics,
    compliance, private equity and real estate, and cash management.

     a. How do you manage reference data that supports your service delivery?

     b. Indicate any special operating procedures that are necessary to ensure the consistency of
        data used by your various systems.


                                                                                                     54
    c. Can you ensure that data maintained on different systems (e.g., accounting vs.
       performance) is always accurate?

    d. How are modifications or corrections in settlement or accounting information captured in
       downstream systems?

77. Provide a description of your accounting system’s capabilities related to the investment types
    below. Indicate whether the systems utilized are part of the core accounting system or are
    separate platforms.

       a.   Futures
       b.   Forwards
       c.   Private equity
       d.   Hedge funds
       e.   Private real estate
       f.   Actively-managed currency

78. How does your system account for OTC derivatives? Is accounting for these securities
    performed on your primary accounting system? If not, describe the supplemental systems used
    and its capabilities.

79. Describe your capabilities for supporting derivatives-related collateral management
    transactions and reporting.

       a. Can your accounting system identify leveraged positions?

       b. Can your systems identify the specific collateral that supports a derivative position?

80. Provide a list of standard monthly accounting reports you offer. Include a sample standard
    monthly reporting package as an Exhibit.

81. If offered, provide a sample of a quarterly executive reporting package (i.e., “board reporting”)
    as an Exhibit.

82. Discuss your policies for producing customized reports for clients, including circumstances
    under which you would charge additional fees to the client.

83. When do you propose to be able to deliver audited monthly accounting reports to this client
    based on its requirements? Highlight any potential asset classes or portfolios that you
    anticipate may require additional, non-standard month-end processing.

84. How soon after year-end will annual reporting be available?

85. Provide information regarding the timing and procedures for posting income receipts to client
    accounts. What are your sources of information? How is it received?

86. Describe your process for calculating and posting income accruals, fee accruals, and corporate
    action entitlements.

                                                                                                     55
87. How will failed trades be reflected in your monthly reports? Please detail for the following:
    a. U.S. domiciled securities; and,
    b. Non-U.S. domiciled securities.

88. How are periods closed? Can closed periods be opened? Can performance figures be updated?
    Describe all limitations.

89. Describe your online reporting systems, including the breadth of information available besides
    standard accounting and reporting information.

   Indicate whether these systems are available as a core component of your online reporting
   system, or whether separate systems, software, or logins are required. Also indicate the period
   of time for which detailed online reporting data is maintained and readily available to your
   clients.

                             Requires separate         Online data retention period
                             system/software/login?
   Accounting
   Performance
   Compliance
   Securities Lending
   Cash Management
   Proxy Voting
   Corporate Actions
   Custody/Settlement
   Other (describe)


90. How long is daily transaction and holding level accounting available for viewing and
    manipulation on-line? How do clients access older information?

91. Discuss your ability to support standard and customized GASB reporting, including the
    availability of signature-ready reports. Provide a sample of your GASB 40 report as an
    Exhibit.

92. Describe the monthly close process, including a detailed description of your manager
    reconciliation support capabilities. Who interfaces with managers to assist in position and
    performance reconciliation? What reconciliation tools do you offer to managers?

93. Discuss your procedures and protocols for responding to price challenges from investment
    managers.

94. What level of authorization or instruction do you require to use an investment manager’s price
    for a security? Do you permit the use of standing instructions?

95. What processes and controls are in place to ensure the accuracy of pricing information for
    client accounts?

                                                                                                    56
 96. Do you have an automated process to flag unusual pricing changes or stale prices? What are
     your intra-day tolerance levels for each asset class?

 97. Describe the escalation process for investigating and resolving potential pricing errors once a
     tolerance has been breached or managers/clients issue a price challenge. Discuss your initial
     exception reporting, secondary price source verification, and supervisory sign-off procedures.

 98. Provide a list of your primary and secondary pricing sources by asset class, and indicate the
     frequency that prices are updated.

 99. Describe your pricing protocols and procedures for illiquid and thinly traded securities.

 100. Describe your pricing protocols for alternative assets, including hedge funds, private equity,
      and real estate.

 101. How do you collect pricing information on not-in-bank assets, such as collective funds,
      limited partnerships, and other assets held outside the bank?

  102. Can a client request that a specific pricing source be used for a specific portfolio or issue?
       Describe any limitations.


VI. Cash/Foreign Exchange Management
 103. Provide an overview of the organizational and operating structure of the group that is
      responsible for cash management, including geographic locations and reporting lines to
      senior management.

 104. Provide a description of your cash management capabilities, including a description of
      short-term investment fund (STIF) vehicles for which this client would be eligible. Include
      the following:
                  a. Investment management fees
                  b. Investment guidelines
                  c. Fund market value as of 12/31/2010
                  d. Number of fund investors as of 12/31/2010
                  e. Daily sweep cut-off times

 105. Discuss your overdraft policies and procedures, including the overdraft rates that would
      apply to this client (Fed Funds + basis points) for both daylight and overnight overdrafts.

 106. How are clients and their managers notified of overdrafts?

 107. Describe your capabilities, systems, and client interfaces with respect to cash forecasting.

 108. How are investment managers notified of daily cash balances?



                                                                                                        57
109. Discuss your disbursement capabilities for ACH and EFT transactions, including client
     interfaces for initiating and monitoring payments.

110. Discuss your wire transfer capabilities. What systems are used?

111. What controls do you have in place to prevent unauthorized transactions and fraudulent
     activity, both within the bank and by clients?

112. How do you authenticate wire transaction instructions? What methods of instruction are
     permitted?

113. Describe your wire transfer client interface and discuss the security protocols you require
     clients to follow with respect to wire initiation and authorization.

114. Provide an overview of the organizational and operating structure of the group that is
     responsible for foreign exchange trading, including the geographic locations of your trading
     desks.

115. Provide a list of currencies you deal, including the annual dollar volume of transactions
     (USD) for 2010.

116. Describe what you believe are your competitive advantages with respect to foreign
     exchange execution? How do clients benefit from these strengths?

117. How do you assess the performance of your foreign exchange trading desks?

118. What are your capabilities for trading foreign exchange futures and forward contracts?

119. Describe the breadth of reporting that you provide clients with respect to foreign exchange
     execution. Do you offer foreign exchange execution benchmark reporting to your clients?
     If not, is this a service you would consider offering to OST on an annual basis?

120. Discuss the process for repatriating income and foreign exchange balances. Provide
     information that clearly specifies how rates are determined and documenting the process
     used to perform the repatriation. Are clients/investment managers free to opt out of
     repatriation processes?

121. Does your firm have the ability to net foreign exchange transaction across OST accounts
     (thus mitigating the need to execute in the market)? Describe your process. Are there
     additional fees for this service?

122. How do you ensure that clients receive fair and competitive execution on trades executed by
     your foreign exchange desks? Do you offer explicit pricing for foreign exchange execution
     using pre-determined currency spreads? Are these spreads negotiable?

123. Do you have an automated process in place flag foreign exchange transactions that fall
     outside a pre-determined tolerance threshold (e.g., execution outside the day range)? How
     are these exceptions reviewed, reported, and managed?

                                                                                                   58
  124. What percentage of your public funds clients’ foreign exchange execution volume is
       executed on a third party basis (i.e., traded with a dealer other than the bank)?

  125. Has your firm been the subject of any litigation pertaining to your foreign exchange
       execution services in the last three years?


VII. Technology/Systems Support
  126. Provide an overview of the organizational and operating structure of the group that is
       responsible for information technology and support, including systems development,
       business continuity planning, and disaster recovery. Provide staffing levels as of and
       indicate reporting lines to senior management.

  127. Provide an overview of your IT infrastructure that supports the asset servicing business,
       including data warehousing, reference data, core custody and accounting platforms, plus
       ancillary products such as securities lending, compliance monitoring, performance
       measurement, and disbursements.

          a.   Identify whether systems are proprietary or developed by third-parties
          b.   Identify whether you have access to the source code (of if it is held in escrow)
          c.   Identify the primary operating location for each system
          d.   Identify the back-up or redundant location for each system
          e.   Specify the back-up frequency for each system

  128. Provide an overview of your IT change management policies and procedures. Who is
       responsible for approving and implementing IT updates, enhancements, and new systems
       initiatives?

  129. Provide an overview of your disaster recovery planning and review process. How often are
       back-ups performed for client data?

  130. What is the nature of your periodic disaster recovery testing? Describe the scope of your
       testing and the frequency that tests are performed.

  131. Discuss your business continuity planning framework for non-IT related disruptions, such as
       pandemic illness, disasters, power outages, or other disruptions. Provide an overview of
       your primary back-up facilities for your primary custody operations and service locations.

  132. Discuss any major systems enhancements or terminations affecting your asset serving and
       securities lending businesses over the next two years.

  133. What is the annual IT budget that is allocated to your asset servicing related business? What
       is the total IT budget of the parent or bank holding company?




                                                                                                   59
   134. Provide a breakout of the annual asset servicing IT budget indicating the percentage that is
        dedicated to new systems initiatives, systems maintenance and support, disaster recovery,
        staffing, and other (describe).

   135. Will this client have access to programming staff that is dedicated to the asset servicing
        group?

   136. Describe the security measures taken for your systems, users and access points. Include
        remote access, application access, and software access.

   137. What are your security procedures that protect customer information, especially with respect
        to unauthorized access to data? Please describe in detail your security measures.


VIII. Private Equity and Real Estate
   138. Provide an overview of the organizational and operating structure of the group that is
        responsible for providing administrative support services for clients with private equity
        assets, including processing support for capital calls, fundings, and disbursements.

   139. Provide an overview of the organizational and operating structure of the group that is
        responsible for providing administrative support services for clients with real estate assets.

   140. Identify staff locations and systems used, including any outsourcing arrangements.

         Real Estate:

         Private Equity:

   141. Describe your processes for tracking cash flows for private equity investments. What
        security protocols do you require of your clients to initiate and authorize transactions?

   142. How frequently do you provide accounting and valuations for private equity and real estate
        transactions and holdings?

   143. Do you utilize external data vendors/services to provide real estate and private equity
        pricing information? If you collect data manually, how do you ensure the accuracy of data
        entered into your systems?

   144. Identify below the standard information you report on for your clients’ private equity
        investments. Indicate Yes or No in the table.

           Reporting Information                        Available        Delivery Method
           Committed capital
           Beginning capital account balance
           Capital contributions
           Capital contributions, net of recallable
              distributions

                                                                                                         60
         Reporting Information                       Available       Delivery Method
         Management fees
         Net investment income/loss
         Distributions/transfers
         Carried interest paid or allocated
         Ending capital account balance
         Investment valuation
         Remaining unfunded commitment
         Monthly performance
         Quarterly performance

 145. How do you account for pledged cash and committed cash, including pledged cash that may
      be held outside the bank?

 146. Describe your process for calculating performance on private equity and real estate assets.
      Can you provide monthly reporting using intra-quarter proxy valuations? Do you have
      experience working with clients to develop proxy valuations?

 147. Do you maintain a proprietary private equity index or indices against which you can
      benchmark clients’ private equity performance?

               Number of funds in each index
               Earliest vintage year you cover
               Types of private equity investments covered
               The basis for calculating the index, e.g. dollar-weighted IRR
               How do you incorporate cash flows into the index & who provides the
                cash flow data?
               Frequency of calculating index returns
               When the index is available for review


IX. Conversion Planning           (Incumbent does not need to complete)

 148. What group is responsible for transitioning new client accounts?

 149. Do you utilize a dedicated client conversion team or does the client service team conduct the
      transition? Identify other parties who will be involved, such as legal, compliance, securities
      lending, etc.

 150. Describe the conversion planning process. Who is involved? How do you coordinate with
      the prior custodian and/or lending agent?

 151. Given the size and complexity of this client mandate, how much time do you anticipate will
      be required to transition the account, including custom report set-up and other services
      implementation (e.g., performance, compliance, securities lending, etc.)?




                                                                                                    61
152. What are the three largest client conversions (in terms of market value) that you have on-
     boarded during the past two years?

153. Provide a sample conversion plan and timeline as an Exhibit. Include a designation of the
     responsible party for each task or responsibility.

154. Discuss the process for transitioning foreign assets, including registration, documentation,
     and potential registration fees or taxes that the client may be subject to. Identify any
     potential problem markets, or those markets that have extraordinary or unique requirements.

155. What resources are required of the client during the transition period? Include in your
     response both OST personnel and time resources anticipated.

156. Discuss your pre-conversion and post-conversion reconciliation process. How do you verify
     that all securities and cash are received? How do you monitor the receipt of trailing income
     or other payments that take place after the asset conversion?

157. OST requires that the conversion be audited by an outside auditing firm at the Custodian’s
     expense following the asset transition. Describe how you will accommodate this
     requirement and provide a fee quote in your proposal.

158. At the onset of a relationship, do you work with clients to establish a service description or
     other document that codifies the scope of services, service and inquiry resolution
     expectations, schedules of deliverables, etc.? Provide a sample for a client similar to OST
     as an Exhibit.

159. At the onset of a relationship, do you establish a service level agreement or other process to
     establish a service delivery monitoring and reporting framework? Provide a sample for a
     client similar to OST as an Exhibit.


X. Investment Performance and Analytics Reporting
160. Provide an overview of the organizational and operating structure of the group that is
     responsible for investment performance and analytics reporting, including geographic
     locations, staffing levels, and reporting lines to senior management.

161. Identify any performance-related functions that are performed by outsourcing partners or
     other third parties.

162. For how many clients do you provide performance and analytics reporting?

163. Describe the client servicing structure for your performance and analytics group. How is
     the work allocated within your production group? What is the typical team size and how
     many clients or client portfolios does a team manage?




                                                                                                  62
 164. Describe the frequency with which you can provide audited and unaudited (i.e., “flash”)
      performance reporting? Discuss any limitations with respect to providing daily flash
      performance.

 165. Explain the performance calculation methodology used by your firm. Do you offer
      alternative methods?

 166. Describe the types of performance attribution analysis reports you provide.

 167. Describe the types of investment style analysis you provide.

 168. Provide an overview of the performance benchmarks and indices you offer to clients.
      Discuss your capabilities to create and maintain client-customized or blended benchmarks.

 169. Provide an overview of the performance universe reporting available to clients. Do you
      maintain in-house universes in addition to using third-party data?

 170. Describe your reporting capabilities for not-in-bank assets, including private equity, real
      estate, and “look-through” reporting for collective funds.

 171. Provide a sample of your performance and analytics report package as an Exhibit.

 172. Discuss your ability to provide quarterly board reporting. Provide a sample as an Exhibit.

 173. Discuss your online capabilities with respect to performance reporting. Is the online system
      designed to “push” reports, or can clients also generate their own customized reports (e.g.,
      specified time periods, account groupings, security-level performance, etc.)?

 174. Discuss your procedures for calculating performance on non-traditional asset types, such as
      rights, warrants, futures, forwards, swap transactions, and options.

 175. Do you measure performance using trade date or settlement date for cash and asset
      transfers?

 176. Describe your performance reconciliation process with investment managers. What are
      your variance tolerance thresholds (in basis points) by asset class? How soon after period
      end are reconciliations typically completed?


XI. Compliance Monitoring
 177. Provide an overview of the organizational and operating structure of the group that is
      responsible for investment guideline compliance monitoring, including geographic locations
      and staffing levels.

 178. For how many clients do you provide investment guideline compliance monitoring services?



                                                                                                    63
179. Describe your compliance monitoring capabilities, including the range of tests available and
     the levels at which you can perform testing (i.e., manager portfolio level, asset class
     composites, total fund, etc.).

180. Is compliance testing conducted pre-settlement or post-settlement?


181. How are your compliance teams organized? Will we be assigned a dedicated compliance
     client service officer or are compliance services delivered through the regular client service
     team? Who is responsible for making changes to compliance rules?

182. Do you rely on third party systems or software to deliver compliance monitoring services?
     Describe the systems you use and the degree to which you have modified or enhanced the
     core application(s).

183. With what frequency can you perform asset- and transaction-based compliance testing?
     What is your reporting frequency to clients?

184. How soon after period-end are compliance monitoring reports available to clients? In what
     format(s) are reports delivered?

185. Describe your online compliance tool(s) and client functionality.

186. Discuss the on-boarding process and the programming of investment manager guidelines
     into your system. Do clients input their own guidelines, or do you offer this as part of the
     overall service?

187. How are compliance breaches communicated to the client and its investment managers?

188. Can your compliance system automatically test for the following:

                  a.   Short-selling
                  b.   Leverage
                  c.   Overdrafts
                  d.   Derivatives (instrument type)
                  e.   Derivatives (counterparty)




                                                                                                    64
Appendix II
State of Oregon
Office of the State Treasurer



Securities Lending Services RFP Questionnaire

To be completed by all custodial and third-party lending agent offerors, in
conjunction with the attached Excel spreadsheet:
OST Securities Lending Projection.xls




                                                                              65
Securities Lending – Custodial and Third Party Lending Program

Organizational Background
  1. Briefly describe the history of your institution’s securities lending program and milestones
     achieved through the years, including major systems enhancements.
  2. Describe your program’s differentiating factors. What distinguishes your program from the
     competition? Why do you feel your firm is uniquely positioned for this opportunity?
  3. Describe how securities lending fits into your firm’s overall product offerings.
        Total earnings derived from lending and collateral management services
        Lending and collateral management services earnings as a percentage of total earnings
  4. Provide an organizational chart of your securities lending function and provide biographies for
     key individuals.
  5. What is the general philosophy or program strategy of your securities lending program?         (i.e.,
     Value vs. Volume or other asset segment specializations)
  6. Do you utilize exclusive principal arrangements? If yes, please describe your approach and
     strategy vis-à-vis traditional best efforts lending.
  7. Describe the relationship between trading, investment management, compliance and
     operations.
  8. Does your lending program utilize the bundling of specials and general collateral to optimize
     returns? Why or why not?
  9. Describe your current client base. Provide a list of the number of clients who participate in
     your lending program categorized by, Defined Benefit, Defined Contribution, Mutual Funds,
     Asset Managers, Sovereign Wealth Managers, etc.
  10. Does your firm specialize in lending a specific asset class? If so, describe the advantages that
      this specialization offers a potential client.
  11. How does your securities lending program and staff avoid interfering with an investment
      managers’ trading responsibilities?
            Describe your loan recall statistics and procedures
            Describe in detail how overdraft charges from sell fails will be handled
  12. Does your firm outsource any aspects of its lending program or collateral reinvestment
      function? Software? International lending, etc.
  13. Describe your firm's procedure for determining the viability of international markets prior to
      lending securities.
  14. How does your firm conduct risk assessment before lending in a new foreign market?
  15. Please provide a list the countries available in your program and the year lending began.
  16. Describe your recommended approach and methodology for optimizing returns for this client.



                                                                                                         66
17. Please provide metrics for your program for the last three years as detailed in the following tables.
    Please provide spread attribution for lending and reinvestment separately.



     Securities Lending Performance
     for the 12 Months ending December 31, 2010
                                     Average        Average    Average     Daily      Return
                          Average
                                     Rebate         Demand     Reinvest    Avg        on
     Asset Class          Percentage
                                     Rate           Spread     Spread      Spread     Assets
                          On Loan
                                     (bp)           (bp)       (bp)        (bp)       (ROA)
     U.S. Equities
     U.S. Corporates
     U.S. Treasuries
     U.S. Agencies
     International
     Equities
     International
     Fixed



     Securities Lending Performance
     for the 12 Months ending December 31, 2009
                                                                        Daily
                                     Average        Average    Average                Return
                          Average                                       Averag
                                     Rebate         Demand     Reinvest               on
     Asset Class          Percentage                                    e
                                     Rate           Spread     Spread                 Assets
                          On Loan                                       Spread
                                     (bp)           (bp)       (bp)                   (ROA)
                                                                        (bp)
     U.S. Equities
     U.S. Corporates
     U.S. Treasuries
     U.S. Agencies
     International
     Equities
     International
     Fixed




                                                                                                       67
     Securities Lending Performance
     for the 12 Months ending December 31, 20008
                                                                         Daily
                                      Average       Average     Average               Return
                           Average                                       Averag
                                      Rebate        Demand      Reinvest              on
     Asset Class           Percentage                                    e
                                      Rate          Spread      Spread                Assets
                           On Loan                                       Spread
                                      (bp)          (bp)        (bp)                  (ROA)
                                                                         (bp)
     U.S. Equities
     U.S. Corporates
     U.S. Treasuries
     U.S. Agencies
     International
     Equities
     International
     Fixed

18. List and describe all current or pending lawsuit’s and legal actions affecting your securities
    lending business where your firm is a named defendant.
19. Provide the number of total clients gained and/or lost for the periods listed. Please state the
    reasons why clients have left your program.


                         Clients Gained      Clients Lost
                         (Number)            (Number)
           2008
           2009
           2010


20. Please delineate your client base by the client types reflected in the following table. Provide
    the total lendable assets for each client type as of 12/31/10.
                                                                          Lendable Assets
     Client Type                                Number of Clients
                                                                         ($ millions)
     Public Funds
     Corporations
     Endowments and Foundations
     Insurance Companies
     Mutual Funds/Investment Managers
     Taft-Hartley, Union


                                                                                                      68
                                                                         Lendable Assets
       Client Type                               Number of Clients
                                                                        ($ millions)
       Other, please specify
       TOTAL


  21. Provide three client references for clients of similar size and complexity in your lending
      program.


  22. Describe how you are able to customize a securities lending program to a specific client’s
      needs.


Borrowers
  23. How many borrower relationships do you have?


  24. Provide a list of your current borrowers. Who are your top 10 borrowers and what percentage
      of loans are transacted with each of them?


  25. How is borrower creditworthiness determined? Who is responsible for determining
      creditworthiness and establishing and monitoring lending limits? Can the client select or
      eliminate a given borrower for their account? Can the client establish a limit for loans to a
      given borrower?


  26. Do you also have an internal limit on how much of a client’s lendable assets can be lent to a
      single borrower on any given day? What is the exposure limit?


  27. Identify the advantages your firm has in dealing with broker/dealers and how this benefits your
      clients.


  28. Describe your policy when a sell fail occurs because a security was out on loan.


  29. Do you provide borrower default indemnification? If so, what entity provides the
      indemnification? Please describe your indemnification policy in detail.


  30. What fees do you apply for third party sell fails?


  31. Has any borrower defaulted? Please explain.


                                                                                                      69
Collateral Reinvestment
  32. What different options do you offer for collateral reinvestment?

  33. If you offer a repo only option, what types of collateral are accepted? Please list by type.

  34. What are the current assumed yields for each collateral type listed above?

  35. Do you offer an indemnified repo program? If so, describe the program and specify the
      number of institutional clients who currently participate in the program.

  36. Do you offer clients any collateral investment protection or indemnification? If yes, please
      describe coverage details and price/cost. If indemnified, what entity provides the
      indemnification?

  37. Describe your collateralization policy. What forms of collateral do you accept? What
      percentage of collateralization is required for each security type?

  38. Outline the steps taken in the mark to market procedure, detailing the timing and frequency of
      the procedure, pricing sources and communication of collateral deficiencies to the
      counterparty.

  39. Provide a brief description of cash collateral reinvestment vehicles (commingled, customized,
      separate, etc.) utilized in the reinvestment of cash collateral. Furnish, as a separate attachment,
      the Investment Policies and Guidelines for all funds available for the reinvestment of cash
      collateral.

  40. Do you provide any form of cash collateral investment indemnification? If so, please detail
      what parameters are needed to be eligible for such an arrangement. For example,
      indemnification of repo transactions collateralized by U.S. Government or Corporate
      obligations to meet revenue objectives, etc.

  41. What entity provides the management of cash collateral? Please describe any other areas of
      your organization that provide oversight of the cash management function.


Systems
  42. What system do you utilize for lending securities? What version? Who updates the program?
      What is distinct with your current system? Additionally, describe your reinvestment system.

  43. Describe your allocation or queuing process and relevant entitlement methodology. Show
      calculations.

  44. Describe your system capabilities enabling the coordination between the client and custodian
      regarding security availability and processing.

  45. Describe your recall procedures and how security substitution is utilized.


                                                                                                        70
Risk Management
  46. Who has responsibility for oversight of the securities lending program? What are the reporting
      lines to senior management of the firm?

  47. Do you have an internal audit function? If so, please describe the procedures used by the
      department, including the types of audits performed and frequency of audits.

  48. Is your program audited by an external entity? If so, by whom?

  49. Describe all risk to which a client will be exposing itself through the lending of securities, both
      domestically and internationally.

  50. How does your organization monitor the risk of the securities lending program both
      qualitatively and quantitatively?

  51. Can you accommodate specific program guidelines such as, country, portfolio and security
      level lending restrictions?

  52. Have you experienced any losses due to operational negligence, collateral reinvestment and/or
      security specific reinvestments, and/or broker default since the inception of your securities
      lending program? What was the recourse provided to clients and the level of dialogue to
      explain (resolve) the issues? Please comment on any unrealized losses that may have occurred.

  53. What new or additional procedures has your lending program implemented in response to the
      lending market turmoil over the last 3 years? Please provide examples and details of each
      action taken to reduce and control risk.

  54. Describe exactly what types of indemnification (e.g. broker default, collateral, negligence, etc.)
      are available to clients and what entity provides the indemnification.

  55. Describe your error and omissions insurance coverage and any other insurance coverage your
      firm carries in support the securities lending business.

  56. What internal controls, systems and procedures do you have regarding securities lending?

  57. Do you stress test your securities lending program? Please describe the methodology and
      procedures utilized for stress testing, including the frequency of testing.

  58. Do you have a disaster recovery plan? If yes, please describe.

  59. Describe in detail your risk management infrastructure from both a credit and fiduciary
      perspective.




                                                                                                       71
Revenue
  60. Do you charge a management fee (bp) plus expense ratios for each type of separate accounts or
      collateral reinvestment fund? If so, specify the fee and if fees are deducted before or after the
      split.

  61. What is the compensation to the bank for administering the program? Please provide securities
      lending revenue splits on a fully indemnified and non-indemnified basis. Furnish a revenue
      estimate of securities lending income for one (1) year ending (12/31/2010) utilizing the
      holdings listed in the Attachment and the securities lending pricing worksheet.

  62. Please describe your process for transitioning assets to your lending program. How is income
      loss minimized?

  63. Do you provide any minimum guarantees regarding returns or revenues generated by your
      program? Please describe with reference to your revenue estimate.

  64. What opportunities exist to maximize total revenue and net revenue derived from this lending
      arrangement?



Reporting
  65. What types of reports are available for securities lending and are the reports available on-line
      via the Internet? How frequently are the reports updated?

  66. Please provide sample securities lending reports

  67. Describe how you provide benchmarking for various clients.


Third Party Securities Lending
  68. Provide a detailed description of your third party lending capabilities.


  69. What volume of your business is third party (i.e., non-custodial) for the last three years?
                    Lendable            On-loan                    Revenue
       2008
       2009
       2010


  70. Provide details on the systems and processes used to ensure seamless transmission of data
      between yourself and your client’s custodian(s).

                                                                                                         72
71. Provide a list of global custodians that your third party securities lending clients utilize.
    Describe your communications protocols with each custodian and provide copies of your
    operating procedures and processing deadlines.

72. Describe the nature of electronic links you maintain where you act as a third-party lender for
    clients of OST’s current custodian, State Street.

73. Are you willing to compensate the client or otherwise absorb any third party support fees
    imposed by our custodian related to this opportunity? If so, please detail.

74. What support do you offer if the client chooses to utilize multiple lending agents?

75. Do you have Service level Agreements? Do you have them in place for our custodian?

76. How would the use of multiple lending agents impact your fee proposal?

77. Can you accommodate the use of a separate cash collateral manager? If yes, please describe
    how you would coordinate with an external cash collateral manager.

78. If more than one lending agent is selected, can you provide consolidated reporting?

79. Provide a listing of references of at least three (3) clients for whom you provide third party
    lending services. Include entity, contact name, title, address, phone and e-mail.




                                                                                                     73
Appendix III
State of Oregon
Office of the State Treasurer

Pricing Matrix

Submit your custody price proposal, including all assumptions, in the attached
Excel file:
OST Custody Fee Proposal.xls




                                                                                 74
Exhibit A
State of Oregon
Office of the State Treasurer

OST Investment Fund Overview and Performance

See attached Adobe PDF file: March2011_State-1.pdf




                                                     75
Exhibit B
State of Oregon
Office of the State Treasurer

Governance Documents
  o Key Investment duties
  o Fund Governance
  o Investment Objectives and Policy Framework




                                                 76
                            OREGON INVESTMENT COUNCIL
                        Summary of Key Investment Duties and Functions

Oregon Investment Council (OIC) duties include, but are not limited to:

a. Establishing investment objectives;
b. Approving key investment policies, including asset allocation, asset class strategies and
   performance evaluation criteria;
c. Ensuring that the investment activities under the purview of the OIC are conducted in an efficient,
   effective, and prudent manner.
d. Delegating to the State Treasurer, investment managers, consultants and other agents the
   responsibility for implementing specified policies; and,
e. Monitoring staff, investment managers, consultants and other agents to determine that investments
   are made in accordance with approved policies and to evaluate their performance against
   established criteria.

OIC functions include, but are not limited to:

a. Coordination with the Oregon Public Employees’ Retirement System, State Accident Insurance
   Fund, Department of State Lands, Board of Higher Education, and other agencies, on matters of
   joint concern.

b. Definition of investments consistent with statutory authority contained in ORS 293.

c. Approval of due diligence processes.

d. Receipt and review of periodic reports from staff, consultants, investment managers and other
   experts.
e. Action on matters resulting from (d).

f. Action on legislative and or regulatory matters that impact the investment portfolio or decision-
   making process.

g. Oversight and management of legal matters that impact the investment portfolio or decision-
   making process, which are not otherwise reserved by the Department of Justice.

h. Making recommendations to the Treasurer on staffing plans, incentive compensation, and the
   budget for all investment activities under the purview of the OIC.

i. Approving all major personal service and consulting contracts related to investment activities
   under the purview of the OIC.

j. Adopting best and responsible practices and innovations for the OIC, from the investment
   management community, when making and implementing policy.

Adopted: February 27, 2002 Revised: January 18, 2006 Reviewed: April 27, 2011


                                                                                                       77
                                 Oregon Investment Council

     Statement of Fund Governance for the Oregon Public Employees Retirement Fund
Adopted: February 27, 2002 Revised: April 28, 2004; January 18, 2006; May 31, 2006; July 29, 2009
                                   Reviewed: April 27, 2011




Contents
1.  Purpose
2.  Guiding Principles
3.  Investment Decisions Retained by Council
4.  Investment Decisions Delegated to OST Staff
5.  Investment Decisions Delegated to Investment Professionals
6.  Effective Council Oversight

Glossary of Selected Terms
Terms highlighted in italics are explained in the glossary.




                                                                                               78
1.0 Purpose
1.1 This statement summarizes the governance structure established by the Oregon Investment
Council (the “Council”) to ensure the prudent, effective and efficient management of the assets of the
Oregon Public Employees Retirement Fund (OPERF).

1.2 The Council approved this governance structure after careful consideration of alternative
approaches to governing a very large and growing pension fund within an increasingly complex
financial and investment environment.

1.3 The Statement has been prepared with five audiences in mind:
1) incumbent, new and prospective Council members;
2) OST staff;
3) OPERF active and retired members;
4) Oregon State Legislature and Governor; and
5) agents engaged by the Council to manage and administer OPERF assets.

1.4 The Statement summarizes more detailed policies and procedures documents prepared and
maintained by OST staff, and numerous other documents that govern the day-to-day management of
OPERF assets.

1.5 The Council regularly assesses the continued suitability of the OPERF governance structure,
initiates change as necessary, and updates this Statement accordingly.

2.0 Guiding Principles
2.1 Three principles guided the Council’s development of the OPERF governance structure:
(a) To fulfill its role as governing fiduciary, the Council retains responsibility for investment
decisions. In accordance with ORS 293.721, the general duty of the Council “is to make the moneys as
productive as possible,” subject to the standard of judgment and care in ORS 293.726. In addition, the
“. . . assets of [OPERF] may not be diverted or otherwise put to any use that is not for the exclusive
benefit of members and their beneficiaries” (ORS 238.660(2)).
(b) To ensure OPERF assets are prudently, profitably, and efficiently managed on a day-to-day
basis, the Council has chosen to delegate the management and implementation of specified Council
investment policies to qualified managing and operating fiduciaries. Such delegation is consistent with
ORS 293.726(4)(b), which states the Council must “act with prudence in deciding whether and how to
delegate authority and in the selection and supervision of agents.” Council delegates have the training,
expertise, experience, tools and time to cost-effectively implement Council policies.
(c) To ensure effective oversight of delegates, the Council requires timely performance reports that
reveal if delegates have complied with their mandates and guidelines, and indicate how assets under
their care have performed relative to established investment objectives.

3.0   Investment Decisions Retained by the Council
3.1   The Council approves the following investment policies:
(a)   Total fund investment objective;
(b)   Target asset allocation policy;
(c)   Asset mix policy re-balancing ranges;
(d)   Asset class structural tilts;
(e)   Active management exposure within each asset class;

                                                                                                      79
(f) Manager structure within each asset class; and,
(g) Retaining, terminating and replacing investment managers within each asset class.
3.2 Before approving or amending policy decisions, the Council seeks advice, guidance and
recommendations from OST staff, Council-retained investment consultants, investment managers and
other experts or sources as considered prudent by the Council.
3.3 Private equity investment commitments in first-time funds exceeding $100 million, or exceeding
200% increases in follow-on partnerships, must be brought to the Council for approval.
3.4 Real estate investment commitments in first-time funds exceeding $100 million, or exceeding
200% increases in follow-on partnerships or core managers, must be brought to the Council for
approval.

4.0 Investment Decisions Delegated to OST Staff
4.1 The Council has delegated to qualified OST staff the following investment management and
implementation decisions:
(a) Re-balancing of total fund, asset class and manager exposures to ensure OPERF assets are within
the total fund, asset class strategy and manager structure guidelines approved by the Council. Re-
balancing activity is included as an information item in the OST staff’s monthly report to the Council.
(b) Recommending retaining, terminating and replacing investment managers within each asset
class. Before recommending a manager change, OST staff will satisfy the Council that the manager
change is supported by a satisfactory level of analysis and due diligence. This will include:
documenting the reasons for the manager change, a list of the managers considered, the expected
improvement in performance attributable to the change, how the manager complements the existing
portfolio, verification that the change complies with the asset class strategy and manager structure
approved by the Council, and access to all supporting working papers and reports. One or more
Council members may elect to work with OST staff when manager issues are being examined.
(c) The Equity Investment Officers may negotiate and execute trades in public equities and public
equity futures contracts under the general guidance of the Chief Investment Officer for specific
strategies defined in OIC Policy.
 (d) Preparing, negotiating and executing investment manager mandates, guidelines and fee
agreements.
(e) Overseeing individual investment managers to ensure their portfolios comply with their respective
portfolio mandates and guidelines.
(f) Providing oversight of the master custodian to ensure that the Fund’s rights to pursue securities
class action litigation are appropriately protected.
4.2 In making these decisions, OST staff seeks the advice, guidance and recommendations from
Council-retained investment consultants, investment managers and other experts and sources as
considered prudent by OST Staff.

5.0 Investment Decisions Delegated to Investment Professionals
5.1 The Council has delegated to qualified investment managers the buying and selling of individual
securities and/or other investments authorized under the portfolio management guidelines approved by
the Council.
5.2 The Council has delegated to a qualified independent third-party the voting of shareholder
proxies that accompany the securities and/or investments held by the portfolio with oversight by OST
staff and in accordance with Council voting guidelines.




                                                                                                    80
6.0 Effective Council Oversight
6.1 The Council approves the criteria for monitoring and evaluating the impact of different
investment decisions on total fund, asset class, and manager level performance. Performance is
monitored and evaluated with respect to investment risks taken, and investment returns earned.
6.2 Investment risks are monitored monthly and evaluated quarterly by comparing total fund, asset
class and manager holdings to the risk characteristics of suitable benchmarks. Additionally, the
tracking error of the public asset classes and the total fund is monitored and reported to the Council,
quarterly.
6.3 Investment returns are monitored monthly, and evaluated quarterly by comparing total fund,
asset class and manager level returns against suitable benchmarks. Quarterly attribution reports
identify the impact that Council, OST staff, and investment manager decisions have had on total fund,
asset class and manager level returns over different time horizons.
6.4 Before approving or amending the criteria for monitoring and evaluating investment decisions,
the Council seeks advice, guidance and recommendations from OST staff, Council-retained
investment consultants, investment managers and other experts and sources as considered prudent by
the Council.

Glossary
Benchmark: A standard by which investment performance can be measured and evaluated. For
example, the performance of US equity managers is often measured and evaluated relative to the
benchmark performance of the Russell 3000 Index.

Governing, managing and operating fiduciaries. Terminology increasingly used in the pension field to
distinguish between the governance, management and operations functions in a pension fund. The
governance function is mission choice, funding and investment policy decisions, organizational design
decisions, the monitoring of organizational effectiveness, and communication of results to
stakeholders.      This is the domain of governing fiduciaries. Management acts as advisors to the
governing fiduciaries, devises strategies for achieving the fund mission and implementing the policies
in a cost-effective manner, and organizes and monitors fund operations. This is the domain of
managing fiduciaries. Finally, fund operations in the form of portfolio management, risk monitoring,
and information system management and reporting are delegated to operating fiduciaries either inside
or outside the pension fund organization. See Ambachtsheer, K. P. and D. Don Ezra, Pension Fund
Excellence, Wiley, 1998, “Mapping the Road to Excellence”, chapter 3.

Investment Objectives: The investment objectives of OPERF are summarized in the Statement of
Investment Objectives and Policy Framework for the Oregon Public Employees Retirement Fund.

Oregon Investment Council (OIC): Oregon Revised Statute (ORS) 293.706 establishes the OIC, which
consists of five voting members, four of whom are subject to Senate confirmation (the Treasurer
serves by position, and is not subject to confirmation). One member of the OIC is a public member
who serves on the Public Employees Retirement Board. Three members, who are qualified by training
and experience in the field of investment or finance, are appointed by the Governor. ORS 293.721 and
293.726 establish the investment objectives and standard of judgment and care for the OIC: Moneys in
the investment funds shall be invested and reinvested to achieve the investment objective of the
investment funds, which is to make the moneys as productive as possible, subject to the prudent
investor standard.


                                                                                                     81
Oregon Public Employees Retirement Fund (OPERF): Holds the assets of beneficiaries of the Oregon
Public Employees Retirement System (PERS). PERS is a statewide- defined benefit retirement plan
for units of state government, political subdivisions, community colleges, and school districts. PERS is
administered under ORS chapter 238 and Internal Revenue Code 401(a) by the Public Employees
Retirement Board (PERB). For state agencies, community colleges, and school districts, PERS is a
cost-sharing, multiple-employer system. It is an agent multiple-employer system for political
subdivisions. Participation by state government units, school districts, and community colleges is
mandatory. Participation by most political subdivisions is optional but irrevocable if elected. All
system assets accumulated for the payment of benefits may
legally be used to pay benefits to any of the plan members or beneficiaries of the system. PERS is
responsible for administrating the management of the plan’s liability and participant benefits.

Return: The gain or loss in value of an investment over a given period of time, expressed as a
percentage of the original amount invested. For example, an initial investment of $100 that grows to
$105 over one year has earned a 5% return.

Risk: A statistical measure of the possibility of losing or not gaining value. May also be expressed as
the probability of not achieving an expected outcome.

Tracking Error: When using an indexing or any other benchmarking strategy the amount by which the
performance of the portfolio differed from that of the benchmark. In reality, no indexing strategy can
perfectly match the performance of the index or benchmark, and the tracking error quantifies the
degree to which the strategy differed from the index or benchmark. Usually defined as the standard
deviation of returns relative to a pre- specified benchmark.
- end -




                                                                                                          82
                           Oregon Investment Council

                                      Statement
                                          of
                      Investment Objectives and Policy Framework
                                        for the
                       Oregon Public Employees Retirement Fund




                                   Adopted: February 27, 2002
Revised: July 28, 2004, April 27, 2005, May 18, 2005, January 18, 2006, July 6, 2006, January 31,
  2007, September 26, 2007, January 30, 2008, April 29, 2009, May 27, 2009, April 28, 2010,
                                December 1, 2010, April 27, 2011




                                                                                                    83
Contents
1. Purpose
2. Investment Objective
3. Policy Asset Mix, Risk Diversification and Return Expectations
4. Passive and Active Management
5. Public Equity Strategy
6. Fixed Income Strategy
7. Real Estate Strategy
8. Private Equity Strategy
9. Alternatives Portfolio Strategy
10. Performance Monitoring and Evaluation

Glossary of Selected Terms
Terms explained in the glossary are italicized when they first appear in this document.




                                                                                          84
1.0 Purpose
1.1 This Statement of Investment Objectives and Policy Framework (the “Statement”) summarizes
the philosophy, objectives and policies approved by the Oregon Investment Council (the “Council”)
for the investment of the assets of the Oregon Public Employees Retirement Fund (“OPERF”).
1.2 The Council approved these objectives and framework after careful consideration of OPERF
benefit provisions, and the implications of alternative objectives and policies.
1.3 The Statement has been prepared with five audiences in mind: incumbent, new and prospective
Council members; OST staff; OPERF active and retired members; Oregon State Legislature and
Governor; and agents engaged by the Council to manage and administer Fund assets.
1.4 The Statement summarizes more detailed policies and procedures documents prepared and
maintained by the staff of the Office of the State Treasurer, and numerous other documents that govern
the day-to-day management of OPERF assets including agent agreements, individual investment
manager mandates, and limited partnership documents.
1.5 The Council regularly assesses the continued suitability of the approved investment objectives
and policies, initiates change as necessary, and updates these documents accordingly.

2.0 Investment Objective
2.1 Subject to ORS 293.721 and 293.726, the investment objective for the Regular Account is
earning, over moving twenty-year periods, an annualized return that exceeds the actuarial discount rate
(ADR), approved by the Public Employees Retirement Board (PERB) to value OPERF liabilities.
Eight percent is the current actuarial discount rate.
2.2 The Council believes, based on the assumptions herein, that the investment policies summarized
in this document will provide the highest probability of achieving this objective, at a level of risk that
is acceptable to active and retired OPERF members. The Council evaluates risk in terms of the
probability of not achieving the ADR over a twenty-year time horizon.
2.3 Historically, members were allowed to direct up to 75% of their contributions to the Variable
Account. No new contributions are being made to this fund. The investment objective of the Variable
Account is to perform in line with MSCI All Country World Index.
2.4 The Council has established investment objectives for individual asset classes, including that
asset class to which members can direct their contributions. Individual asset class objectives are also
summarized in this Statement.

3.0 Policy Asset Mix, Risk Diversification and Return Expectations
3.1 After careful consideration of the investment objective, liability structure, funded status and
liquidity needs of OPERF, and the return, risk and risk-diversifying characteristics of different asset
classes, the Council approved for the OPERF Regular Account the asset mix policy presented in
Exhibit 1. The exhibit also summarizes the Council’s total fund asset mix policy and active
management return expectations.
3.2 Fifty-nine percent of OPERF is targeted for investment in equities, inclusive of private equity.
Equity investments have provided the highest returns over long time periods, but can produce low and
even negative returns over shorter time periods.
3.3 The risk of low returns over shorter time periods makes 100% equity policies unsuitable for most
pension funds, including OPERF. By investing across multiple equity asset classes, and in lower
return but less risky fixed-income and real estate, the Council is managing and diversifying the fund’s
overall risk exposure.
3.4 Exposures to selected asset classes are maintained within the re-balancing ranges specified in
Exhibit 1.
3.5 With an 8.3% expected annual return, there is an estimated 50% probability of the fund earning

                                                                                                        85
an annualized return that equals or exceeds the current 8.0% actuarial discount rate over a 20 year
horizon or, approximately, the next two to three market cycles.



Exhibit 1: Policy Mix and Return Expectations for OPERF Regular

Asset Class                Target     Re-                     Expected               Expected                  Expected
                           Allocation balancing               Annual                 Annual Active             Annual
                           (%)        Range                   Policy                 Management                Total
                                      (%)                     Return1 (%)            Return (net of            Return (%)
                                                                                     fees) (%)


Public Equities                  43             38-48                 8.5                     .75                     9.3
Private Equity                   16             12-20                10.6                      .9                    11.5
    Total Equity                 59             54-56
Fixed Income                     25             20-30                 4.1                     .75                    4.8
Real Estate                      11              8-14                 7.5                     .75                    8.3
Alternatives                      5              0-8                  6.2                     1.4                    7.6
      Total Fund                100                                   7.5                      .8                    8.3

1. Based on capital market forecasts developed by the Council’s investment consultant, SIS, for the next two to three market
cycles.
2. Total Fund expected returns are simply the weighted averages of the asset class returns.




3.6 The 7.5% expected annual asset mix policy return was developed with reference to the observed
long-term relationships among major asset classes, adjusted by current market conditions. The Council
believes this return expectation is reasonable, but recognizes that over shorter time periods actual mix
policy returns can deviate significantly from this expectation – both positively and negatively.
3.7 US equity, non-US equity, and fixed-income asset classes are managed using both passive and
active management strategies.         Active management of public market securities and real estate
assets is expected to earn 0.8% per annum of additional returns over moving five-year periods. The
Council recognizes that unsuccessful active management can reduce total fund returns.
3.8 The OIC has provided for up to 3.0% of total plan assets to be invested in an Opportunity
Portfolio to provide enhanced returns and diversification to OPERF. Investments are expected to be a
combination of both shorter-term (1-3 years) and longer-term holdings. This allocation will not result
in any of the previously established strategic asset allocation targets falling outside their ranges. No
strategic target is established for the Portfolio since, by definition, investments will be pursued only on
an opportunistic basis, unless changed by the OIC.
3.9 Cash is invested in the Oregon Short Term Fund and is kept at a minimum level, but sufficient to
cover the short-term cash flow needs of OPERF.
3.10 In an effort to minimize cash exposure at both the fund and manager level, the OIC has retained
a policy implementation overlay manager to more closely align the actual portfolio with the policy
portfolio, generally through the buying and selling of futures contracts to increase or decrease asset
class exposures, as necessary.
3.11 The Council shall review, at least biennially, its expectations for asset class and active
management performance, and assess how the updated expectations affect the probability that the
Regular Account will achieve the investment objective.

                                                                                                                               86
4.0 Passive and Active Management
4.1 Passive management uses lower cost index funds to access the return streams available from the
world’s capital markets. Active management tries to earn higher returns than those available from
index funds by making value-adding security selection and asset mix timing decisions.
4.2 The Council uses passive management to control costs, evaluate active management strategies,
capture exposure to the more efficient markets, manage the risk of under-performance and facilitate re-
balancing to policy asset mix. Exchange traded real estate investment trusts (REITS) may also be used
to maintain the Fund’s asset class exposures within the specified policy ranges.
4.3 The Council approves the active management of fund assets when available investment
strategies offer sufficiently high expected incremental returns, net of
fees, to compensate for the risk of under-performance, and when the magnitude of potential under-
performance can be estimated, monitored and managed.
4.4 The Council must accept active management of those asset classes for which there is no passive
management alternative, in particular, real estate and private equity.
4.5 The Council prefers active management strategies that emphasize security selection decisions
rather than asset mix timing decisions. General investor experience and surveys of academic and
professional studies indicate that security selection decisions are more likely to earn above index
returns than asset mix timing decisions.
4.6 At the aggregate level of the Regular Account, active management strategies authorized by the
Council are expected to add 0.8% of annualized excess return, net of fees, over moving five-year
periods. Active risk of the Regular Account is managed to a targeted annualized tracking error of 2
to 3 percent, relative to the policy benchmark.

5.0 Public Equity Strategy
5.1 Public equity is managed with the objective of earning at least 75 basis points in annualized net
excess return above the MSCI All Country World Investable Market Index (ACWI IMI – net)
(unhedged) over moving five-year periods. Active risk is managed to a targeted annualized tracking
error of 0.75 to 2.0 percent, relative to the above benchmark.
5.2 Key elements of the strategy:
(a) 25% of assets are targeted for passive management, primarily in the large and mid capitalization
sectors of the market, which are believed to be more efficiently valued.
(b) Maintain a double weighting to U.S. small capitalization stocks, in an effort to enhance return.
This tilt is based on the Investment Council’s belief that inefficiencies in the small and micro cap
markets, relative to the large cap market, through active management, will outperform large cap stocks
over the long-term.
(c) Multiple specialist active managers with risk diversifying complementary investment styles are
employed. For example, managers that focus on either growth or value stocks and managers that focus
on large or small capitalization stocks. This produces more consistent excess returns and reduces the
fund’s exposure to any single investment organization.
(d) The Fund maximizes exposure to security selection based investment decisions by maintaining
aggregate exposures to value and growth stocks, economic sectors and market capitalizations relative
to their benchmark exposures, adjusted for the strategic small cap overweight.
(e) Active management exposure is higher for non-US equity because the Council believes the non-US
markets provide more opportunities for skilled managers to earn incremental returns.
 (f) Managers with skills in security selection and country allocation are utilized. These decisions
have been shown to be the principal sources of the excess return in non-US equity portfolios.
      Managers who have demonstrated ability to add value through currency management are

                                                                                                    87
permitted to do so.
(g) Aggregate exposures to countries, economic sectors, equity management styles and market
capitalization are monitored and managed relative to their benchmark exposures.

6.0 Fixed Income Strategy
6.1 Fixed income is being managed with the objective of earning 75 basis points in annualized net
excess returns above a blended benchmark of 60% Barclays Capital US Universal Bond Index, 10%
JP Morgan Emerging Markets Bond Index Global, 20% S&P/LSTA Leveraged Loan Index, and 10%
Bank of America Merrill Lynch High Yield Master II Index over moving five-year periods.
       Active risk is managed to a targeted annualized tracking error of 1 to 2 percent, relative to the
above benchmark.
6.2 Key elements of the strategy:
(a) At least 95% of fixed income is actively managed because active fixed income management is
generally more cost effective than active equity management. Excess returns are more likely because
many investors hold fixed income to meet regulatory and liability matching objectives, and are not
total return investors. This produces systematic mis-pricings of fixed- income securities that skilled
investment managers can exploit. Also, fixed income management fees are much lower than active
equity management fees.
(b) Multiple active generalist managers will be used for a majority of the fixed income asset class,
rather than multiple sector specialists as in the US equity market. The OIC may supplement this
strategy with specialist fixed income managers as warranted. Fixed income manager structures
generally have little impact on total Fund risk because of overall lower allocations to the asset class
and the low tracking errors. The asset class tracking error is diversified into insignificance at the total
Fund level.
(c) Managers are selected for their skills in issue selection, credit analysis, sector allocations and
duration management.
(d) Aggregate exposures to duration, credit and sectors are monitored and managed relative to
corresponding exposures in the asset class benchmark.

7.0 Real Estate Strategy
7.1 Real estate investments are being managed with the objective of earning at least 75 basis points
in annualized net excess returns above the NCREIF Index over moving five-year periods. Because
80% of the real estate investments are traded infrequently, risk budget concepts are not applicable.
7.2 Key elements of the strategy:
(a) Real Estate is 100% actively managed because index funds replicating the real estate broad
market are not available.
(b) Core property investments represent 30% of the real estate portfolio, with a range of 25% to
35%. Specialist managers are utilized. Risk is diversified by investing across the major property types:
offices, apartments, retail and industrial, but may include structured investments in alternative types of
property with Core type risk and return attributes.
(c) Exchange traded real estate investment trusts (REITs) represent 20% of the real estate portfolio,
with a range of 15% to 25%. Active management will include style and capitalization specialists, as
well as broad market managers. Up to 50% of the REIT exposure may be invested in markets outside
the United States.
(d) Value Added investments represent 20% of the real estate portfolio, with a range of 15% to 25%.
Investments may include direct property types listed above, as well as structured investments in
alternative property types. Risk is diversified by property type and geography.
(e) Opportunistic real estate investments represent 30% of the real estate portfolio, with a range of

                                                                                                         88
20% to 40%. Investment strategies will be characterized as “opportunistic” based on the market
conditions prevailing at the time of investment.
(f) The Fund may also participate in co-investment opportunities within the real estate asset class.

8.0 Private Equity Strategy
8.1 Private equity is being managed with the objective of earning at least 300 basis points net excess
return above the Russell 3000 Index over very long time horizons, typically moving 10-year periods.
      Because private equity investments are traded infrequently, risk budget concepts are not
applicable.
8.2 Key elements of the strategy:
(a) Private Equity is 100% actively managed because index funds of private equity are not available.
(b) Asset class risk is diversified by investing across different private equity fund types: venture
capital, leverage buyouts, mezzanine debt, distressed debt, sector funds and fund-of-funds.
(c) Asset class risk is further diversified by investing across vintage years, industry sectors,
investment size, development stage and geography.
(d) Private equity programs are managed by general partners with good deal flow, specialized areas
of expertise, established or promising net of fees track records, and fully disclosed and verifiable
management procedures.
(e) The Fund will participate in co-investment opportunities in the private equity asset class.



9.0 Alternatives Portfolio Strategy
9.1 Alternatives investments are being managed with the objective of earning at least 400 basis
points in annualized net excess returns above the CPI over moving ten- year periods. Because 80% of
the alternative investments are traded infrequently, risk budget concepts are not applicable.
9.2 Key elements of the target strategy:
(a) Alternatives are 100% actively managed because index funds replicating the broad alternatives
market are not available.
(b) Infrastructure investments represent 30% of the target alternatives portfolio, with a range of 25%
to 35%. Specialist managers are utilized. Risk is diversified by investing across the major
infrastructure types, investment size and geographies: energy infrastructure, transportation, ports, and
water; mid sized and large capitalization; domestic and international.
(c) Natural Resources investments represent 45% of the target alternatives portfolio, with a range of
40% to 50%. Risk is diversified by investing across the major sectors: oil and gas, agriculture land,
timberland, mining, and commodities. Specialist managers are across both active and passive
strategies and domestic and international markets.
(d) Hedge Fund investments represent 20% of the target alternatives portfolio, with a range of 15%
to 25%. Investments may include relative value, macro, arbitrage, and long short equity strategies.
Risk is diversified by investing across strategies and managers.
(e) Other investments may represent 5% of the target alternatives portfolio, with a range of 0% to
10%. Investment strategies will be characterized as “other” based on the strategy and market at the
time of investment.
(f) The Fund may also participate in co-investment opportunities within the alternatives asset class.

10.0 Performance Monitoring and Evaluation
10.1 The Council and its agents use a variety of compliance verification and performance
measurement tools to monitor, measure and evaluate how well OPERF assets are being managed.

                                                                                                       89
Monitoring, reporting and evaluation frequencies range from hourly, to daily, to weekly, to monthly,
to quarterly, to annually.
10.2 The Council has developed a performance monitoring and evaluation system that answers two
fundamental fiduciary questions:
Are Fund assets being prudently managed? More specifically, are assets being managed in
accordance with established laws, policies and procedures, and are individual investment managers in
compliance with their mandates?
Are Fund assets being profitably managed? More specifically, has performance affected benefit
security, has capital market risk been rewarded and has active management risk been rewarded?
10.3 When a breach of policies, procedures or portfolio mandates is reported or detected, the Council
requires a supporting report explaining how the breach was discovered, the reasons for the breach,
actions taken to rectify the breach, and steps taken to mitigate future occurrences.
10.4 One of the many reports used by the Council to monitor and evaluate performance of the
Regular Account indicates if the Regular Account has exceeded the 8.0% (ADR) return over moving
five-year periods. Additionally, reports quantify if the fund was rewarded for investing in higher return
but more risky equity investments over the same period, and if active management has added or
subtracted returns, net of fees.
10.5 The reporting described in this section gives the Council a consolidated or “big picture” view of
the performance of the Regular Account. This is the first level of a comprehensive four-level
performance report used by the Council to monitor and evaluate performance over different time
horizons. Level two examines Regular Account performance excluding hard-to-price illiquid assets
such as real estate and private equities. Level three examines the performance of the Regular
Account’s five individual asset class strategies: US equity, non-US equity, fixed income, real estate
and private equity. Level four examines the performance of individual managers within each of the
asset class strategies. The four-level reporting structure allows the Council to “drill down” to the
level of detail that is needed to identify potential performance problems, and take corrective action as
may be required.

Glossary
Actuarial Discount Rate (ADR): The interest rate used to calculate the present value of a defined
benefit plan’s future obligations and determine the size of the state’s annual contribution to the plan.

Alternative Investments: Investments that are considered non-traditional or emerging investment
types. Presently, the following investment types are considered alternative investments: hedge funds,
infrastructure, timber, and other commodities.

Asset Class: A collection of securities that have conceptually similar claims on income streams and
have returns that are highly correlated with each other. Most frequently referenced publicly traded
asset classes include US equities, US debt and US cash.

Bank of America Merrill Lynch High Yield Master II Index: HY Master II Index (market value of $1+
trillion with over 2,000 issues at March 31, 2011) constituents are capitalization-weighted based on
their current amount outstanding. The Index tracks the performance of US dollar-denominated below
investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must
have a below investment grade rating (based on an average of Moody’s, S&P and Fitch) and an
investment grade rated country of risk (based on an average of Moody’s, S&P and Fitch foreign
currency long term sovereign debt ratings).


                                                                                                           90
Barclays Capital US Universal Bond Index: The Universal Index (market value of approximately $17
trillion, with over 12,000 issues, at March 31, 2011), like the Barclays Capital US Aggregate Index, is
modular and combines the Aggregate Index with the following capitalization weighted Barclays fixed
income indices: the US High-Yield Corporate Index, the Rule 144a Index, the Eurodollar Index, the
US Emerging Markets Index, the non-ERISA eligible portion of the Investment-grade CMBS Index,
and the Emerged Bonds Index (emerged market bonds upgraded out of the Emerging Markets Index
but not eligible for inclusion in any other US Index). The Aggregate represents approximately 87% of
the Universal Index. However, the Universal captures an additional, approximately, $1.25 trillion in
US dollar denominated fixed income. The Universal Index was officially launched by the former
Lehman Brothers on January 1, 1999.

Basis Point: One basis point is 0.01%. One hundred basis points equals one percentage point.

Benchmark: A standard by which investment performance can be measured and evaluated. For
example, the performance of US equity managers is often measured and evaluated relative to the
benchmark performance of the Russell 3000 Index.

Benchmark Exposures: The proportion to which a given stock or investment characteristic is
represented in an investment benchmark, such as the Russell 3000 Index of US companies. Allows
investors to measure the extent to which their portfolio is over or under exposed to a given stock, or
investment characteristic such as market capitalization.

Co-investment: Although used loosely to describe any two parties that invest alongside each other in
the same company, this term has a special meaning in relation to limited partners in a fund. By having
co-investment rights, a limited partner in a fund can invest directly in a company also backed by the
fund managers itself. In this way, the limited partner ends up with two separate stakes in the company:
one, indirectly, through the private equity fund to which the limited partner has contributed; another,
through its direct investment, generally under better investment terms.

Core Property Investments: Real estate investment strategies which exhibit “institutional” qualities,
such as being well located within local and regional markets, well occupied, and of high quality design
and construction.

Credit: The measure of an organization’s ability to re-pay borrowed money. Used most often in the
managing fixed income portfolios. Organizations with the highest credit rating, those most likely to re-
pay money they have borrowed, are assigned a AAA credit rating.

Distressed Debt: A private equity investment strategy that involves purchasing discounted bonds of a
financially distressed firm. Distressed debt investors frequently convert their holdings into equity and
become actively involved with the management of the distressed firm.

Duration: A financial measure used by investors to estimate the price sensitivity of a fixed-income
security to a change in interest rates. For example, if interest rates increase by 1 percentage point, a
bond with a 5-year duration will decline in price by 5 percent.

Efficient Markets: A market in which security prices rapidly reflect all information about securities
and, by implication, active managers find it more difficult to pick stocks that consistently beat the
performance of an index fund.

                                                                                                           91
Equities: Investments that represent ownership in a company and therefore a proportional share of
company profits.

Fixed-Income: Debt obligations of corporations and governments that specify how money previously
borrowed is to be repaid. Typically, money is repaid by a series of semi-annual interest payments of
fixed amounts, and final repayment of principal.

Funded Status: A comparison of plan assets with the plan liability (e.g. the projected benefit obligation
(PBO)). When plan assets are greater than the PBO, the plan is overfunded. If plan assets are less than
the PBO, the plan is underfunded and the state has a net liability position with respect to its pension
plan.

Fund-of-funds: a fund that invests primarily in other private equity funds rather than operating firms,
often organized by an investment advisor or investment bank.

Growth Stock: Stocks that exhibited faster-than-average earnings growth over the last few years and is
expected to continue to do so into the near future. Growth stocks usually have high price-to-earnings
ratios, high price-to-book ratios and low dividend yields.

Hedged: A term applied to a portfolio of non-domestic stocks or bonds that is unaffected by changes in
the relative value of the domestic and foreign currencies. Forward currency contracts are typically
used to hedge a portfolio against currency risk.

Index Fund: A portfolio management strategy that seeks to match the composition and performance of
a selected market index, such as the Russell 3000.

JP Morgan Emerging Markets Bond Index Global: The EMBI Global Index (market value of
approximately $415 billion with 265 issues at March 31, 2011) tracks total returns for US dollar-
denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities:
Brady bonds, loans, Eurobonds. The methodology is designed to distribute the weights of each country
within the Index by limiting the weights of countries with higher debt outstanding and reallocating this
excess to countries with lower debt outstanding.

Leverage Buyouts (LBO): The acquisition of a firm or business unit, typically in a mature industry,
with a considerable amount of debt. The debt is then repaid according to a strict schedule that absorbs
most of the firm’s cash flow.

Liability: A claim on assets by individuals or companies. In a pension context, liabilities represent the
claim on fund assets by active and retired members of the pension plan.

MSCI All Country World Investable Market Index (ACWI-IMI): A free float-adjusted market
capitalization index that is designed to measure equity market performance in the global developed
and emerging markets, by capturing up to 99% of the developed and emerging investable market
universe, covering over 8,500 securities. As of May 2010 the MSCI ACWI consisted of 45 country
indices comprising 24 developed and 21 emerging market country indices. The developed market
country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,

                                                                                                          92
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The
emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic,
Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland,
Russia, South Africa, Taiwan, Thailand, and Turkey.

MSCI ACWI Ex US: The same as the MSCI ACWI, except that stocks in the United States are not
included.

MSCI World Ex US Index: A free float-adjusted market capitalization index that is designed to
measure global developed market equity performance, excluding the United States. As of May 2010
the MSCI World Ex US Index consisted of the following 23 developed market country indices:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong,
Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, and the United Kingdom.

Market Capitalization: The value of a corporation as determined by multiplying the price of its shares
by the number of shares outstanding. Investors often use market capitalization as an indicator of
portfolio risk or volatility. In general, smaller capitalized companies are more volatile or risky than
larger capitalized companies.

Mezzanine: Either a private equity financing undertaken shortly before an initial public offering, or an
investment that employs subordinated debt that has fewer privileges than bank debt but more than
equity and often has attached warrants.

NCREIF Index: The National Council of Real Estate Investment Fiduciaries (NCREIF) is an
association of institutional real estate professionals who share a common interest in their industry. The
NCREIF Property Index (NPI) is a quarterly time series composite total rate of return measure of
investment performance of a very large pool of individual commercial real estate properties acquired
in the private market for investment purposes only. All properties in the NPI have been acquired, at
least in part, on behalf of tax- exempt institutional investors - the great majority being pension funds.
As such, all properties are held in a fiduciary environment. The qualifications for inclusion in the NPI
are:
Operating properties only Property types - apartments, hotels, industrial properties, office buildings,
and retail only Can be wholly owned or in a joint venture structure. Investment returns are reported on
a non-leveraged basis. While there are properties in the NPI that have leverage, returns are reported to
NCREIF as if there is no leverage Must be owned/controlled by a qualified tax-exempt institutional
investor or its designated agent Existing properties only (no development projects)

Office of the State Treasurer: Headed by the State Treasurer as the chief financial officer for the state,
the Office of the State Treasurer is responsible for managing the day to day investment operations of
the state pension fund (and other funds), issuing all state debt, and serving as the central bank for state
agencies. Within the Office of the State Treasurer, the Investment Division also manages the
investment programs for the state’s deferred compensation plan and college savings plan, and serves
as staff to the Oregon Investment Council.

Opportunistic Real Estate Investments: Higher risk but higher expected return real estate investments
that are usually very illiquid, not currently income-producing and are often distressed purchases and/or
highly leveraged.

                                                                                                         93
Opportunity Portfolio: Non-traditional and/or concentrated investment strategies that may provide
diversification and return potential outside of the OIC formally approved asset classes. The Portfolio
may be populated with innovative investment approaches across a wide range of investment
opportunities with no limitation as to asset classes or strategies that may be used. The Opportunity
Portfolio investment program seeks to achieve its investment objective by investing in strategies that
fall outside the OIC’s previously identified asset classes because of the expected time horizon, tactical
nature of the investment, or some other unique aspects which must be clearly defined in the written
recommendation provided to the OIC.

Oregon Investment Council (OIC): Oregon Revised Statute (ORS) 293.706 establishes the OIC, which
consists of five voting members, four of whom are appointed by the Governor and subject to Senate
confirmation (the Treasurer serves by position, and is not subject to confirmation). In addition, the
Director of the Public Employees Retirement System is an ex-officio member of the OIC. ORS
293.721 and 293.726 establish the investment objectives and standard of judgment and care for the
OIC: Moneys in the investment funds shall be invested and reinvested to achieve the investment
objective of the investment funds, which is to make the moneys as productive as possible, subject to
the prudent investor standard.

Oregon Public Employees Retirement Fund (OPERF): Holds the assets of beneficiaries of the Oregon
Public Employees Retirement System (PERS). PERS is a statewide defined benefit retirement plan for
units of state government, political subdivisions, community colleges, and school districts. PERS is
administered under ORS chapter 238 and Internal Revenue Code 401(a) by the Public Employees
Retirement Board (PERB). For state agencies, community colleges, and school districts, PERS is a
cost-sharing, multiple-employer system. It is an agent multiple-employer system for political
subdivisions. Participation by state government units, school districts, and community colleges is
mandatory. Participation by most political subdivisions is optional but irrevocable if elected. All
system assets accumulated for the payment of benefits may legally be used to pay benefits to any of
the plan members or beneficiaries of the system. PERS is responsible for administrating the
management of the plan’s liability and participant benefits.

Oregon Short Term Fund (OSTF): The state’s commingled cash investment pool managed internally
by OST staff. The OSTF includes all excess state agency cash, as required by law, as well as cash
invested by local governments on a discretionary basis. The OSTF is invested in accordance with
investment guidelines recommended by the state’s Oregon Short Term Fund Board and approved by
the OIC.

Overweight: A stock, sector or capitalization exposure that is higher than the corresponding exposure
in a given asset class benchmark, such as the Russell 3000 Index.
Private Equity: Venture Economics (VE) uses the term to describe the universe of all venture
investing, buyout investing and mezzanine investing. Fund of fund investing and secondaries are also
included in this broadest term. VE is not using the term to include angel investors or business angels,
real estate investments or other investing scenarios outside of the public market. See also Alternative
Investments.

Real Estate: Investments in land and/or buildings. Real Estate Investment Trusts (REIT): A real estate
portfolio managed by an investment
company for the benefit of the trust unit holders. Most REIT units are exchange traded.

                                                                                                       94
Regular Account: That portion of the Oregon Public Employees Retirement Fund that excludes the
Variable Account. A diversified investment portfolio, with an OIC established asset allocation. Tier
One member funds in the regular account are guaranteed a minimum rate of return based on the long-
term interest rate used by the actuary. The rate is currently 8 percent per year. Tier Two member funds
in the regular account have no guaranteed rate of return. Tier Two regular accounts receive whatever is
available for distribution.

Return: The gain or loss in value of an investment over a given period to time expressed as a
percentage of the original amount invested. For example, an initial investment of $100 that grows to
$105 over one year has earned a 5% return.

Risk: A statistical measure of the possibility of losing or not gaining value. May also be expressed as
the probability of not achieving an expected outcome.

Risk-diversifying: Reducing risk without reducing expected returns by combining assets with returns
that move in opposite directions over a given time period thereby reducing the total portfolio risk. A
decline in the price of one asset is offset by the increase in the price of another asset in the portfolio. In
laypersons term’s, this is often described as putting your eggs into more than one basket.

Russell 3000 Index: Measures the performance of the 3,000 largest U.S. companies based on total
market capitalization, which represents approximately 98% of the investable U.S. equity market.

S&P/LSTA Leveraged Loan Index: The S&P/LSTA Leveraged Loan Index (market value of
approximately $470 billion with over 900 facilities at March 31, 2011) mirrors the market-weighted
performance of the largest institutional leveraged loans based upon market weightings, spreads and
interest payments.

Sector: A particular group of stocks or bonds that usually characterize a given industry or economic
activity. For example, “pharmaceuticals” is the name given to stocks of companies researching,
manufacturing and selling over-the-counter and prescription medicines. “Corporates” is the name
given to fixed-income instruments issued by private and public companies.

Sector Funds: A pooled investment product with investments that focus on a particular industry or
economic activity. For example, pooled funds that invest principally in technology stocks would be
termed a technology sector fund.

Tracking Error: When using an indexing or any other benchmarking strategy the amount by which the
performance of the portfolio differed from that of the benchmark. In reality, no indexing strategy can
perfectly match the performance of the index or benchmark, and the tracking error quantifies the
degree to which the strategy differed from the index or benchmark. Usually defined as the standard
deviation of returns relative to a pre- specified benchmark.

Unhedged: A term applied to a portfolio of non-domestic stocks or bonds that is affected by the
changes in the value of domestic and foreign currencies.

Value Added: As used in real estate, may include office, retail, industrial and apartment properties, but
may target structured investments in alternative property types such as hotels, student housing, senior

                                                                                                            95
housing, and specialized retail uses. The Value Added portfolio is expected to produce returns
between Core and Opportunistic portfolios but may experience greater vacancy or interest rate risk
than the Core portfolio. Value Added properties may exhibit “institutional” qualities such as being
well located within local and regional markets, and be of high quality design and construction but may
need redevelopment, or significant leasing to achieve stabilized investment value. Value Added
investments may include development opportunities with balanced risk/return profiles.

Value Stock: Stocks that appear to be undervalued for reasons other that low potential earnings
growth. Value stocks usually have low price-to-earnings ratios, low price-to- book ratios and a high
dividend yield.

Variable Account: The Variable Annuity Program allowed active members to place a portion of their
yearly employee contributions exclusively within a domestic equity portfolio. Active members who
participated in the Variable Program had part of their member account balance in the regular account
and part in the variable account. Unless a member elected to participate in the Variable Program, all of
the member’s employee contributions went into the regular account. This “primary” election allowed
members to place 25 percent, 50 percent, or 75 percent of their employee contributions in the variable
account. Variable account balances increase or decrease depending on the performance of the variable
fund; accounts are credited for whatever is available for distribution, whether it is a gain or a loss. The
OIC only sets asset allocation policy at the Regular Account level, since the OIC cannot control
historical employee directed investment options.

Venture Capital: Independently managed, dedicated pools of capital that focus on equity or equity-
linked investments in privately held, high growth companies. Outside of the United States, the term
venture capital is used as a synonym for all types of alternative or private equity.

Vintage Year: The group of funds whose first closing occurred in the same year. For example,
venture capital funds of vintage year 1995 were closed to additional investors in 1995.
- end -




                                                                                                         96

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:61
posted:8/11/2011
language:English
pages:96