State Universities Retirement System of Illinois (SURS) Request for Proposal. Master Custody, Related Services & Securities Lending

Transcription

1 State Universities Retirement System of Illinois (SURS) Request for Proposal Master Custody, Related Services & Securities Lending November 2006

2 Table of Contents I. RFP Summary Statement 2 II. Background Information 2 III. Scope of Services 4 IV. RFP Specifications 7 V. Selection Process 9 VI. Projected Schedule of Events 10 VII. Minimum Qualifications 10 VIII. Selection Criteria 11 Master Custody and Related Services Questionnaire Appendix A Exhibits Listing of SURS Managers Detailed Asset Listing as of 9/30/06 Transactional Summary (6 months ending 6/30/06) Letter to SURS Managers regarding IL Public Act (Sudan Divestment Legislation) Policy Requiring Certification of Compliance With Regard to Certain Prohibited Predatory Lending Practices Quiet Period Policy (Pending SURS Board Approval) Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E Exhibit F 2

3 State Universities Retirement System of Illinois (SURS) Request for Proposal November 2006 Master Custody, Related Services & Securities Lending I. RFP Summary Statement The State Universities Retirement System of Illinois (SURS) is soliciting proposals to provide comprehensive domestic and international master trust/custodial services (acting in the capacity of a plan fiduciary) including, but not limited to securities safekeeping, settlement, valuation and lending; performance measurement; foreign exchange; collection of income; and providing a management/accounting and information retrieval system. SURS will consider separate bids for: 1) custody with securities lending; 2) custody with no securities lending; 3) stand alone securities lending. The product solicited in this request for proposal (RFP) herein will be referred to as the subject product. A firm submitting a proposal is referred to as proposer or candidate. II. Background Information Agency Description SURS is the administrator of a cost-sharing, multiple employer public employee retirement system. SURS membership includes employees of the public universities and other affiliated organizations. As of June 30, 2006, SURS membership totaled more than 181,000 active, inactive and retired participants. SURS maintains both a defined benefit and defined contribution plan. Proposals are being solicited for the defined benefit plan. Defined Benefit Plan Investment Program SURS investment program, as of September 30, 2006, totaled $14.6 billion. The adjusted strategic target asset allocation as of September 30, 2006 is as follows: U.S. Equities public markets 37.5% U.S. Equities private markets 5.0% Non-U.S. Equities 18.5% Global Equities 5.0% Fixed Income 21.5% Real Estate 6.0% TIPS 4.0% Opportunity Fund 2.5% Exhibit A contains a listing of SURS investment managers and the corresponding market values of the portfolios under management for SURS. A detailed asset listing as of September 30, 2006, is provided as an attachment in Excel format (Exhibit B). Exhibit C contains a transactional summary for the SURS Total Fund for the six months ending June 30, SURS Annual Financial Report as of June 30, 2005, is available for download at Legislated Investment Restrictions Relating to the Republic of the Sudan In 2005 the Illinois General Assembly passed Public Act 94-79, restricting investment in companies domiciled in, managed or controlled by, or doing business with the Republic of the Sudan. SURS 3

4 investment managers are required by law to abide by the restrictions. Exhibit D contains a letter sent by SURS to its investment managers and provides information relating to these Sudan-related investment restrictions. Predatory Lending Certification Requirements In September 2006 the SURS Board of Trustees adopted the Policy Requiring Certification of Compliance With Regard to Certain Prohibited Predatory Lending Practices. To the extent consistent with the Board s fiduciary duties, it will obtain a certification by May 15 of each calendar year from financial institutions doing business with SURS certifying that the institution and any of its affiliates and operating subsidiaries do not make, invest in, or service loans as described in the above mentioned Policy. The Policy is available for download for your review as Exhibit E. III. Scope of Services The following represents the general custody services required by SURS. The custodian will be responsible for that property which it receives from the System, and the System s investment managers. The general responsibilities under the contract will include, but not be limited to, the collection of income, disbursements of funds, and monthly reporting of all transactions within compliance of generally accepted accounting principles and the laws under which SURS operates within the State of Illinois. The proposer must be able to provide all of the services listed below unless otherwise indicated: A. ACCOUNTING 1. Trade date multi-currency (local and US dollars) accounting for all securities and full accrual accounting for all assets. 2. Accounting for the following: a. Dividends and interest, corporate actions (including mergers, acquisitions, tenders, stock splits and dividends, warrants and spin-offs) b. Securities lending c. Domestic and international fixed income and equity portfolios d. Equity real estate and REIT portfolios e. Futures and multi-currency derivatives f. Private equity, including domestic and non-us limited partnerships for LBO s, venture capital, etc. 3. Payable date posting for dividends, bond interest and principal, and interest and paydown on mortgage pass-through certificates. 4. Accounting must be on a fiscal year basis (July 1 - June 30). 5. A secondary pricing source for comparison to the primary source for pricing securities. 6. Investments must be reported at cost and market value. 7. The proposer confirms that all information concerning holdings and transactions will be available for inquiry, download or print capabilities. 4

5 B. SECURITIES SETTLEMENT 1. Participating member and access to securities settlement through DTC, Federal Reserve wire system, PTC, and at other depositories (both domestic and international). 2. The ability to settle physically held securities. 3. The ability to execute foreign exchange transactions. 4. Provision of buy-fail float and contractual settlement date posting of sales. 5. Trade data must be electronically accessible by SURS, its investment managers, and consultants. C. CASH MANAGEMENT 1. Provide a Short Term Investment Fund (STIF) for daily cash sweeps. 2. Provide for same day settlement of cash trades, such as physical, DTC, and Fed wireable repo and term purchases. 3. Transfer cash between accounts, make and accept wire transfers of funds (including provision of Fed reference numbers upon request), and accept fund contributions via ACH. D. SECURITIES LENDING Provide securities lending services for eligible domestic and international securities. 1. Establish a list of eligible borrowers and a maximum amount that may be borrowed by each borrower. Conduct ongoing reviews of borrowers' qualifications. 2. Require that all loans of securities be collateralized by either cash, securities or letters of credit of mutually acceptable counterparties. 3. Require competitive market levels of collateralization for domestic and international securities, including accrued income. 4. Monitor collateral levels daily. Obtain additional collateral if mark-to-market values fall below acceptable levels. 5. Collect all interest or other distributions with respect to all loaned securities. 6. Make available a daily report of collateral, identifying daily collateral required and pledged, and a monthly report on securities lending activity and outstanding loans, including amounts by borrowers. 7. Provide indemnification against borrower default. 8. Allow for and cooperate with a third party securities lending custodian (if requested) and associated vendors. E. CORPORATE ACTIONS, CLASS ACTIONS AND PROXY PROCESSING 1. In a timely manner, provide annual reports, proxy voting cards, and proxy statements to SURS proxy voting agent. 2. Timely notification to SURS investment manager of corporate actions regarding conversion privileges, issuance of rights, mergers, tender offers, reorganizations, and other actions requiring decisions by SURS investment managers. 3. Timely notification of class action litigation and provision of the necessary securities information to SURS. 4. Filing claims for securities class action awards and monitoring collection of the amounts to which the System is entitled. 5

6 F. TECHNOLOGY 1. Provide PC- or workstation-based system with access to management information and accounting systems with the capability of providing the following information: a. Current and historical prices, market values, and exchange rates in effect at times of pricing international securities b. Composite portfolios c. Current and historical transactions by security; by account; by asset class d. On-line access to current and historical holdings in any aggregate e. Customized reports as required f. Ad hoc query and reporting 2. Provide state-of-the-art back-up systems to minimize loss of data and provide instant availability. 3. Provide staff with the ability to review all externally managed portfolios. G. REPORT REQUIREMENTS 1. Provide audited monthly holding reports to be received no later than 10 working days after month-end for on-line reports and hard copy reports. 2. Provide accurate monthly, quarterly, and year-to- date reports on all transactions, income, and other pertinent investment data, in a format acceptable to SURS, no later than 10 working days after the end of each month. 3. Provide monthly reports in a format acceptable to SURS. 4. Provide other reports as may be requested by SURS. 5. Provide annually the Statement on Auditing Standards SAS No. 70 report on processing of transactions by service organizations. 6. Provide certification from the trustee that the reported information is complete and accurate. 7. Monthly and annual securities lending reports. 8. Reports of daily transactions including domestic trades affirmed, unaffirmed, failing, pending, etc. 9. Monthly performance measurement reports to be received no later than 12 working days after month-end. 10. Quarterly performance measurement, attribution, and other analytic reports. H. PERSONNEL 1. Proposer must make presentations as required to the Board to discuss services related to SURS. 2. Proposer should provide the personnel to facilitate audit access to SURS staff or its designated agents for the purpose of verifying the integrity of proposer s operations for the SURS account and all data input and output in case such an audit is deemed necessary. 6

7 IV. RFP Specifications A. Submission Deadline The completed RFP must be delivered by 5:00 pm CST December 8, Earlier responses are welcome. Any RFP delivered after the deadline may not be considered. Seven (7) hard copies of the proposal shall be submitted, each in a 3-ring binder, indexed with each section separated by properly labeled tab dividers. The name of the firm shall be placed on the front cover and spine, and shall contain all original signatures. Completeness, clarity and brevity are stressed in the RFP proposal binders. Send seven (7) hard copies and one electronic copy to the attention of: Mr. Douglas C. Wesley, CFA, Deputy Chief Investment Officer State Universities Retirement System of Illinois 1901 Fox Drive Champaign, IL CustodianRFP@surs.org B. Submission of Questions In order to clarify any issues in this Request for Information, the System will respond only to questions that are presented in writing via to CustodianRFP@surs.org. All questions concerning this RFP must be received by December 1, These questions will be consolidated into a single Q&A document. The Q&A document will be posted to the website ( on or around December 7, 2006 without divulging the source of the query. C. Rights Reserved SURS reserves the right to amend any segment of the RFP prior to the announcement of a successful contractor. In such an event, all responders will be afforded the opportunity to revise their proposal to accommodate the RFP amendment. SURS reserves the right without prejudice to reject any or all proposals submitted. There is no express or implied obligation for SURS to reimburse for any expenses incurred in preparing proposals in response to this request. All material submitted in response to the RFP will become property of SURS. Materials received will be considered public information and will be open to public inspection in accordance with the State of Illinois Freedom of Information Act (FOIA). D. Specific Proposal Contents It is requested that your response be limited to no more than two binders (does not include the firm s annual report and the SAS 70 report). One of the binders shall contain only the questions and responses to the questionnaire. Extra material, such as press clippings, promotional material, etc. should be limited. The following contents are required. 1. Transmittal Letter. The transmittal letter must be submitted on the firm s official business letterhead. The letter is to transmit the proposal and must identify all materials and 7

8 enclosures being forwarded collectively as a response to this RFP. The transmittal letter must also warrant that the proposer has met all of the minimum qualifications specified in Section VII (Minimum Qualifications) as of June 30, The transmittal letter must be signed by an individual authorized to commit the firm to the scope of the work proposed at the price quoted in the firm s cost proposal. 2. Executive Summary. The executive summary should be limited to 5 pages and discuss your firm, its history, capabilities, personnel, etc. 3. Questionnaire. A response must be printed on 8.5 x 11 paper and one-sided. Completeness, clarity and brevity are stressed in the RFP proposal binders. The proposer should address the items in the RFP in the order in which they appear in the RFP. Further, each question number and question in the RFP shall be repeated in its entirety before stating the answer. Please complete the following sections in accordance with the proposal(s) you are participating in: 1. Custody with securities lending Answer all questions. 2. Custody with no securities lending Answer all questions except questions 70 through 92 in section IX (Securities Lending) and questions 110 through 112 in Section XIII (Fees). 3. Stand alone securities lending Please complete questions in sections: i. I Organizational Overview ii. IX Securities Lending iii. Fees 4. Fee Proposal. This section must identify the annual fee proposed to SURS for the three year period beginning July 1, 2007, and ending June 30, Any fees not included in the annual retainer must be expressly stated in this section. Fee proposals should be submitted for the following three options: 1) custody with securities lending; 2) custody with no securities lending; 3) stand alone securities lending. E. Ex-parte Communications Public Act , which became effective December 9, 2003, brought about new Illinois ethics procedures. All ex parte communications concerning investment, rulemaking or quasi-adjudicatory matters pending before the State agency must be documented and some must be reported. An ex parte communication is any written or oral communication by any person that imparts or requests material information or makes a material argument regarding potential action concerning an investment, a rulemaking process, or a quasi-adjudicatory matter. An ex parte communication does not include statements publicly made in a public forum or communications among employees of the State agency. An ex parte communication from an interested party or his or her official representative or attorney to an employee or the agency must be memorialized and made a part of the record. An interested party is a person or entity whose rights, privileges, or interests are the subject of or are directly affected by an investment, regulatory or quasi-adjudicatory matter. 8

9 An ex parte communication other than that just described must be reported by the staff member or Trustee immediately to the agency s Ethics Officer. The communication must be memorialized and made a part of the record. The communication must be filed with the Executive Ethics Commission, accompanied by a memorandum from the ethics officer. F. Quiet Period Policy The SURS Investment Committee, at its October 2006 meeting, recommended adoption of a Quiet Period Policy, which is intended to establish guidelines by which Board Members and staff will communicate with prospective service providers during a search process. The full SURS Board of Trustees will consider adoption of the Policy at the December 8, 2006 meeting. Although not currently in force, the draft Policy is available for download as Exhibit F. V. Selection Process The selection process under this RFP will be as follows: A. Non-Qualifying Proposals The evaluation team will evaluate each Proposal to determine if it was submitted in accordance with the requirements set forth in this RFP, including whether the Proposal meets all of the applicable minimum qualifications. All non-qualifying proposals will be rejected at this time and the proposing firms so notified. B. Selection of Finalists The Proposals will be evaluated by the Evaluation Team. Proposers may be invited to a due diligence interview with the Evaluation Team. Based on the Selection Criteria set forth in Section VIII of this RFP, the Evaluation Team will select finalists to serve as master trust custodian and/or securities lending agent to SURS. C. Selection of Master Trust Custodian Members of the Evaluation Team may make a due diligence site visit to the finalists offices. The Evaluation Team will then rank the finalists and make its recommendations for selecting SURS master trust custodian and/or securities lending agent to the Investment Committee. One or more finalists may appear before the SURS Investment Committee to present the firms capabilities. The Investment Committee may accept the recommendations of the Evaluation Team or, based on the Selection Criteria set forth in Section VIII of this RFP, may rank the firms differently from the Evaluation Team and select a different firm from among the finalists to provide these services to SURS. 9

10 VI. Projected Schedule of Events November 13, 2006 December 1, 2006 December 15, 2006 December 2006 January / February 2007 January / February 2007 March 8, 2007 March 15, 2007 July 1, 2007 Proposed Timeline RFP Issued Deadline for Questions Responses due to SURS from interested participants SURS staff and Ennis Knupp + Associates review responses On-site visits by SURS of potential candidates Evaluation process by SURS and Ennis Knupp + Associates Finalist candidate interviews by SURS Investment Committee Develop plan for conversion to new custodian (if necessary) Begin conversion process (if necessary) VII. Minimum Qualifications A Proposer must meet the following minimum qualifications to be given further consideration in SURS search for a master trust custodian and/or securities lending agent. Failure of a firm to meet the minimum qualifications will result in the Proposal s immediate rejection. All minimum qualifications must be met as of June 30, A. Custody 1. If submitting a proposal, the candidate must have at least $300 billion in tax-exempt master trust/master custody assets as of June 30, This amount must include at least $5 billion in international equity and fixed income. 2. As of June 30, 2006, the candidate must have provided custody services for a minimum of ten (10) years. 3. The account manager assigned must have had a minimum of five (5) years experience in the master trust/custody field with at least three (3) years experience at the responding firm. The transition team leader and his/her assistant must have worked together on at least one (1) prior major conversion of an account with market value in excess of $5 billion consisting of multiple asset classes. 4. The candidate must be authorized to conduct a trust business in the State of Illinois. B. Securities Lending 1. If submitting a proposal, the candidate must have at least $100 billion in securities lending lendable base on an agency basis as of June 30, As of June 30, 2006, the candidate must have provided securities lending services for a minimum of ten (10) years. 3. The account manager assigned must have had a minimum of five (5) years experience in the master trust/custody field with at least three (3) years experience at the responding firm. 10

11 VIII. Selection Criteria SURS will consider the following criteria in the selection of a master custodian in making its decision: A. Corporate organization, general experience, and stability B. Professional staff / client relations C. Custody services expertise and experience (U.S. and Non-U.S. capabilities) D. Risk management internal control structure E. Cash management capabilities and experience F. Accounting and reconciliation capabilities G. Minority brokerage reporting capabilities H. Performance measurement and analytics capabilities and experience I. Technology J. Timeliness and accuracy of reporting K. Tracking litigation and filing litigation claims L. Securities lending experience M. Year end reporting capabilities N. Assistance with GASB issues and reporting O. Experience in managing transition and conversion P. Willingness to execute the Predatory Lending Certificate Q. Cost of services 11

12 Appendix A: Questionnaire Please indicate which proposal you are participating in (check all that apply): Custody with Securities Lending Custody with No Securities Lending Stand Alone Securities Lending I. Organizational Overview 1. Provide the name, title, address, telephone, fax number and address for the person submitting this proposal. 2. Briefly describe the organizational structure of your parent company and your master trust/custody services. Please identify those trust/custody operations authorized to conduct business in the State of Illinois. Provide an organizational chart, broken down by major operating units. Include annual operating income and year over year percentage growth, by unit for the last five years. 3. Briefly describe each of your organization's core business units and the percentage of revenue and earnings derived from each. 4. Describe any organizational changes that occurred or were announced during the past 2 years (e.g., mergers, acquisitions, structural changes, departures of key personnel). How do you plan to integrate these changes into your current organization? What will be the impact of these changes on client relationships? 5. What are your organization's total assets and capital base? 6. Briefly describe your master custody service capabilities including those items that currently set you apart from your competition. What percentage of the organization s revenues come from the custody division? 7. List and briefly describe any new custody services/product improvements that have been released in the past two years or will be released within the next year. 8. Briefly describe your bonding and liability insurance coverage. Indicate the amount carried for Errors and Omissions and for Fidelity bonding. List any deductibles involved. 9. Please disclose the nature of any relationship you now have or have had in the past five years with any SURS Board member, consultant, general manager, or staff. 12

13 10. Provide a brief explanation and indicate the current status of any business litigation or other proceedings related to the master trust/custody business involving your firm or any officer or principal over the past five years. II. Custody Operations 11. Briefly describe the structure of the area of your organization that provides institutional custody services. Please name all key personnel in the area and include a short summary of each individual's background. Please identify any recent changes to the area's structure or staffing. 12. Please describe your organization's approach to custody client staffing (e.g., team, relationship manager supported by several areas), including a description of the client service arrangement you will provide to SURS. Describe the responsibilities of each person assigned to a typical custody relationship. 13. Please provide the total assets and number of U.S.-based custody clients by type: Corporate Taft-Hartley Public Endowments/Foundations Insurance Defined Contribution Mutual Funds Other (please specify) Total No. of clients <$100mm $100 to $500mm $500mm to $1 bn $1 to $5 bn $5 to $15 bn >$15 bn Total Clients Total Assets $ bn 14. Please provide the following information. Mean custody account size Median custody account size Custody clients and custody assets gained/lost in the past two years. Reasons for lost clients. Number of custody relationship managers Average client-to-relationship Manager ratio Total institutional custody employees 15. Please rank, in descending order by asset size, the names of your ten largest public fund master trust/custody services clients. For each of these clients, provide an appropriate contact name, telephone number, and indicate the major ancillary services (securities lending, short-term investment management, etc.) provided to them. 13

14 III. Securities Processing 16. Describe your settlement process for domestic securities transactions, including depositories used and your involvement with them. If you use a central depository, is your firm a direct participant in that depository? Please provide your average daily transaction volume by depository. 17. How are you made aware of settlement problems and at what time (how soon after settlement date)? 18. What is your policy on fail float? 19. How do you handle information on corporate activities (i.e., tender offers, exchange offers, etc.)? 20. What sources are used for dividend information and corporate actions? 21. Describe how you distribute proxy information. What controls, if any, are in place to ensure receipt and timely distribution? IV. Cash Management 22. Describe your cash management policies and procedures regarding the purchase and sale of securities and receipt of income. 23. What are your policies and procedures for investing daily surplus cash balances that are not used by investment managers? 24. Please include a description of all available cash management vehicles for qualified retirement plans. Include all fees, frequency of fund opening/valuation and investment results for the past three calendar years ending December 31, Describe the investment guidelines and policies (risk analysis, asset allocation, average duration, quality, term structure, diversification, etc.) of your short-term investment funds. 25. Have any of your short-term investment funds defaulted during the past two years? If so, please explain the circumstances of the default, recovery of investment, allocation of loss, etc. Did any participants incur a loss? Were any adjustments made to your investment guidelines/policies to avoid a similar problem? 26. What is the daily notification deadline for outgoing wire transfers? 27. What is the daily deadline for receiving incoming wire transfers in order to ensure same-day investment? 14

15 V. Systems / Data Processing Overview 28. Name and briefly describe your custody system. Where is the system located? When was the system introduced? How much downtime has the system experienced in each of the past two years? 29. How much has your organization dedicated to custody-related hardware and software enhancements/upgrades during each of the past two years in dollar terms and as a percentage of total custody operating expenses? 30. Briefly describe your planned system enhancements for the next three years. Will these enhancements be developed internally or purchased from an outside vendor? How much money have you committed to these enhancements for each of the next three years? 31. Is the system dedicated to custody or shared with other units within your organization? 32. Is the institutional custody operation supported by a dedicated data processing, programming and application development staff? How many programmers/analysts are assigned to the area? 33. Briefly describe your custody backup, support and recovery systems and security measures in place to protect against unauthorized access to the custody system. Online System 34. Briefly describe your online system (design, inquiry features, reporting capabilities, flexibility). 35. What is the lag time between trade execution, availability of online transaction data to the client and the posting of the transactions to your accounting system? 36. Please provide the following information related to your online system. Name Version and release date Access (Toll dial/toll free dial/internet) Supports modem pool (yes/no) Consultant access (yes/no) On-site training for clients (yes/no) Online delivery of accounting reports (yes/no) Installation and annual fee Frequency of data Downloadable to Excel (yes/no) Help desk staff (number of employees) and hours Commingled fund "look through" to underlying holdings (yes/no) Ad hoc report generator (yes/no) 15

16 Risk/Compliance Monitoring 37. Do you offer a system to monitor a client's investment manager compliance with investment guidelines? If so, does it offer: Portfolio holding tests: tests performed on the portfolio data (i.e., test the maximum total domestic equity as a percent of total assets) External data tests: tests that require data available from external database sources (i.e., credit ratings of fixed income instruments) Derivatives tests: tests that measure the exposure to derivative instruments Risk management tests: tests that measure the risks associated with individual portfolios as well as the total fund (i.e., value-at-risk analysis) 38. Is this compliance monitoring system a feature of your online system? If so, what was the release date and how many clients are currently using it? If not, is there a proposed release date? 39. Comment on your ability to monitor an investment manager's trades for extreme positions that could indicate unauthorized/rogue trading. Can these trades be identified before settlement? VI. Accounting / Reporting 40. Name and briefly describe your accounting and reporting system. 41. Provide a copy of your Statement of Auditing Standards 70 report (SAS 70) and your most recent Annual Report. List and describe the nature of all errors and/or weaknesses that were discovered as a result of an outside review of the SAS 70. What steps have been taken to correct the errors or otherwise strengthen the internal controls of your system? 42. Describe your system of quality control to ensure reporting accuracy. Are reports audited before they are delivered to clients? Who audits and corrects reports? 43. Describe your process of restating incorrect accounting statements and publishing new reports. 44. If a report were requested on an ad hoc basis, how soon would it be available after the initial request? 45. Provide a schedule indicating the delivery time frames for unaudited and audited accounting reports/information and performance measurement calculations/analytics (universe data, indices data, etc.). (Be specific, e.g., audited statements will be available to the client on the business day after month-end.) 46. What types of commission/transaction cost reports are available? Can your system identify both executing and clearing brokers? Can your system identify the exchange on which the transaction is executed? 16

17 47. Are you able to provide statements on an accrual/trade date basis showing both realized and unrealized capital gains and including pending transactions? 48. How long do you retain historical information/statements (asset values and transactions)? 49. Describe the bank's procedures to verify that transactions and holdings statements balance with those of investment managers. How do you resolve differences? 50. What is your source of securities prices? What procedures ensure accurate pricing? What procedures do you have in effect, if any, to flag and investigate unusual or significant pricing changes from the previous day? Describe your procedures for reconciling prices with investment managers. 51. How do you price securities that are not available from your pricing service, such as private placements? Describe your process of pricing derivative securities and non-traditional fixed income securities (144As, etc.). 52. Do you maintain a record of the original face amount purchased with regard to pass-through investments, such as GNMAs, FHLMCs and FNMAs? 53. Please provide the following information. Do you have fully integrated multi-currency accounting? Do standard reports break out impacts of taxes, brokerage and foreign exchange? Do statements reflect pending transactions? Do statements reflect amortized balance for fixed income? Do statements reflect accrued interest, accrued dividends, in asset valuations? FIFO tax lot accounting capabilities? Internal accounting controls subject to independent audit? VII. Performance Measurement / Analytics 54. Describe in detail the basic performance measurement and analytics services currently available to institutional custody clients. How many clients use these services? 55. What procedures exist to verify the accuracy of rates of return? Do you have a procedure to verify returns with investment managers? What percentage of the returns that you calculate are verified with investment managers? 56. How frequently (quarterly/monthly) are performance calculations prepared and how soon after the end of the period are they available? 57. Does your system have the capability to report returns both gross and net of investment management fees? 17

18 58. Please discuss your performance measurement capabilities in the private equity and real estate areas. What systems do you use to calculate internal rate of returns for private equity portfolios? 59. Can clients access performance measurement and analytics through your online system? If not, is there a planned release date for this capability? 60. Are you willing and/or able to backload data? VIII. Global Custody 61. Provide an overview of your global custody capabilities. Include when you began offering global custody services and how you differentiate yourself from the competition. 62. List the number of U.S. clients and the number of portfolios for which you have global custody, including the amount of non-u.s. assets. 63. Do you use international central depositories for clearing and/or holding? 64. Do you have multi-currency accounting and reporting capabilities? Describe. 65. Do you process tax reclaims? 66. Does your insurance cover all of your global custody activities? Does your insurance cover the activities of your sub-custodians? 67. Are you currently on the SWIFT system? 68. How many sub-custodians are in your network and how are they selected and subsequently monitored? Please provide a list of all sub-custodians used to provide international custody services with the corresponding countries and indicate the number of years that each has acted in that capacity for you. 69. How often do you review the performance of sub-custodians and visit their offices? IX. Securities Lending 70. Describe your securities lending services and capabilities (domestic and international). 71. Describe your methodology for selecting borrowers and reviewing credit worthiness. 72. Describe your methodology to ensure that all participating clients have an equal opportunity to lend their securities. 18

19 73. Do you charge management fees for the investment of securities lending collateral? If so, please include a fee schedule. 74. How is securities lending collateral invested? To what extent can a client customize collateral investment guidelines? If pooled vehicles are available, include a summary of the vehicles and their investment guidelines. 75. Have any investments entered into default in your securities lending collateral investments during the past five years? If so, please explain the circumstances of the default, recovery of investment, allocation of loss, etc. Did any participants incur a loss? Were there any adjustments made to your investment guidelines/policies to avoid a similar problem? 76. Have any of your borrowers defaulted? If yes, were you able to make a full recovery? 77. To what extent will you indemnify your master custody client for losses in securities lending not covered by your insurance? Can this level of indemnification be tailored to the individual client? 78. Will you provide any guarantee as to the accuracy of your securities lending quote? 79. Have any of your clients ever lost money in your securities lending program? 80. What types of reports are available to inform clients of lending activity, lending income and collateral investments? 81. Does your lending program allow clients to set the collateral requirements, including valuation limits and calls? If not, what limits do you set? 82. Do you value collateral on a daily basis? Do you include accrued income in the valuation? 83. How do you coordinate lending activity with investment managers? Is it invisible to the investment managers? When is notification of security sales required? 84. If you are a third-party securities lending agent, how do you coordinate lending activity with the custodian? Do you have systems set up to ensure seamless transmission of data between yourself and the custodian? Name the custodians you work with? 85. Please provide the following information. Inception date of lending program Number of participating clients Lendable base Domestic collateral requirement (%) International collateral requirement (%) Number of borrowers Location of lending offices 19

20 24 hour lending (yes/no) System for monitoring policy compliance (yes/no) Online monitoring of collateral investment (yes/no) Average Percent on Loan and Spread by Asset Type for the 12 months ended June 30, 2006 Avg. Spread Asset Type Lendable Base % on Loan (bps) U.S. Equity U.S. Treasuries U.S. Agencies U.S. Corporate Debt Non-U.S. Equity Non-U.S. Debt Third Party Security Lending Providers: 86. Would you allow an independent bank/advisor to manage the securities lending program? Can you support a collateral investment manager of the lender s choice? 87. Have you ever entered into a sub-custodian agreement to facilitate the above? 88. What controls would you require with this type of arrangement? 89. If you are a custodian, identify which third party security lenders you have electronic links with. What problems have you had in that capacity? Which third party agents have you had the most difficulty with? 90. If you are a third party agent, identify which custodians you have electronic links with. What problems have you had in that capacity? Which custodians have you had the most difficulty with? 91. For third party security lending agents, please answer the Organizational Overview section of this RFP it relates to securities lending. For custodians, please answer those questions separately if the answers are different for your security lending business. 92. If an unbundled arrangement (separate securities lending agent from custodian) is implemented, are vendor s proposed levels of indemnification impaired, not applicable, compromised, limited or contractually constrained? Please describe in full and list all levels of indemnification impacted whether enforceable or impaired. a. Borrower/Counterparty Risk and Default (Inability to Recall, Failure to deliver Income, Failure to post adequate margins, etc.) b. Collateral Investment Risk c. Trade Settlement Risk d. Operational Negligence e. Currency and Sovereign Risk 20

21 X. Banking Services SURS currently utilizes the services of a third party to provide ACH services to pay benefits. However, SURS is considering the transfer of those duties to the custodian bank. Please provide an overview of the banking services you offer in the following areas: 93. ACH processing SURS presently transmits (via FTP) approximately 40,000 transactions on a monthly basis, using pre-note procedures to enhance the accuracy of these transactions. SURS requires a high level of support in the area of return items including on-line review of daily activity. Discuss capabilities to retain the most recent ACH file and, with the modification of pay date, to transmit that file the next month. This support could be crucial to SURS disaster recovery capabilities. 94. Lock Box Processing a. SURS presently receives approximately 50 items per day to its lockbox. b. SURS requires that lockbox transactions be entered and the data transmitted on a daily basis via FTP, with actual supporting documents sent via overnight delivery. 95. Checking Account Services SURS has particular interest in these areas: a. Positive pay services; methods by which disbursements should be communicated to the bank. b. Maintenance of zero balance checking account vis-à-vis a trust account c. ACH debit blocking services d. On-line account inquiry and stop payment processing e. ACH credit reporting 96. Other services a. Remittance of federal and state withholding taxes b. Wire transfer services; SURS presently performs an average of 2-3 wires per day XI. References 97. Please provide a list of three public fund client references of similar size with contact information. Indicate the major ancillary services (securities lending, short-term investment management, etc.) provided to them. XII. Transition Process 98. What dedicated resources (personnel, equipment, training of personnel, consultants, etc.), procedures and controls will you provide or recommend in the transition/conversion period to ensure that the transition process is completed successfully in both a timely and accurate manner? 99. Describe any training you would provide to the client's staff during the transition. 21

22 100. How do you ensure sufficient control during the transition period to assure that the process is successfully completed in both an accurate and timely manner? 101. Please provide a sample transition schedule for a client with the structure described in the introduction. XIII. Fees Annual Fee 102. Based upon the information provided in this request for proposal, state your annual fee for the next three years for the proposed relationship with SURS. Please provide three separate fee quotes for custody with securities lending, custody without securities lending, and stand alone securities lending SURS currently utilizes the services of a third party to provide ACH services to pay benefits. However, SURS is considering the transfer of those duties to the custodian bank. Please provide a separate line-item cost estimate for these services in the table that follows. FEE SCHEDULE Global Custodian Global Custodian Securities with without Lending Securities Lending Securities Lending Stand Alone Flat Retainer Fee Quote $ - $ - $ - Securities Lending Proposed Split (%) SURS/Mgr* Additional Fees: ACH services to pay benefits $ - $ - Fees for STIF options (Basis Points) Other (write in description) $ - $ If this fee is not all-inclusive, provide a detailed schedule of fees (and an annual estimate) for all other services not included in the annual fee. Are you willing to guarantee that these additional fees will not rise above the estimated fee? 105. How long do you typically guarantee fee quotes? Are there any fees/charges that you will not guarantee for a specific time period? 22

23 Securities Lending Program 106. Provide a detailed estimate of annual securities lending income, using a conservatively managed STIF product for collateral investments. Will you guarantee a minimum level of income for the account? 107. Provide a description (investment guidelines, portfolio characteristics and performance) of the collateral vehicle used for this estimate Provide a detailed schedule for the securities lending income split with SURS and what type of indemnification this includes. 23

24 Exhibit A Listing of SURS Managers

25 September-06 Incep (1) Benchmark U.S. Equities $ millions % Fund Ariel Capital Management Nov-01 Russell Midcap Value % New Amsterdam Partners Sep-99 Russell Midcap % Northern Trust Global Advisors Jan-97 NT Custom % Progress Investment Jan-97 Progress Custom % Rasara Strategies Sep-99 NASDAQ Bank % Active U.S. Equities Oct-81 Blended % BlackRock Equity Plus Jul-99 Custom % PIMCO StocksPlus Oct-87 Custom % Payden & Rygel Feb-03 Custom % Structured Active U.S. Oct-87 Blended 1, % BGI U.S. Equity Jul-86 Wilshire % Northern Trust Investments Feb-99 Wilshire , % RhumbLine Advisers Feb-05 S&P % Passive U.S. Equities Jul-86 Blended 3, % Total U.S. Equities Oct-81 Wilshire , % Non-U.S. Equities GlobeFlex Capital Apr-04 CGE BMI Ex-US % Mondrian Investment Partners Feb-04 ACW Ex-US % Martin Currie Jul-92 ACW Ex-US % Active Non U.S. Equities Jul-92 Blended % BGI Alpha Tilts Nov-03 MSCI EAFE Net Dividends % Fidelity Select International Feb-04 MSCI EAFE Net Dividends % Structured Active Non U.S. Nov-03 MSCI EAFE Net Dividends % BGI International Jul-86 ACW Ex-US 1, % Passive Non U.S. Equities Jul-86 Blended 1, % Total Non U.S. Equities Jul-86 ACW Ex-US 2, % Private Equities Adams Street Partnerships Jan-91 Wil % (3) % Adams Street Global Second (FOF) Mar-04 Wil % (3) 6 0.0% Adams Str Non-U.S. P'ships (FOF) Jul-98 Wil % (3) % Muller and Monroe (FOF) Dec-04 Wil % (3) 3 0.0% Pantheon Europe Fund III (FOF) Jan-03 Wil % (3) % Pantheon Global Second II (FOF) Mar-04 Wil % (3) % Pantheon Ventures, Inc. Mar-02 Wil % (3) % Progress (FOF) Jul-95 Wil % (3) 9 0.1% Private Equities Jan-91 Wil % (3) % Global Equities Capital Guardian May-02 MSCI World Net Dividends % Wellington Management Jun-02 MSCI World Net Dividends % Total Global Equities Jan-04 MSCI World Net Dividends % TOTAL EQUITIES TOTAL EQUITIES Oct-81 Blended 9, % Fixed Income Cash Flow Oct-81 T-bills % BlackRock Core Plus May-02 LB Aggregate % Metropolitan West Asset Mgmt. Nov-01 LB Aggregate % PIMCO Oct-81 LB Aggregate 1, % Western Asset Management Dec-01 LB Aggregate %

26 September-06 Incep (1) Benchmark $ millions % Fund Active Fixed Income Oct-81 LB Aggregate 2, % BGI Core Active Fund May-06 LB Aggregate % BlackRock Enhanced Apr-97 LB Aggregate % Structured Active Fixed Income May-06 LB Aggregate % RhumbLine Advisers Mar-05 LB Aggregate % Passive Fixed Income Oct-86 Blended % Total Core Fixed Income Oct-81 LB Aggregate 2, % TIPS PIMCO US TIPS May-99 LB U.S. TIPS % US TIPS Aug-99 LB U.S. TIPS % Total TIPS Jul-04 LB U.S. TIPS (4) % TOTAL FIXED INCOME TOTAL FIXED INCOME Oct-81 Custom 3, % Real Estate RREEF America II Fund Jun-05 NCREIF Open End Index % RREEF America III Fund Apr-06 NCREIF Open End Index % UBS RESA Jun-06 NCREIF Open End Index % TOTAL Direct Real Estate Jun-05 NCREIF Open End Index % REITs BGI REIT Fund Mar-00 Wilshire R.E. Securities % ING Clarion Real Estate Securities Mar-00 Wilshire R.E. Securities % RREEF Securities Mar-00 Wilshire R.E. Securities % TOTAL REITs Mar-00 Wilshire R.E. Sec. (4) % Opportunity Fund Manager Development Program ** Dec-04 Custom % Paradigm Asset Management Apr-05 Russell 2000 Growth % Private Opportunities Fund Sep-01 Wil % (3) % TOTAL OPPORTUNITY FUND Jul-99 Custom % TOTAL FUND TOTAL FUND Oct-81 Policy Portfolio 14, % (FOF) fund of funds ** Detailed manager listing of the Manager Development Program Manager Development Program 234 Active U.S. Equity Buford, Dickson Jun-05 Russell Channing Capital Apr-05 Russell Midcap Value 14 Holland Capital Apr-05 Russell Midcap 14 NCM Capital Apr-05 Russell Midcap Growth 17 Profit Investment Apr-05 Russell Lombardia Capital Apr-05 Russell 2000 Value 15 Passive Zenna Dec-04 S&P Non U.S. Equity Atlanta Life Jul-06 MSCI EAFE Net Div 16 Fixed Income Pugh Capital Mar-06 LB Aggregate 26 Smith Graham Mar-06 LB Aggregate 26 Taplin, Canida & Habacht Mar-06 LB Aggregate 26

27 Exhibit B Detailed Asset Listing as of 9/30/06 Available online in MS Excel format - Note: this is a large (5M) file and may take considerable time to download.

28 Exhibit C Transactional Summary (6 months ending 6/30/06)

29 State Universities Retirement System of Illinois Transactional Summary 6 Months Ending June 30, 2006 Count of Transactions Transaction sub cat name Asset sub category Country of risk name Purchases Sales Grand Total Asset Backed Securities Cayman Islands 1 1 United States Asset Backed Securities Total Cash & Cash Equivalent Deriv. - Options Japan 1 1 New Zealand 1 1 United States Cash & Cash Equivalent Deriv. - Options Total Commercial Mortgage-Backed United States Commercial Mortgage-Backed Total Commercial Paper Canada France 1 1 Sweden United Kingdom United States Commercial Paper Total Common Stock Asia Region Australia Austria Belgium Brazil Canada China Denmark Emerging Markets Region Europe Region Finland France Germany Global Region Greece Hong Kong India International Region Ireland Israel Italy Japan ,027 Latin America Region 6 6 Marshall Islands 1 1 Multi-National Agencies Region Netherlands New Zealand North America Region Norway Portugal Puerto Rico Russian Federation Singapore South Africa South Korea Spain Sweden Switzerland Taiwan Turkey United Kingdom United States 3,746 4,530 8,276 Venezuela 1 1 Common Stock Total 6,010 6,418 12,428 Convertible Equity United States Convertible Equity Total

30 Corporate Bonds Australia 3 3 Canada Cayman Islands 6 6 France 1 1 Iceland Japan 4 4 Mexico 5 5 Netherlands North America Region Norway 1 1 South Korea Spain United Kingdom United States Corporate Bonds Total Corporate Convertible Bonds United States 1 1 Corporate Convertible Bonds Total 1 1 Equity Derivatives - Options United States Equity Derivatives - Options Total Fixed Income Derivatives - Options United States Fixed Income Derivatives - Options Total Government Agencies Multi-National Agencies Region 1 1 United States Government Agencies Total Government Bonds Brazil Colombia Germany Mexico New Zealand 1 1 Russian Federation United States Government Bonds Total ,037 Government Mortgage Backed Securities United States 1,346 1,527 2,873 Government Mortgage Backed Securities Total 1,346 1,527 2,873 Index Linked Government Bonds Canada 2 2 United States Index Linked Government Bonds Total Miscellaneous United States Miscellaneous Total Municipal/Provincial Bonds Canada United States Municipal/Provincial Bonds Total Non-Government Backed C.M.O.s United States Non-Government Backed C.M.O.s Total Other Fixed Income United States Other Fixed Income Total Other Liabilities United States Other Liabilities Total Other Options Europe Region United Kingdom 2 2 United States Other Options Total Partnerships United Kingdom 2 2 United States Partnerships Total Preferred Stock Germany North America Region 7 7 United States Preferred Stock Total Real Estate United States 1 1 Real Estate Total 1 1 Repurchase Agreements United States Repurchase Agreements Total Rights/Warrants Denmark 1 1 France 4 4 Switzerland 1 1 United States 4 4 Rights/Warrants Total

31 Short Term Bills and Notes France 4 4 United States Short Term Bills and Notes Total Short Term Investment Funds United States Short Term Investment Funds Total Swaps Canada 1 1 Europe Region Japan United Kingdom United States Swaps Total Unit Trust Equity United States Unit Trust Equity Total Grand Total 9,945 9,871 19,816

32 Exhibit D Letter to SURS Managers regarding IL Public Act (Sudan Divestment Legislation)

33 State Universities Retirement System of Illinois Serving Illinois Community Colleges and Universities 1901 Fox Drive Champaign, IL (217) (217) (FAX) Investment Department December 15, 2005 Name Investment Management Firm Address City, State Zip Re: Illinois Public Act (Sudan divestiture) Dear XXXXX: On January 27, 2006 Illinois Public Act 94-79, the Act to End Atrocities and Terrorism in the Sudan (the Act), becomes effective. Under this Act: (1) you may not loan to, invest in, or otherwise transfer any of the Pension Plan's assets to a forbidden entity, as it is defined in the Act, any time after the effective date of the Act; (2) at least 60% of our assets must not be invested in forbidden entities twelve months after the effective date of the Act; (3) 100% of our assets must not be invested in forbidden entities eighteen months after the effective date of the Act. "Forbidden entity" means any of the following: (1) The government of the Republic of the Sudan and any of its agencies, including but not limited to political units and subdivisions; (2) Any company 1 that is wholly or partially managed or controlled by the government of the Republic of the Sudan and any of its agencies, including but not limited to political units and subdivisions; 1 The term company is used throughout the definitions of forbidden entities. The definition stated in this footnote applies to all references to company throughout the Act. For purposes of this Act, "company" is any entity capable of affecting commerce, including but not limited to (i) a government, government agency, natural person, legal person, sole proprietorship, partnership, firm, corporation, subsidiary, affiliate, franchisor, franchisee, joint venture, trade association, financial institution, utility, public franchise, provider of financial services, trust, or enterprise; and (ii) any association thereof.

34 Re: Illinois Public Act (Sudan divestiture) Page 2 of 3 (3) Any company (i) that is established or organized under the laws of the Republic of the Sudan; (ii) whose principal place of business is in the Republic of the Sudan; (4) Any company (i) identified by the Office of Foreign Assets Control in the United States Department of the Treasury as sponsoring terrorist activities; or (ii) fined, penalized, or sanctioned by the Office of Foreign Assets Control in the United States Department of the Treasury for any violation of any United States rules and restrictions relating to the Republic of the Sudan that occurred at any time following the effective date of this Act; and (5) Any publicly traded company who has been identified by an independent researching firm that specializes in global security risk as being a company that owns or controls property or assets located in, has employees or facilities located in, provides goods or services to, obtain goods or services from, has distribution agreements with, issue credits or loans to, purchase bonds or commercial paper issued by, or invest in (i) the Republic of the Sudan; or (ii) any company domiciled in the Republic of the Sudan; and (6) Any non publicly-traded company that fails to submit to you an affidavit sworn under oath in which an expressly authorized officer of the company avers that the company (i) does not own or control any property or asset located in the Republic of the Sudan; and (ii) did not transact commercial business in the Republic of the Sudan. Notwithstanding the foregoing, the term "forbidden entity" shall exclude companies, except agencies of the Republic of the Sudan, who are certified as Non-Government Organizations by the United Nations, or who engage solely in (i) the provision of goods and services intended to relieve human suffering or to promote welfare, health, religious and spiritual activities, and education humanitarian purposes or otherwise; or (ii) journalistic activities. You will note that (5) above provides for identification of forbidden entities by using an independent researching firm that specializes in global security risk. The State Universities Retirement System of Illinois (SURS) has identified KLD as a qualified research firm that meets the requirements of the Act. KLD is providing the following special pricing for managers who engage them to comply with Illinois Public Act 94-79: Annual Price Firm Wide Annual for Managers Assets Under Price Per who are Existing Management Manager KLD Research Clients $0-2 billion $1,000 $800 $2-5 billion $2,500 $2,250 $5-10 billion $3,500 $3,150 Over $10 billion $5,000 $5,000

35 Re: Illinois Public Act (Sudan divestiture) Page 3 of 3 The contact information for KLD is as follows: Mr. Randy O Neil Managing Director, Global Sales 250 Summer Street, 4 th Floor Boston, MA Tel: (617) Ext 292 Cell: (617) roneil@kld.com The Act provides for certification, by you, that you are in compliance. The form of certification is yet to be supplied to us by the Treasurer of the State of Illinois. When the form of certification is available, we will forward it to you for completion. By contract, this statutory change to the Illinois Pension Code is now incorporated into your Investment Management Agreement with SURS. Please contact me, or Doug Wesley, at your earliest convenience if you have any questions. Thank you for your attention to this very important matter. A copy of the relevant provisions of Public Act is enclosed for your review. Sincerely, Daniel L. Allen Chief Investment Officer cc: Dan M. Slack, State Universities Retirement System Douglas C. Wesley, State Universities Retirement System

36 Exhibit E Policy Requiring Certification of Compliance With Regard to Certain Prohibited Predatory Lending Practices

37 State Universities Retirement System of Illinois 7333 (FAX) Serving Illinois Community Colleges and Universities 1901 Fox Drive Champaign, IL (217) (217) Investment Department Policy Requiring Certification of Compliance With Regard to Certain Prohibited Predatory Lending Practices It is the policy of the State Universities Retirement System, unless otherwise inconsistent with any fiduciary duties that may apply, 1 / that a financial institution that receives deposits or investments from the State Universities Retirement System, and that financial institution s affiliates and operating subsidiaries, shall not make, invest in, or service loans where the following conditions apply: (1) The loan is a high risk home loan, identified as a loan meeting one of the following two triggers: And, (a) The annual percentage rate on the loan exceeds the return on U.S. Treasury securities with comparable maturity periods by more than 6% for a first mortgage or more than 8% for a second mortgage; or (b) The total points and fees paid by the borrower at or before the loan closing exceed the greater of 5% of the total loan amount or $800 (the $800 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers for all items published by the United States Department of Labor). (2) The loan contains any of the following prohibited terms or involves any of the following forbidden practices: 1 / The Illinois Pension Code imposes certain standards of care and duties on fiduciaries managing SURS assets, including (i) the duty to act solely in the interests of the members of SURS and their beneficiaries, and for the exclusive purpose of providing benefits to members and their beneficiaries and defraying reasonable expenses of administering SURS (the Exclusive Benefit Duty ); and (ii) the duty to act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would in the conduct of a like character and like aims (the Prudence Standard of Care ).

38 September 1, 2006 Page 2 (a) Ability to repay. No high risk home loan may be made if the institution does not believe at that time that the borrower will be able to make the scheduled payments to repay the obligation based upon a consideration of his or her current and expected income, current obligations, employment status, and other financial resources (other than the borrower s equity in the dwelling that secures repayment of the loan). A borrower shall be presumed to be able to repay the loan if, at the time the loan is consummated, or at the time of the first rate adjustment, in the case of a lower introductory interest rate, the borrower s scheduled monthly payments on the loan (including principal, interest, taxes, insurance, and assessments), combined with the scheduled payments for all other disclosed debts, do not exceed 50% of the borrower s monthly gross income. (b) Fraudulent or deceptive practices. No institution covered by this policy may employ fraudulent or deceptive acts or practices regarding a high risk home loan, including deceptive marketing and sales efforts. (c) Prepayment penalty. No high risk home loan may include a penalty provision for payment made: (i) after the expiration of the 36-month period following the date the loan was made; or (ii) that is more than: (1) 3% of the total loan amount if the prepayment is made within the first 12-month period following the date the loan was made; (2) 2% of the total loan amount if the prepayment is made within the second 12-month period following the date the loan was made; or (3) 1% of the total loan amount if the prepayment is made within the third 12-month period following the date the loan was made. (d) Pre-paid insurance products and warranties. No high risk home loan may finance a single premium credit life, credit disability, credit unemployment, or any other life or health insurance, directly or indirectly. Insurance calculated and paid on a monthly basis shall not be considered to be financed by the institution; (e) Refinancing prohibited in certain cases. No institution covered by this policy may refinance any high risk home loan resulting in charges of additional points and fees within a 12-month period after the original loan agreement was signed, unless the refinancing results in a tangible net benefit to the borrower; (f) Financing of points and fees. No high risk home loan may finance points and fees in excess of 6% of the total loan amount; (g) Payments to contractors. No institution covered by this policy may make a payment of any proceeds of a high risk home loan directly to a contractor

39 September 1, 2006 Page 3 under a home improvement contract other than: (i) by instrument payable to the borrower or payable jointly to the borrower and contractor; or (ii) at the election of the borrower, by a third-party escrow agent in accordance with the terms established in a written agreement that is signed by the borrower, the lender, and the contractor before the date of payment. (h) Negative amortization. No high risk home loan, other than a loan secured only by a reverse mortgage, may have terms under which the outstanding balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of the interest due, unless the negative amortization is the consequence of a temporary forbearance sought by the borrower; (i) Negative equity. No high risk home loan may exceed the value of the property securing the loan; (j) Late payment fee. No high risk home loan may provide for a late payment fee, except under the following conditions: (1) the late payment fee shall not be in excess of 5% of the amount of the payment past due; (2) the late payment fee shall only be assessed for a payment past due for 15 days or more; (3) the late payment fee shall not be imposed more than once with respect to a single late payment; (4) a late payment fee that an institution has collected shall be reimbursed if the borrower presents proof of having made a timely payment; and (5) an institution shall treat each payment as posted on the same business day as it was received by the institution, the institution s agent, or at the address for making payments provided to the borrower by the institution. (k) Payment compounding. No high risk home loan may include terms under which more than 2 periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower; or (l) Call provision. No high risk home loan may contain a provision that permits the lender, in its sole discretion, to accelerate the indebtedness, provided that this provision does not prohibit acceleration of a loan in good faith due to a borrower s failure to abide by the material terms of the loan.

40 September 1, 2006 Page 4 To the extent consistent with the fiduciary duties of the Board of Trustees, in particular that each fiduciary decision with respect to financial institutions covered by the policy can also be supported by a determination that the decision is at least as prudent as other options available and is, in fact, in the best interests of the State Universities Retirement System, in order for the financial institution to receive an investment or deposit of public funds by the State Universities Retirement System, the financial institution must submit a certification form (see Exhibit A., attached hereto) by May 15 of each calendar year certifying that the institution and any of its affiliates and operating subsidiaries do not make, invest in, or service loans described in the provisions of Paragraphs (1) and (2), above. Adopted by the State Universities Retirement System Board of Trustees this day of September, Signed President SURS Board of Trustees

41 Exhibit A Certification STATE OF ) COUNTY OF ) ) ss. I,, on behalf of and any of its affiliates and operating subsidiaries, being first duly sworn under oath, and having personal knowledge of all matters set forth herein, state and certify as follows: 1. I am a representative of and am duly authorized to make this certification on its behalf. 2. I hereby certify that and its affiliates and operating subsidiaries are in compliance with the State Universities Retirement System s predatory lending policy. 3. will immediately notify State Universities Retirement System if the financial institution becomes aware of any activities of the financial institution, its affiliates or operating subsidiaries in violation of the State Universities Retirement System s predatory lending policy. Date: Signature of Company Representative Printed Name & Title of Company Representative Company Name and Address Subscribed and sworn before me by as representative of this day of, 20. Notary Public

42 Exhibit F Quiet Period Policy (Pending SURS Board Approval)

43 VIII. Quiet Period Policy (Pending SURS Board Approval at December 2006 Meeting) Purpose The Quiet Period Policy is intended to establish guidelines by which Board Members and staff will communicate with prospective service providers during the search process. Policy Objectives The objectives of the policy are to ensure that: Prospective service providers competing to become employed by SURS have equal access to information regarding the search parameters; Communications related to the selection are consistent and accurate; and The process of selecting service providers is efficient, diligent, and fair. Policy Guidelines The following guidelines will be instituted during a search process for a service provider: A quiet period will commence upon Committee action (or Board action if the selection is not initiated through a Committee) to authorize a search for a service provider and end once a selection has been made by the Board and accepted by the service provider; Initiation, continuation and conclusion of the quiet period shall be publicly communicated to prevent inadvertent violations; All Board members, and staff not directly involved in the search process, shall refrain from communicating with service provider candidates regarding any product or service related to the search offered by the candidate throughout the quiet period and shall refrain from accepting meals, travel, hotel, or other value from the candidates; Throughout the quiet period, if any Board member is contacted by a candidate, the Board member shall refer the candidate to SURS Investment Consultant or staff directly involved in the search process; All authority related to the search process shall be exercised solely by the relevant Committee or Board as a whole, and not by individual Board Members; All information related to the search process shall be communicated by the SURS Investment Consultant and staff to the relevant Committee or Board as a whole, and not to individual Board Members; and The quiet period does not prevent Board approved due diligence or client conference attendance; however, discussions related to the pending selection shall be avoided during those activities. The provisions of this policy will apply to service provider candidates throughout the quiet period and shall be communicated to candidates in conjunction with any RFP or RFI; A service provider may be disqualified from a search process for a knowing violation of this policy.