Page 245 - Brook-Hollow Due Diligence Package

5. Monitor and supervise all service vendors and investment options. Implementation

6. Avoid prohibited transactions and conflicts of interest. Diversified Bond Structure:

Custodian Certain structures will be diversified among investment grade bonds or CD’s that mature
at regular intervals.
Custodians are responsible for the safekeeping of KACL's assets. The specific duties and
responsibilities of the custodian are: Structured Products:

1. Value the holdings. Structured Products are typically notes or CD’s offered by a third party that mature at
some point in the future. Structured products may also include structured settlement
2. Collect all income and dividends owed to KACL. payment rights purchased in the secondary market. Structured products may also include
structured settlement payment rights purchased in the secondary market. The
3. Settle all transactions (buy-sell orders). performance of the note may be tied to an index, asset class or a specific investment or
commodity. Structured products may offer full or partial principal protection with
4. Provide monthly reports that detail transactions, cash flows, securities held and respect to underlying exposure; however the structured product carries with it the credit
their current value, and change in value of each security and the overall client risk of the third party offering the structured product.
since the previous report.
Managed Portfolios:
Investment Advisor
Each investment option should be managed by: (i) a bank; (ii) an insurance company; (iii)
The Investment Advisor is engaged at KACL’s discretion and serves as an objective, a registered investment company (mutual fund); or, (iiii) a registered investment adviser.
third-party professional retained to assist the KACL in managing the overall investment KACL will apply the following due diligence criteria in selecting each money manager or
process. The Advisor is responsible for guiding KACL through a disciplined and rigorous mutual fund.
investment process to enable the committee to meet the responsibilities outlined above.
Monitoring
Asset Class Guidelines
Monitoring - Performance Objectives
Long-term investment performance, in large part, is primarily a function of asset class
mix. Historically while interest-generating investments, such as bonds, have the KACL acknowledges fluctuating rates of return characterize the securities markets,
advantage of relative stability of principal value, they provide little opportunity for real particularly during short-term time periods. Recognizing that short-term fluctuations may
long-term capital growth due to their susceptibility to inflation. cause variations in performance, KACL intends to evaluate investment performance from
a long-term perspective.
On the other hand, equity investments, such as common stocks, clearly have a KACL is aware the ongoing review and analysis of the investment options is just as
significantly higher expected return but have the disadvantage of much greater important as the due diligence process. The performance of the investment options will
year-by-year variability of return. From an investment decision-making point of view, be monitored on an ongoing basis and it is at KACL's discretion to take corrective action
this year-by-year variability may be worth accepting given the payee’s time horizon. by replacing a manager if they deem it appropriate at any time.

Focusing on balancing the risks and rewards of each broad asset class, the following On a timely basis, but not less than quarterly, KACL will review each investment;
implementation peer groups were selected and ranked in ascending order of "risk" (least specifically:
to most) according to the most recent quarter's median 3-year Standard Deviation values.
Please refer to Exhibit One attached hereto. 1. The investment option's adherence to the Watch List Criteria identified below;

2. Material changes in the investment option's organization, investment philosophy
and/or personnel; and,

3. Any legal, SEC and/or other regulatory agency proceedings affecting the

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