The investment goal of the portfolio is to provide TVA with a strategic allocation to the domestic equity market. Manager has been selected by TVA as portfolio manager of this strategic allocation. Manager’s assignment is to construct and actively manage the portfolio in a manner consistent with this investment goal and to add value relative to return opportunities that could be achieved from a passive exposure to this market segment. The assets of the portfolio are tax-exempt.


The investment objective of the portfolio is to achieve long-term capital growth by investing in marketable U.S. common stocks with a risk profile that is similar to the risk profile of the market benchmark. Specific investment objectives are intended to define quantifiable measures by which the results of the portfolio will be measured and evaluated on an ongoing basis. The performance results and investment characteristics of the portfolio will be measured and evaluated relative to (1) an overall measure of the large-cap segment of the domestic equity market, (2) a universe of professionally managed large-cap core-oriented equity managers, and (3) a universe of other universities managing TVA decommissioning funds (together with Manager, hereafter “University Managers”). The relative domestic equity market benchmark is defined as the S&P 500 Index.

In light of the above, the portfolio should strive to meet or exceed the following performance objectives:

  • The portfolio is expected to match the return of the S&P 500 Index return over a one-, three-, and five-year horizon.
  • The portfolio is expected to generate a total return that ranks in the top 50% of a large core equity manager universe as may be selected by TVA from time to time.


The following points highlight the investment guidelines that have been established for the portfolio. Manager is expected to follow these guidelines carefully while implementing and executing its portfolio strategy. If Manager is in non-compliance with
these guidelines, Manager will have 30 days to adjust the portfolio to meet these guidelines.

Asset Allocation

The portfolio is expected to be fully invested, exclusively in U.S. listed equity securities. Any cash equivalent investment should represent “frictional” or operational amounts and not strategic allocations. Therefore, cash equivalents should not exceed 5% of the portfolio at any time. Should market conditions suggest an environment where this guideline may be detrimental to the financial well-being of TVA, Manager should communicate suggested tactical adjustments to this guideline with authorized representatives of TVA. Cash equivalent balances are expected to be invested in a short-term investment fund managed by the assigned custodian bank.


Portfolio performance is expected to achieve value added results through active management decisions. However, the portfolio is expected to be diversified with respect to the exposures to economic sectors, industries, and individual stocks. The following diversification guidelines apply to the construction of the portfolio:

  • The maximum allocation to any economic sector, as defined by S&P’s Global Industry Classification Standards (GICS), shall not exceed the greater of 10% of the market value of the Manager’s portfolio or one and a half times the economic sector weighting in the S&P 500 Index.
  • At time of purchase, no single issue should exceed 5% (at market value) of the portfolio. Positions may be allowed to appreciate up to 8% (at market value) of the portfolio. The portfolio is expected to be constructed with a minimum of 20 individual stocks.
  • Investments in Real Estate Investment Trusts (“REITs”) should not exceed 5% of the portfolio at any time.

Market Capitalization

The portfolio is expected to be primarily invested in well-established, large market capitalization companies. Therefore, the weighted average market cap of the portfolio is expected to be above $10 billion.

The portfolio may also invest in less established, small capitalization companies. However, based on the strategic role of this portfolio in the context of the overall investment program, no more than 35% of the portfolio may be invested in small capitalization companies. For this purpose, small capitalization is defined as companies with a market capitalization of less than $1.5 billion. Companies with a market capitalization below $500 million at the time of purchase are prohibited. Positions that decline below $500 million in market capitalization after purchase shall be reported to TVA and monitored carefully. The portfolio shall not have more than 5% of the portfolio invested in securities whose market capitalizations have declined below $250 million.

Other Transactions and Policies

American Depositary Receipts (“ADRs”) may be used to construct the portfolio. However, because of the strategic role of the portfolio, positions in stocks traded as ADRs are limited to no more than 15% of the portfolio market value. The 15% limitation includes foreign securities traded on U.S. Exchanges that are not ADRs.

Exchange Traded Funds (“ETFs”) may comprise up to a maximum of 5% of the portfolio. The ETFs that can be purchased are limited to the following:

  • S&P 500 Depository Receipts (SPY)

Prohibited Transactions

The portfolio is prohibited from investing in any of the following investment vehicles, or engaging in any of the following activities, unless approved by an authorized representative of TVA:

  • Fixed-income securities
  • Non-marketable securities (including private debt securities and/or direct placements)
  • Non-dollar denominated securities
  • Commingled funds (including mutual funds and ETFs except for the three ETFs identified above in the Guidelines – Other Transactions and Policies – Exchange Traded Funds section)
  • Convertible or preferred securities
  • Warrants
  • Commodities
  • Real estate investments (excluding REITs) o Short sales
  • Margin purchases
  • Swaps (including, but not limited to, index or rate of return swaps)
  • Securities lending.

Derivatives Policy – Manager is prohibited from using any derivative securities(including, but not limited to, options and futures).