OG&E 2013 Annual Report Download - page 68

Within the portfolio’s overall allocation to equities, the funds are
allocated according to the guidelines in the table below.
Asset Class Target Allocation Minimum Maximum
Domestic all-cap/large cap equity 50% 50% 60%
Domestic mid-cap equity 15% 5% 25%
Domestic small-cap equity 15% 5% 25%
International equity 20% 10% 30%
The Company has retained an investment consultant responsible
for the general investment oversight, analysis, monitoring investment
guideline compliance and providing quarterly reports to certain of the
Company’s members and the Company’s Investment Committee. The
various investment managers used by the trust operate within the gen-
eral operating objectives as established in the investment policy and
within the specific guidelines established for each investment manager’s
respective portfolio.
The portfolio is rebalanced on an annual basis to bring the asset
allocations of various managers in line with the target asset allocation
listed above. More frequent rebalancing may occur if there are dramatic
price movements in the financial markets which may cause the trust’s
exposure to any asset class to exceed or fall below the established
allowable guidelines.
To evaluate the progress of the portfolio, investment performance is
reviewed quarterly. It is, however, expected that performance goals will
be met over a full market cycle, normally defined as a three to five year
period. Analysis of performance is within the context of the prevailing
investment environment and the advisors’ investment style. The goal
of the trust is to provide a rate of return consistently from three percent
to five percent over the rate of inflation (as measured by the national
Consumer Price Index) on a fee adjusted basis over a typical market
cycle of no less than three years and no more than five years. Each
investment manager is expected to outperform its respective bench-
mark. Below is a list of each asset class utilized with appropriate
comparative benchmark(s) each manager is evaluated against:
Asset Class Comparative Benchmark(s)
Core Fixed Income Barclays Capital Aggregate Index
Interest Rate Sensitive Fixed Income Barclays Capital Aggregate Index
Long Duration Fixed Income Barclays Long Government/Credit
Equity Index Standard & Poor’s 500 Index
All-Cap Equity Russell 3000 Index
Russell 3000 Value Index
Mid-Cap Equity Russell Midcap Index
Russell Midcap Value Index
Small-Cap Equity Russell 2000 Index
Russell 2000 Value Index
International Equity Morgan Stanley Capital Investment ACWI ex-US
The fixed income manager is expected to use discretion over the
asset mix of the trust assets in its efforts to maximize risk-adjusted
performance. Exposure to any single issuer, other than the U.S. govern-
ment, its agencies, or its instrumentalities (which have no limits) is
limited to five percent of the fixed income portfolio as measured by
market value. At least 75 percent of the invested assets must possess
an investment grade rating at or above Baa3 or BBB- by Moody’s
Investors Services, Standard & Poor’s Ratings Services or Fitch Ratings.
The portfolio may invest up to 10 percent of the portfolio’s market value
in convertible bonds as long as the securities purchased meet the quality
guidelines. The purchase of any of the Company’s equity, debt or other
securities is prohibited.
The domestic value equity managers focus on stocks that the
manager believes are undervalued in price and earn an average or less
than average return on assets, and often pays out higher than average
dividend payments. The domestic growth equity manager will invest
primarily in growth companies which consistently experience above
average growth in earnings and sales, earn a high return on assets, and
reinvest cash flow into existing business. The domestic mid-cap equity
portfolio manager focuses on companies with market capitalizations
lower than the average company traded on the public exchanges with
the following characteristics: price/earnings ratio at or near the Russell
Midcap Index, small dividend yield, return on equity at or near the
Russell Midcap Index and an earnings per share growth rate at or near
the Russell Midcap Index. The domestic small-cap equity manager will
purchase shares of companies with market capitalizations lower than
the average company traded on the public exchanges with the follow-
ing characteristics: price/earnings ratio at or near the Russell 2000,
small dividend yield, return on equity at or near the Russell 2000 and an
earnings per share growth rate at or near the Russell 2000. The interna-
tional global equity manager invests primarily in non-dollar denominated
equity securities. Investing internationally diversifies the overall trust
across the global equity markets. The manager is required to operate
under certain restrictions including: regional constraints, diversification
requirements and percentage of U.S. securities. The Morgan Stanley
Capital International All Country World ex-US Index is the benchmark
for comparative performance purposes. The Morgan Stanley Capital
International All Country World ex-US Index is a market value weighted
index designed to measure the combined equity market performance
of developed and emerging markets countries, excluding the United
States. All of the equities which are purchased for the international
portfolio are thoroughly researched. Only companies with a market
capitalization in excess of $100 million are allowable. No more than
five percent of the portfolio can be invested in any one stock at the
time of purchase. All securities are freely traded on a recognized stock
exchange and there are no 144-A securities and no over-the-counter
derivatives. The following investment categories are excluded: options
(other than traded currency options), commodities, futures (other than
currency futures or currency hedging), short sales/margin purchases,
private placements, unlisted securities and real estate (but not real
estate shares).
62 OGE Energy Corp.