KRS 61.650: Board is trustee of funds -- Investment committee -- Standards of conduct --

Registration of securities -- Control over assets in custodial account --

Application of open records law -- Cap on amount of assets managed by any

one investment manager -- Investment procurement policy -- Proxy voting

guidelines.

(1) (a) The board shall be the trustee of funds created by KRS 16.510, 61.515, and

61.701 pertaining to the accounts for the Kentucky Employees Retirement

System or State Police Retireme nt System, notwithstanding the provisions of

any other statute to the contrary, and shall have exclusive power to invest and

reinvest such assets in accordance with federal law.

(b) 1. The board shall establish an investment committee whose membership

shall be composed of the following:

a. The three (3) trustees of the Kentucky Retirement Systems board

appointed by the Governor pursuant to KRS 61.645 who have

investment experience; and

b. Additional trustees appointed by the board chair.

2. The investment c ommittee shall have authority to implement the

investment policies adopted by the board and act on behalf of the board

on all investment -related matters and to acquire, sell, safeguard,

monitor, and manage the assets and securities of the several funds.

(c) 1. For the purposes of this paragraph:

a. "Solely in the interest of the members and beneficiaries" shall be

determined using only pecuniary factors and shall not include any

purpose to further a nonpecuniary interest;

b. "Pecuniary factor" means a consideration having a direct and

material connection to the financial risk or financial return of an

investment;

c. A "material connection" is established if there is a substantial

likelihood that a reasonable investor would consider it important in

determining the financial risk or the financial return of an

investment;

d. "Nonpecuniary interest" includes but is not limited to an

environmental, social, political, or ideological interest which does

not have a direct and material connection to the financial risk or

financial return of an investment;

e. "Investment manager" shall have the same definition attributed to

"investment adviser" under the federal Investment Advisers Act of

1940, 15 U.S.C. sec. 80b-2;

f. "Shareholder-sponsored proposal" means a proposal by a

shareholder included in the proxy statement of an issuer of

securities pursuant to 17 C.F.R. sec. 240.14a-8;

g. "Economic analysis" means a written analysis of the economic

impact of a shareholder -sponsored proposal, whi ch shall include,

at a minimum:

i. The subject matter of the shareholder-sponsored proposal;

ii. Whether the board of directors of the issuer of securities

opposes the shareholder -sponsored proposal and the stated

reasons for the opposition;

iii. Whether t he shareholder -sponsored proposal is consistent

with the investment policy of the retirement systems;

iv. The economic benefits and costs of implementing the

shareholder-sponsored proposal, as written, in the long and

short term;

v. The quantifiable impac t of the shareholder -sponsored

proposal, as written, on the investment returns of the funds

of the retirement systems; and

vi. An explanation of the modeling, procedures, and processes

used to complete the economic analysis; and

h. i. "Proxy adviser" means any person who is engaged in the

business of providing advice, research, analysis, ratings, or

recommendations specifically with respect to proxy voting

and who has entered into an agreement or contracted with

the board of trustees of the retirement syste m to receive

compensation for those purposes.

ii. "Proxy adviser" does not include an investment manager as

defined in this subparagraph.

2. A trustee, officer, employee, employee of the Kentucky Public Pensions

Authority, investment manager, or other fiduciary, or proxy adviser shall

discharge duties with respect to the retirement system:

a. Solely in the interest of the members and beneficiaries;

b. For the exclusive purpose of providing benefits to members and

beneficiaries and paying reasonable expenses of administering the

system;

c. With the care, skill, and caution under the circumstances then

prevailing that a prudent person acting in a like capacity and

familiar with those matters would use in the conduct of an activity

of like character and purpose;

d. Impartially, taking into account any differing interests of members

and beneficiaries;

e. Incurring any costs that are appropriate and reasonable; and

f. In accordance with a good -faith interpretation of the federal, state,

and common law governing the system and fiduciaries.

3. Evidence that a fiduciary has considered or acted on a nonpecuniary

interest shall include but is not limited to:

a. Statements, explanations, reports, or correspondence;

b. Communications with portfolio companies;

c. Statements of principles or policies, whether made individually or

jointly;

d. Votes of shares or proxies; or

e. Coalitions, initiatives, agreements, or commitments to which the

fiduciary is a participant, affiliate, or signatory.

4. When exercising or recommending a vote on a shareholder -sponsored

proposal, a proxy adviser that has entered into an agreement or

contracted with the board of trustees of the retirement system acts solely

in the interest of the members and beneficiaries under this subsection if:

a. The proxy adviser's vote or recommendation is consistent with the

recommendation of the board of directors o f the issuer of the

shares, provided:

i. The board of directors of the issuer of the shares is composed

of a majority of independent directors; and

ii. The recommendation of the board of directors is not for the

purpose of furthering a nonpecuniary interest; or

b. The proxy adviser's vote or recommendation is inconsistent with

the recommendation of the board of directors of the issuer of the

shares, provided the proxy adviser conducts and documents an

economic analysis demonstrating that the vote or recomme ndation

is solely in the interest of the members and beneficiaries.

(d) In addition to the standards of conduct prescribed by paragraph (c) of this

subsection:

1. All internal investment staff of the Kentucky Public Pensions Authority,

and investment consu ltants shall adhere to the Code of Ethics and

Standards of Professional Conduct, and all board trustees shall adhere to

the Code of Conduct for Members of a Pension Scheme Governing

Body. All codes cited in this subparagraph are promulgated by the CFA

Institute;

2. Investment managers shall comply with all applicable provisions of the

federal Investment Advisers Act of 1940, as amended, and the rules and

regulations promulgated thereunder, and shall comply with all other

applicable federal securities statut es and related rules and regulations

that apply to investment managers; and

3. Proxy advisers and proxy voting services shall comply with all

applicable provisions of the Investment Advisers Act of 1940, as

amended, and the rules and regulations promulgate d thereunder, and

shall comply with all other federal statutes and related rules and

regulations that apply to proxy advisers and proxy voting services.

(e) No contract or agreement, whether made in writing or not, shall in any

manner waive, restrict, or l imit a fiduciary's liability as to any of the duties

imposed by this section. Any agreement shall specify that it is made in the

Commonwealth of Kentucky and governed by the laws of the Commonwealth

of Kentucky.

(2) The board, through adopted written polic ies, shall maintain ownership and control

over its assets held in its unitized managed custodial account.

(3) The board, in keeping with its responsibility as trustee and wherever consistent with

its fiduciary responsibilities, shall give priority to the i nvestment of funds in

obligation calculated to improve the industrial development and enhance the

economic welfare of the Commonwealth.

(4) The contents of real estate appraisals, engineering or feasibility estimates, and

evaluations made by or for the sys tem relative to the acquisition or disposition of

property, until such time as all of the property has been acquired or sold, shall be

excluded from the application of KRS 61.870 to 61.884 and shall be subject to

inspection only upon order of a court of competent jurisdiction.

(5) Based upon market value at the time of purchase, the board shall limit the amount

of assets managed by any one (1) active or passive investment manager to fifteen

percent (15%) of the assets in the pension and insurance funds.

(6) All contracts for the investment or management of assets of the systems shall not be

subject to KRS Chapters 45, 45A, 56, and 57. Instead, the board shall conduct the

following process to develop and adopt an investment procurement policy with

which all p rospective contracts for the investment or management of assets of the

systems shall comply:

(a) On or before July 1, 2017, the board shall consult with the secretary of the

Finance and Administration Cabinet or his or her designee to develop an

investment procurement policy, which shall be written to meet best practices

in investment management procurement;

(b) Thirty (30) days prior to adoption, the board shall tender the preliminary

investment procurement policy to the secretary of the Finance and

Administration Cabinet or his or her designee for review and comment;

(c) Upon receipt of comments from the secretary of the Finance and

Administration Cabinet or his or her designee, the board shall choose to adopt

or not adopt any recommended changes;

(d) Upon adoption, the board shall tender the final investment procurement policy

to the secretary of the Finance and Administration Cabinet or his or her

designee;

(e) No later than thirty (30) days after receipt of the investment procurement

policy, the secretar y or his or her designee shall certify whether the board's

investment procurement policy meets or does not meet best practices for

investment management procurement; and

(f) Any amendments to the investment procurement policy shall adhere to the

requirements set forth by paragraphs (b) to (e) of this subsection.

(7) (a) The board shall adopt written proxy voting guidelines which are consistent

with the fiduciary duties and other requirements of this section.

(b) The board shall not adopt the recommendations of a proxy adviser or proxy

voting service and shall not allow such proxy adviser or proxy voting service

to vote on behalf of the system, unless the proxy adviser or proxy voting

service acknowledges in writing and accepts under contract its duties under

this section and commits to follow the board -adopted proxy voting guidelines

when voting the system's shares in order to comply with the board's fiduciary

duties and other responsibilities under this section.

(c) All shares held by or on behalf of the system, and which the system is entitled

to vote under state, federal, or common laws, shall be voted according to the

proxy voting guidelines adopted by the board and subject to the fiduciary

duties and other requirements of this section by:

1. The board, the investment committee of the board, or an employee or

employees of the Authority who are fiduciaries under subsection (1) of

this section and are appointed or otherwise authorized by the board; or

2. A proxy advis er or proxy voting service that acknowledges in writing

and accepts under contract its duties under this section and commits to

follow the board -adopted proxy voting guidelines when voting the

system's shares in order to comply with the board's fiduciary d uties and

other responsibilities under this section.

(d) All proxy votes shall be reported at least quarterly to the board. For each vote,

the report shall provide:

1. The vote caption;

2. The date of the vote;

3. The company's name;

4. The vote cast for the system;

5. The recommendation of the company's management; and

6. If applicable, the recommendation of the proxy adviser or proxy voting

service.