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Compact investment mechanism future source of income

By Bernadette H. Carreon

KOROR Palau (Palau Horizon, July 20, 2009) — Palau’s Compact of Free Association Trust Fund has reached $130,551,000.

Del. Jonathan Isechal said that the market is picking up because the amount is now over $15 million compared to the lowest amount of $115 million in February.

He said that since inception, the trust fund has increased only by 7 percent when the assumption in the market was that it will grow up to 12. 5 percent.

Isechal was among the officials who we were invited by Merrill Lynch’s Office in Honolulu, Hawaii which is the financial consultant to the Republic of Palau COFA Trust Fund to attend a meeting in Honolulu, to discuss the ROP COFA Trust Fund’s investment portfolio. Also attending this meeting were the Honorable Kerai Mariur, Vice President/Minister of Finance and Mr. Haruo Willter, Financial Advisor to VP/Minister of Finance.

Senate Committee on Ways and Means Chairman Mark Rudimch was also in the meeting

Isechal said in his trip report that pursuant to RPPL No. 7-29, Section 5(b), the Minister of Finance and the respective Chairmen of the Senate and the House of Delegates, Ways & Means Committees are delegated the authority of advisers to the President of the Republic with respect to the COFA 211(f) Trust Fund.

Isechal added that the other specific issues discussed in the meeting were the new method of payment of consulting fees to Merrill Lynch, performance report as of May 31, 2009, and the economy and market outlook for the remaining part of the year 2009.

"Since the inception of the COFA Trust Fund in February 1995, our financial consultant had been paid its fees through soft dollars. This means that Merrill Lynch was paid for through commissions generated by our investment mangers trading through Merrill Lynch brokerage. Merrill Lynch have decided to discontinue this payment method and now must require ROP to instruct it’s investment mangers to direct their trades through "commission recapture brokers" who will "rebate" a fraction of the commission to the fund and out of this commission our financial consultant, Merrill Lynch will be paid," the report said.

The trip report added that as Palau’s financial consultant, Merrill Lynch has identified two (2) highly qualified and reputable commission recapture brokers, and they are Bank of New York Convergex and Knight Trading, which Merrill Lynch recommends that a relationship will be established to give investment managers option for trade execution.

After a length discussion, questions and consultations, the Honorable Vice President Mariur with the consultation of Senator Rudimch, Delegate Isechal and Mr. Willter, agreed to hire the two companies, namely Bank of New York Convergex and Knight Trading for the position of Commission recapture brokers on behalf of the ROP COFA Trust Fund. Proper documents are being proposed by Merrill Lynch to effectuate this new payment method "hard dollar" for our financial consultant.

Starting on Oct. 1, 2009, Palau is allowed is to withdraw $15 million from the trust fund.

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