Goals and Objectives

1. Business Objectives. Underlying the Fund's investment goals are its needs to maintain the purchasing power of endowment income and protect the real value of endowment principal in perpetuity.



2. Investment Return Objectives. Provide a total return, net of fees, of 5.5% after the general inflation rate as measured by the U.S. Department of Labor Consumer Price Index-Western Region. The return should be reasonably stable and predictable and will be measured in rolling ten-year periods. Total return can include dividends, interest and both realized and unrealized market value changes. 5.5% is the sum of the spending rate (4.5%) plus the estimated higher education inflation premium (1.0%) over the general inflation rate. The investment mix of equities and fixed income securities shall be consistent with the target return and stability objectives. It is acknowledged that these objectives will require substantial investment in equities.



3. Spending Objectives. Follow a spending rule (payout rate) that provides a stable, predictable level of spending for the endowed purposes, and for a rate of growth in the endowment that approximates the rate of inflation. (pp. 1-2, Policy S tatement)

Spending Rules

1. The spending rate of each endowment will be 4.5% of its average market value on the last day of each of the twelve quarters immediately preceding the year in which the payouts are to be made.
   
   Payouts for scholarships will generally be made at the beginning of the academic year. Payouts for awards will generally be made during the spring quarter. Payouts for university programs will generally be made at the end of the academic year.



2. A spending reserve will be established for every endowment. Spending reserves will consist of the endowment's dividends, interest, capital appreciation and depreciation and, if applicable, transfer in of funds already held by the University. Payouts will be netted against the spending reserve.



3. To the extent that the current year's total return is insufficient to meet the announced payout, reinvested prior year's income held in the spending reserve may be drawn upon. In the event that the spending reserve is not sufficient to make the entire current year's payout, only those funds available in the spending reserve will be distributed. If there are no funds available in the spending reserve, no payout will occur.



4. Payouts for endowments reaching threshold in the current fiscal year will be based on 4.5% of the average market value of the last day of the preceding calendar year. (p. 3, Policy Statement)

1. Equity Investments. The principal category of equity investments will be common stocks. Stock investments should be diversified by industry, capitalization size, relative value and nation of origin. Accordingly, the Board's Standing Committee on Investments (Investment Committee) will establish, document and make available for review by the Board the appropriate allocations and limits within these diversifying categories.



2. Fixed Income Investments. The principal category of fixed income investments will be domestic, high-quality intermediate or long-term corporate and Treasury bonds. Investments in professionally managed below-grade instruments or international instruments may be included subject to limitations adopted by the Investment Committee.
   
   Short-term, cash-equivalent investments are appropriate as a depository for income distributions or as needed for temporary placement of funds directed for later investments to longer-term capital markets.



3. Other Investments. Other investments such as individual real estate, private distressed securities, venture capital, domestic and foreign private equity, directional and non-directional hedge funds or commodities (including energy and natural resources) may be utilized in the endowment portfolio if authorized by the Investment Committee after appropriate review and analysis of the role of the investment in the portfolio and a determination that the expected risk and return profile are in alignment with overall portfolio objectives and policies. It is expected that such other investments will be made utilizing diversified pools of assets.



4. Prohibited Investments. The fund may not purchase investments in letter stock or individual commodities other than as a broad group of commodities might exist in a diversified fund which has been approved by the Investment Committee. In addition, the fund will not engage in short sales or purchases on margin other than as they might exist in a diversified fund which has been approved by the Investment Committee. Gifts of prohibited investments will be liquidated as soon as feasible. (p. 2, Policy Statement)

1. Equity Investments:
   The overall investment objective of the equity portion is to provide top quartile long-term total returns relative to the broad equity market and to the returns of other funds with similar objectives and investment styles. The equity portion shall be invested under the following guidelines:
   1. Allowed investments include publicly traded common stocks, preferred stocks, stock warrants and rights, convertible bonds, securities issued by non-U. S. companies traded on U. S. exchanges, as well as REITs (real estate investment trusts) and any other investments as allowed by respective prospectuses.
   
   
   
   2. Equity securities shall be diversified in number so that no one commitment to any company shall exceed 5% of the value of the Foundation's equity portfolio based on cost at the time of acquisition or 7% at market value of the equity portfolio.
   
   
   
   3. The Foundation shall not hold more than 5% of the equity securities, or those securities convertible into equity securities, of a single issuer.


2. Fixed Income Investments:
   The overall investment objective of the fixed income portion is to provide (above average) top quartile long-term total return relative to the fixed income market and to the returns of other fixed income funds through traditional fixed income management techniques. The fixed income portion shall be invested under the following guidelines:
   1. Allowed investments include corporate and government bonds, asset-backed securities and any other fixed income investments as allowed by respective prospectuses.
   
   
   
   2. Average credit quality shall be A or better.
   
   
   
   3. With the exception of U. S. Government and Agency issues, no more than 10% of the bond portfolio at market will be invested in the securities of a single issuer or 5% of the individual issue.
   
   
   
   4. There shall be a maximum limitation on below-investment-grade bonds of 10% of the bond portfolio.
   
   
   
   5. There shall be a maximum limitation on non-U. S. bonds of 20% of the bond portfolio.


3. Short Term Investments:
   Cash shall be continuously invested until needed in the following: U.S. Treasury Bills, quality (A1/P1 or equivalent at the time of purchase) commercial paper, savings accounts, and other money market investments as approved by the Committee.



4. Real Estate:
   The Foundation may invest in a commingled real estate fund that offers broad geographical diversification utilizing a wide range of property types. Investment in a commingled fund offers much greater liquidity by allowing the Foundation to purchase shares of the fund, as opposed to a direct investment in real estate, which requires ownership in actual land and buildings. Although leverage is allowed, the total shall not exceed 30% across the entire portfolio. It is the policy of the Foundation, where possible, to seek investment vehicles which do not generate UBTI. UBTI (Unrelated Business Taxable Income) is income earned by a tax-exempt entity that does not result from tax-exempt activities. The entity may owe taxes on this income, and therefore it should be carefully reviewed. Other specific real estate investments will be evaluated on a case by case basis by the Finance Committee and, if deemed appropriate, recommended to the Executive Committee for approval.



5. Alternative Investments:
   Alternative investments are non-traditional investments that have low correlation with most traditional asset classes. Alternative investments are usually transacted through a partnership structure and are often characterized by limited liquidity, infrequent valuations, and the need for greater administrative workload and oversight. The Committee recognizes that additional investment classes may reduce the Foundation's investment performance volatility and/or enhance overall performance. It is the intent of the Committee to place a portion of assets specified in SCHEDULE I in investment categories such as:
   
   - Absolute Return Strategies
   - All Asset Strategies (TAA)
   - Private Equity
   
   Definitions, as well as manager performance objectives, for each alternative asset class specified above can be found in Exhibit A of this Policy.
   
   The investment criteria and guidelines for alternative asset class investment managers and all other investment managers utilizing a mutual fund or commingled fund will be subject to the prospectus, offering circular, or other offering documents prepared by the investment manager. It is the policy of the Foundation, where possible, to seek investment vehicles which do not generate Unrelated Business Taxable Income (UBTI).
   
   If the foundation receives property, which is not a qualified investment under these guidelines, the Finance/Investment Committee is directed to dispose of the property and reinvest the proceeds in qualified investment within a reasonable period. Exceptions require the approval of the Executive Committee.

Equity Investments
Common Stock: The principal category of equity investments will be common stocks with primary emphasis on high quality investment grade stocks in companies that are financially sound and that have favorable prospects for earnings growth. Stock investments should be diversified by industry, capitalization size, relative value, and nation of origin. It is expected that not more than 20 percent of stock investments should be in companies not within the United State, that no more than 5 percent of the equity portion of the investment's assets should be invested in any single issue, and not more than 15 percent of the equity portfolio should be invested within a single industry sector. Preferred Stock and Convertible securities shall be considered Equity, as it would relate to this policy. The suggested mix and diversification of stock investments accomplished through investment(s) in the Common Fund, or a like institution, is consistent with this policy.

Real Estate: Equity investments may also include equity real estate, held in the form of professionally managed, income producing commercial property. Such investments, however, shall not exceed 10 percent of total equity investment in order to achieve diversification over time.

Hedge Funds, Venture Capital, and other Private Equity Partnerships: Equity investments may also include hedge funds, private equity, or venture capital investments, held in the form of professionally managed pooled limited partnership investments. Such investments shall not exceed 5 percent of total equity investments.

Fixed-Income Investments
Intermediate and Long-Duration Bonds: It is expected that at least two-thirds of all fixed income investments will normally be invested in domestic, high quality corporate and Treasury bonds of intermediate to long duration. In addition, investments may include no more than 15 percent of the fixed income portion in the professionally managed below investment grade portfolios (high yield or distressed debt issues), and no more than 20 percent of the fixed income portion, or not more than 15 percent of the investments assets, in international sovereign (Treasury) securities. The suggested mix and diversification of fixed income investments accomplished through investments in the Common Fund, or a like institution, is consistent with this policy.

Short Duration Bonds: While it is not expected that securities with average maturity of less than five years will normally be included in the portfolio, monies in transition, monies expressly restricted by the donor, and other assets generally as may from time to time be considered prudent by professional management may be invested in high quality government and corporate bonds with a maturity of 1-5 years.

Money Market or Cash Equivalent Investments: Short term, cash equivalent investments are not considered an appropriate vehicle for endowment assets. However, such vehicles are appropriate as a depository for income distributions from longer-term investments, or as needed for temporary placement of funds directed for later investment to the longer-term capital markets. In addition, such vehicles are the norm for contributions to the current fund, or for current operating cash. Investment eligible for this class include only the highest quality (A1-P1 Moody's and S&P rated) commercial paper and Treasury Bills. (pp. 48-49)

II.  Philosophy and Approach

1. The Fund will be broadly diversified both by asset class (e.g., U.S. and foreign, large and small company stocks) and by individual security holdings within each asset class. Diversification is used as a means to dampen performance return volatility and provide reasonable assurance that no single issue or class of asset has a disproportionate impact on performance.



2. The fund may use active or passive managers.



3. The fund will have an overall value style tilt.



4. The policy preference guiding portfolio design will be to dampen fund volatility while achieving long-tem benchmark returns rather than minimizing short-term benchmark tracking error.



5. The investment approach generally rejects attempts to time markets.



6. The fund will generally maintain fully invested positions. (p. 2, Investment Guidelines)

The Committee, on an ongoing basis and in accordance with market fluctuations, will rebalance the investment portfolio so it remains within the range of targeted asset allocations, and the planned distribution among investment managers.

A rebalancing procedure as deemed appropriate by the Committee will be implemented, at least annually, or when significant cash flows occur to maintain the allocation of assets within the appropriate ranges.

Formal asset allocation studies may be conducted at least every two years, with annual evaluations of the validity of the adopted asset allocation. (p. 9, Schedule I)

V.   Rebalancing Guidelines

1. In general, asset ranges will be relatively tight and portfolio exposures will be maintained close to target levels regardless of calendar or timing of Investment Committee meetings.
2. New cash may be averaged-in at the direction of the Investment Committee or the discretion of the investment consultant.
3. The portfolio will be rebalanced periodically and any sustained variance from equity or fixed income targets greater than 5% must be approved by the Investment Committee.