Southern Oregon University Foundation: Mission Statement

“The object and activities of this corporation shall be in general to aid and promote educational, scientific and charitable purposes, and in particular the support and furtherance of the educational, scientific, charitable or other lawful activities and purposes of Southern Oregon University.”

I. INTRODUCTION

The assets of the Southern Oregon University Foundation (SOU Foundation) are to be managed in accordance with this Investment Policy, unless subsequently altered by the SOU Foundation Finance and Investment Committee. By accepting the appointment as manager of a portion of this Investment Pool, each investment manager will have accepted the responsibilities outlined herein, and each is responsible for optimizing the Investment Pool’s return within the provisions of this policy. Each investment manager will acknowledge in writing that they have received a copy of the Statement of Investment Policy and understand that they are committed to abide by it.

II. PURPOSE AND GOALS

The primary investment objective is to produce a return on capital assets consistent with the SOU Foundation Statement of Investment Policy outlined in Appendix A, while at the same time controlling the volatility of our capital assets, herein referred to as our “Total Investment Pool.”

III. DEFINITION OF RESPONSIBILITIES

A. Board of Trustees’ Responsibilities

1. The Board of Trustees will ensure that the assets of the Foundation will be invested with care, skill, prudence and diligence under the circumstances then prevailing that a "prudent person" acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with such aims.

2. Establish the strategic investment policy for the Investment Pool including the asset allocation and periodically review that policy in light of any changes in funding and spending variables and market conditions.

3. Select qualified consultants and investment managers to advise on and manage the Investment Pool’s assets.

4. Monitor and review the performance of selected managers to determine their achievement of goals and compliance with policy guidelines.

5. Monitor the costs of the investment operations on a quarterly basis.

B. Staff Responsibilities

1. Manage the Investment Pool assets under its direct care, custody and/or control in accordance with the Investment Policy Statement objects and guidelines set forth herein.

2. Monitor both internally & externally managed assets to insure compliance with the guidelines set forth in this policy statement.

3. Promptly vote all proxies and related actions in a manner consistent with the long-term interests and objectives of the SOU Foundation as set forth in item B.1., above. Maintain detailed records of said voting of proxies and related actions and comply with all regulatory objections related thereto. This responsibility may also be assigned to the Investment Managers.

4. Report to SOU Foundation Finance and Investment Committee quarterly regarding the status of the portfolio and its performance for various time periods.

5. Meet with the Board at least annually to report on their performance and compliance with goals and objectives.

6. Acknowledge and agree in writing to their fiduciary responsibility to fully comply with the entire Investment Policy.

C. Investment Consultants’ Responsibilities

1. Provide independent and unbiased information

2. Assist in the development of Investment Policy Statement

3. Monitor compliance with Investment Policy Statement

4. Assist in the development of strategic asset allocation targets

5. Assist in development of performance measurement standards

6. Monitor and evaluate manager performance on an ongoing basis

7. Conduct due diligence when a manager fails to meet a pre-agreed standard as set forth in attached specific manager appendix.

8. Establish a procedural due diligence search process

9. Conduct manager searches when needed for policy implementation

D. Investment Managers’ Responsibilities

1. Manage the Investment Pool assets under its care, custody and/or control in accordance with the Investment Policy Statement objectives and guidelines set forth herein.

2. Exercise full investment discretion over the assets in their care within the guidelines set forth in this policy statement.

3. Promptly inform SOU Foundation Finance and Investment Committee and staff in writing regarding all changes of a material nature pertaining to the firm’s organization and professional staff.

4. If directed, promptly vote all proxies and related actions in a manner consistent with the long-term interests and objectives of the Investment Pool set forth herein. Each manager designated to vote shall keep detailed records of said voting of proxies and related actions and will comply with all regulatory obligations related thereto.

5. Report to SOU Foundation Finance and Investment Committee quarterly regarding the status of the portfolio and its performance for various time periods.

6. Meet with SOU Foundation Finance and Investment Committee at least annually to report on their performance and compliance with goals and objectives.

7. Acknowledge and agree in writing to their fiduciary responsibility to fully comply with the entire Investment Policy

8. Statement set forth herein, and as modified in the future.

IV. COMMUNICATION WITH SOU FOUNDATION

The SOU Foundation is organized into various committees and sub-committees that oversee foundation assets. Primary responsibility for communication of information to the SOU Foundation board rests in the Finance and Investment Committee. In turn, the Investment Sub-Committee directly oversees individual investment managers.

The investment managers are responsible for frequent and open communication with the Investment Sub-Committee on all significant matters pertaining to the investment of the SOU Foundation’s assets. The Investment-Subcommittee expects to be apprised of any significant changes in the investment outlook, portfolio strategy and asset allocation of these funds. In addition, the Investment Sub-Committee wishes to be informed of any significant changes in the investment manager’s organizational structure and in the personnel assigned to management of the assets.

V. INVESTMENT MANAGEMENT STRUCTURE

The Investment Sub-Committee, subject to the approval of the SOU Foundation Finance and Investment Committee, will select as many investment managers as it deems appropriate to properly diversify the management structure of the Total Investment Pool.

The following portion of the Investment Policy applies to the Total Investment Pool, including all portions of the portfolio. Specific policy statements for each individual manager will follow in the Appendices of this policy statement.

VI. INVESTMENT OBJECTIVES – TOTAL INVESTMENT POOL

The following investment objectives are established as of the date adopted and are in keeping with the fiduciary requirements set forth in federal and state law. It is best practice that objectives are established for the Total Investment Pool and performance standards set for each investment manager. It is clearly understood that these objectives and standards are to be viewed over the long term and have been established after full consideration of all factors set out in the SOU Foundation Statement of Investment Policy. These performance objectives are as follows:

A. Total Investment Pool Objectives:

1. To avoid catastrophic loss of principal through diversification and balance. The Total Investment Pool may be comprised of fixed income, equity and convertible securities, which may be actively or passively managed. Alternative Investment Strategies may also be used subject to SOU Foundation Finance and Investment Committee approval.

2. Obtain the maximum total return on investments consistent with the safety of principal. Specifically, to achieve a long-term rate of return as outlined in Appendix A.

3. It is expected that this objective will be achieved over each market cycle, which has historically been between three and five years.

4. Achieve long-term performance, consistent with acceptable risk, which ranks at or above the top 40th percentile in a data base composed of other similarly managed funds. This will be measured over a moving three and five year time period.

5. The Total Investment Pool's rate of return should exceed the composite performance of the SOU Foundation benchmark (Appendix A).

6. The Gift Annuity Pool will be handled in a separate sub fund, and its goals and objectives will be dictated by actuarial considerations.

7. The Charitable Remainder Trusts Pool will be handled in a separate sub fund, and its goals and objectives will be dictated by actuarial considerations.

B. Asset Allocation

The Total Investment Pool’s asset allocation (measured at market value) will be measured over a three and five year moving time period against those of a target portfolio weighted for either the Equity Portion or the Fixed Income Portion of the Total Pool, as delineated in Appendix B. Such measurement will be the responsibility of the Investment Consultant under Section III C, above.

C. Asset Rebalancing

Given the volatility of the capital markets, strategic adjustments in various asset classes may be required to rebalance asset allocation back to its target policy. Such adjustments should be executed so as to minimize excessive turnover and transaction costs. Rebalancing direction is outlined in Appendix C.

VII. INVESTMENT INSTRUMENTS

The majority of the Total Investment Pool’s assets will be invested in common stocks including foreign equities, convertible and non-convertible bonds, U.S. Government securities and various high quality money market instruments, including short-term Investment Pools. Pooled funds, including mutual funds, containing the above investments are also permissible.

The SOU Foundation Finance and Investment Committee must specifically approve any financial derivative investments, options, currency and commodity futures, etc., in advance. This restriction applies to the fixed income area as well. Alternative Investment Strategies such as “Hedge Fund, Venture Capital, Private Equity, etc.” are likewise restricted to specific approval.

Pooled equity real estate funds, both open and closed end, can also be purchased and are considered part of the Domestic Equity allocation.

A. Domestic Equity

The responsibility for domestic equity selection shall lay with the domestic equity investment managers. Those managers, however, will operate within the following investment parameters.

1. Diversification:

a. Diversification at the overall Investment Pool level will be based on an allocation modeled after the Russell 3000 (or similar index/benchmark) Stock Market Index.

b. Equity investment in any one company shall be limited to no more than five percent at cost and 10% at market value of the Total Investment Pool’s assets under the investment manager's supervision and no more than five percent of the company's outstanding equity.

c. No stock shall be bought unless it is traded on one of the major stock exchanges or in the over-the-counter markets, where published closing prices are readily available.

2. Quality:

No companies in Chapter 11 or other re-organization may be purchased without the approval of the Finance and Investment Committee.

3. Restricted Transactions:

a. Conflicts of interest and transactions between a fiduciary and parties in interest are prohibited.

b. No letter stock shall be purchased.

c. No short sales or margin purchases shall be made without specific authorization from the SOU Foundation Finance and Investment Committee.

4. Exemptions: None at this time.

B. Domestic Equity Performance Objectives

The following performance objectives are established for the domestic equity investments (Market Capitalization is defined by Russell Market Cap guidelines). The representative benchmark for the Domestic Equity allocation is the Russell 3000 (or similar index/benchmark) Stock Index.

1. Each active investment manager is expected to perform in the top 40th percentile of a group of investment managers of similar style, as measured over periods of three and five years.

2. An investment manager retained to manage an “indexed” portfolio is expected to perform equal to the comparable index, gross of fees, after which the portfolio is structured.

3. The measurement time period for investment managers will be a market cycle. However, if an investment manager's organization changes and/or performance falls significantly behind the appropriate benchmark, or the performance of a group of investment managers of similar style, then the relationship with the investment manager will be closely scrutinized, and the manager may be replaced by the Investment Sub-Committee.

C. International Equities

The responsibility for international equity selection shall lay with the international equity investment managers. Those managers, however, will operate within the following investment parameters.

1. Diversification:

a. Diversification at the overall Investment Pool level will be based on an allocation modeled after the Morgan Stanley Capital, Inc. Europe, Australia, Far East Index: MSCI (EAFE), or similar index/benchmark.

b. Equity investment in any one company shall be limited to no more than five percent at cost and 10% at market value of the Total Investment Pool’s assets under the investment manager's supervision and no more than five percent of the company's outstanding equity.

c. No stock shall be bought unless it is traded on one of the major stock exchanges or in the over-the-counter markets, where published closing prices are readily available.

2. Quality:

No companies in Chapter 11 or other re-organization may be purchased without the approval of the Finance and Investment Committee.

3. Restricted Transactions:

a. Conflicts of interest and transactions between a fiduciary and parties in interest are prohibited.

b. No letter stock shall be purchased.

c. No short sales or margin purchases shall be made without specific authorization from the SOU Foundation Finance and Investment Committee.

4. Exemptions: None at this time.

D. International Equity Performance Objectives

1. Each active investment manager is expected to perform in the top 40th percentile of a group of investment managers of similar style, as measured over periods of three and five years.

2. Money managers retained to manage an index fund portfolio are expected to perform equal to the comparable index, gross of fees, after which the portfolio is structured.

3. The measurement time period for investment managers will be a market cycle. However, if an investment manager's organization changes and/or performance falls significantly behind the appropriate benchmark, or the performance of a group of investment managers of similar style, then the relationship with the investment manager will be closely scrutinized, and the manager may be replaced by the Investment Sub-Committee.

E. Domestic Fixed Income

The responsibility for domestic fixed income securities selection and investment management will lie with the domestic fixed income managers. Those managers, however, will operate within following investment parameters:

1. Diversification:

a. Diversification at the individual portfolio level will be based on an allocation modeled after the Lehman Intermediate High-Grade Index.

1a. No individual security except for a U.S. Treasury obligation shall constitute more than 10 percent of the market value of the Investment Manager's assigned portfolio.

2a. No single (S&P) industry group shall constitute more than 25 percent of the market value of the portfolio with the exception of the U.S. Treasury and its instrumentalities.

3a. No issue may be purchased which has a total market value of less than $100 million without specific written approval by the SOU Foundation Finance and Investment Committee.

2. Quality

a. Commercial paper must have a minimum rating of P-1 by Moody's or A-1 by Standard & Poor's.

b. The straight fixed income portfolios, on a dollar-weighted basis, will have a minimum quality rating of “A”.

c. Financial institutions issuing Certificates of Deposit (CDs) must have a minimum short-term rating of P-1 by Moody's or A-1 by Standard & Poor's.

d. Any security downgraded below its approved quality level must be disposed of in an orderly market manner and in the best interest of the Investment Pool.

e. 144a Bond offerings with registration rights and that are investment grade are permitted up to 10% of the total fixed income portfolio allocation.

f. The minimum credit rating for convertible preferred stock is "B" by Moody's or Standard and Poor's.

g. The minimum credit rating for a convertible bond is "B", by both Moody's and Standard and Poor's.

h. The convertible securities portfolios, on a dollar-weighted basis, will have a minimum quality rating of "BB" or Ba2.

3. Restricted Transactions:

a. Conflicts of interest and transactions between a fiduciary and parties in interest are prohibited.

b. No funds may be borrowed.

c. No short sales or margin purchases may be made.

d. No tax-exempt bonds may be purchased or retained unless, on a comparable quality basis, it provides a return superior to that of a taxable bond.

e. No private placements may be purchased without specific authorization from the SOU Finance and Investment Committee.

f. No collateralized mortgage obligation derivatives will be purchased.

4. Exemptions:

a. High Yield Bond Managers, if utilized, may comprise up to 10% of the total fixed income allocation.

F. Domestic Fixed-Income Performance Objectives.

The following performance objectives are established for the domestic fixed-income portfolio:

1. Average total investment returns should meet or exceed a benchmark return, which is represented by the Lehman Aggregate Bond Index.

2. Each active manager is expected to perform in the top 40th percentile, over periods of annualized rolling three and five years.

3. Money managers retained to manage an index fund portfolio are expected to perform equal to the comparable index, gross of fees, after which the portfolio is structured.

4. The measurement time period for investment managers will be a market cycle. However, if an investment manager's organization changes and/or performance falls significantly behind the appropriate benchmark, or the performance of a group of investment managers of similar style, then the relationship with the investment manager will be closely scrutinized, and the manager may be replaced by the Investment Sub-Committee.

G. Cash and Cash Equivalents

The Pooled fund will limit its cash investments to money market mutual funds, certificates of deposit (no more than the amount guaranteed by FDIC in any single certificate), short term U.S. treasuries or other short-term U.S. government backed securities, or AAA-rated or AA-rated commercial paper.

H. Alternative Investment Strategies

Alternative Investment Strategies, including the various investment considered “Hedge Funds,” “Venture Capital,” “Private Equity,” etc., are allowed as defined in Appendix B, and may only be put in place with specific approval of the SOU Foundation Finance and Investment Committee.

VIII. PERFORMANCE EVALUATION

The SOU Foundation Board has engaged an outside independent third-party evaluation service (Investment Consultant) to provide proper data and universe samples for comparative purposes. Reviews by the consulting service will occur on a quarterly basis as determined by the SOU Foundation Finance and Investment Committee. The investment managers are expected to meet with the SOU Foundation Finance and Investment Committee or the Investment Sub-Committee as requested.

Performance measurements for each investment type and specific investments will be established and communicated to each manager hired for a specific style or category. The measurements will also state a time frame in which performance objectives should be attained. The SOU Foundation Finance and Investment Committee, or its Investment Sub-Committee and the Investment Consultant, will be responsible for communicating performance objectives to investment managers and others who have responsibility for the investments.

A. Monitoring:

The Investment Sub-Committee and the Investment Consultant will be responsible for monitoring investment performance. They will report quarterly to the Finance and Investment Committee.

B. Performance Review:

The review of each investment manager will address:

1. The performance goal for the investment and the time frame in which the goal is to be attained

2. Rate of return

3. Rate of return of similar types of investments and/or calculation of changes in appropriate index.

4. Explanation of any significant deviation from performance criteria.

C. The Investment Sub-Committee and the Investment Consultant will formulate a recommendation for any investment manager not meeting its performance goal, and will make appropriate recommendations to the Finance and Investment Committee.

IX. COMMISSION AND PROXY POLICY

A. Commission dollars are the assets of the SOU Foundation, and should be used for its exclusive benefit.

B. Proxies are deemed to have a material value, and that they should be voted exclusively in the best interest of SOU Foundation. Investment managers employed by SOU Foundation are expected to vote proxies and report annually to the SOU Foundation Investment Sub-Committee on their voting of all issues other than routine items.

X. MANAGER REVIEW

A. Unless otherwise requested, each investment manager will furnish the SOU Foundation Finance and Investment Committee with a quarterly account review detailing investment performance (time-weighted), strategy, and the value of the assets assigned to them. The SOU Foundation Finance and Investment Committee and the Investment Consultant must receive timely information about changes in the manager's investment philosophy, management, ownership, and key personnel.

B. The Investment Consultant will provide quarterly reviews of each manager and for the account as a whole, reflecting the time weighted investment performance relative to the goals and objectives of SOU Foundation, and to alternative like kind investments and appropriate indices.

C. The SOU Foundation Investment Sub-Committee may call more frequent meetings if significant concerns arise about an investment manager's investment strategy or performance, or if key changes occur in the manager's personnel or organization. Investment managers may request a meeting at any time by contacting the SOU Foundation Finance and Investment Committee, or the Investment Consultant.

Should the Consultant or the Manager(s) believe at any time that changes, additions, or deletions to this statement are advisable, it will be his/her full responsibility to recommend them to SOU Foundation Finance and Investment Committee on a timely basis.

XI. CUSTODY

The custodian of the SOU Foundation assets (not held directly) must be a clearing member of the Depository Trust Company of the United States (DTC).

XII. REVIEW

It is the intent of this statement to employ “best practices”, as seen by the SOU Foundation Trustees as well as those of its peers. To that end, this policy statement shall be reviewed periodically by the SOU Foundation Trustees, as well as non-trustees where appropriate.

Adopted:

SOU Foundation Finance and Investment Committee: November 20, 2001

SOU Foundation: November 27, 2001

__________________________________
President, SOU Foundation

APPENDIX A:

TOTAL RETURN OBJECTIVE

The investment objective of the SOU Foundation Total Investment Pool is a rate of return that exceeds the All Urban Consumer Price Index (CPI) by 5.0%.

APPENDIX B

ASSET ALLOCATION

Target Allocation:

55% - Equities - Domestic

20% - Equities - International

15% - Fixed Income

10% - Alternative Strategies

1.) Domestic Equities may comprise up to 66% of the Investment Pool's market value, with a minimum requirement of 44%.

2.) International Equities may comprise up to 24% of the Equity allocation’s market value, with a minimum requirement 16%.

3.) Fixed Income securities (including preferred stocks and convertible bonds) may make up 18% of the Investment Pool's market value, with a minimum requirement of 12%.

4.) Cash equivalents should be kept to a minimum, with a range of 0% to 50%.

Stocks - Domestic (44.0% Minimum; 55.0% Target; 66.0% Maximum)

Stocks - International (16.0% Minimum; 20.0% Target; 24.0% Maximum)

Fixed Income (12.0% Minimum; 15% Target; 30% Maximum)

Alternative Strategies (0.0% Minimum; 10.0% Target; 15.0% Maximum)

Cash (0.0% Minimum; 0.0% Target; 50% Maximum)

APPENDIX C

REBALANCING DIRECTION

Rebalancing Methodology

Given the volatility of the capital markets, strategic adjustments in various asset classes may be required to rebalance asset allocation back to its target policy. Such adjustments should be executed so as to minimize excessive turnover and transaction costs.

Instructions to Custodian / Trustee

The following guidelines will direct the custodian regarding the investment of net new dollars available for investment, and with regard to re-balancing of the various asset classes as specified in the Investment Policy Statement of Southern Oregon University Foundation.

1. Net New Dollars to be invested:

The Investment Subcommittee or Foundation Staff shall direct the appropriate custodian to allocate new funds to the managers as outlined in the Asset Allocation Statement, Appendix B.

2. 20% Deviation from Target:

Based on month end market values, if any asset class deviates from the specified target in Appendix B, the Investment Sub-Committee Chair or the Finance and Investment Committee Chair may instruct the Consultant to re-allocate the other asset classes to bring the asset allocation back to the targets specified in the Appendix B.

APPENDIX D:

CUSTODY

The SOU Foundation hereby appoints UBSPaineWebber as non-fiduciary custodian.

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