INTERNATIONAL SOCIETY FOR PHARMACEUTICAL ENGINEERING, INC.
INVESTMENT POLICY
March 2014
Overview
1. This statement of Investment Policy has been adopted by the Board of Directors of
the International Society for Pharmaceutical Engineering (ISPE) to provide guidelines
for the investment of funds held by the association. The purpose of this policy is as
follows:
a. To ensure that investment of funds is accomplished in a safe and secure
manner, particularly with respect to limiting the exposure of the association to
unnecessary risk.
b. To provide adequate liquidity for meeting cash disbursements.
a. To structure an investment portfolio that will provide competitive yields.
2. Safety of principal and interest shall prevail over yield in all investment decisions.
For the purposes of managing investment risk and to optimize investment returns
within acceptable risk parameters, the funds held will be divided into three separate
investment pools. The process for determining the dollar amount in each pool is set
forth in the "Procedures" section of this document. The three investment pools shall
be called the "Operating Fund", the "Short-Term Funds" and the "Long-Term Funds".
3. Procedures
a. The following procedures will be instituted to ensure the investment policy
statement is consistent with the current mission of ISPE and accurately reflects
the current financial condition:

This investment policy shall be reviewed annually by the Finance and Audit
Committee for any necessary revisions.

Recommendations for any revisions or modifications will be made by the
Finance and Audit Committee to the Executive Council and to the Board of
Directors for final approval.
b. The following procedures will be used to determine the dollar amounts to be
placed in Short-Term Funds and Long-Term Funds. Dollars not specifically
designated for Short-Term or Long-Term Funds will be restricted to investments
designated in the "Investment Guidelines" for the Operating Fund.

The Finance and Audit Committee will recommend the dollar amounts to be
placed in the Short-Term and Long-Term Funds.

For each fiscal year, the Board of Directors will have final approval of funds
earmarked for Short-Term and Long-Term funds.

Actual investment of funds designated as long-term funds will not occur until
year end financials are confirmed as final to ensure availability of funds.
c. The following procedure will be instituted for transfer of funds between the
Short-Term Funds and Long-Term Funds

The Finance and Audit Committee is authorized to approve transfers between
the short-term and long-term accounts, as recommended by the investment
advisor and in concurrence with the CFO and CEO, in amounts up to
$500,000.

All transfers must be reported to the Board of Directors in the monthly
financial reports.

Any investment transfers over $500,000 require prior Board approval.
d. The following procedure shall be followed to engage a new or replace a current
registered investment advisor. The same procedure shall apply for both
individually managed accounts and mutual funds (with the exception of money
market mutual funds).

The Finance and Audit Committee will interview and recommend the hiring or
replacing of an investment advisor to the Executive Council and the Board.

Reporting – The Executive Vice President/CFO will provide the Finance and
Audit Committee the following reports quarterly:
o
Schedule of Accounts and Investments, including maturity date (if
applicable) and current yield
o
Interest Income Year-to-Date (included on monthly financial
statements)
o
Capital Gains & Loss Realized/Unrealized(included on monthly
financial statements)
4. Currency Considerations
The international scope of ISPE activities may result in contractual liabilities being
denominated in currencies other than U.S. dollars. In order to reduce exposure to
currency fluctuations, the Finance and Audit Committee will authorize the investment
of assets in currencies that match contractual liabilities. This can be done through
spot purchases or forward contracts only. The investment in assets denominated in
non-U.S. currencies will be done without regard to the prevailing interest rates
available because of the importance of minimizing exposure to currency fluctuation.
It is hereby recognized that the protection of principal should prevail in all
transactions even if the interest earnings may suffer. We will mitigate on both high
side and low side. We will move no more than $100,000 at any one time when ISPE
will incur a loss. When trading is to ISPE’s advantage, this limit will not apply.
ISPE Operating Fund
1. Purpose
The purpose of the Operating Fund is to provide sufficient cash to meet the financial
obligations of ISPE in a timely manner.
2. Investment Objectives
The investment objectives of the Operating Fund are:


Preservation of Capital
Liquidity

To optimize the investment return within the constraints of preservation of
capital and liquidity.
3. Investment Guidelines
a. Allowable Investments - The President and/or the CFO shall be authorized to
invest the ISPE Operating Fund as follows:


U.S. dollar denominated:
o
Federally insured Certificates of Deposit not to exceed $100,000 per
institution, including interest, at commercial banks or savings and
loans institutions.
o
Money Market Funds that invest in government-backed securities and
are rated Tier 1.
o
Interest-bearing checking accounts in commercial banks that have at
least a 5% net worth and $500 million or more in assets.
o
Direct Obligations of the U.S. Government, its Agencies and
instrumentalities.
o
Repurchase agreements with institutions whose senior debt rating is
rated AA or better by Standard & Poor's and/or Moody's or where
physical delivery of the collateral is made to a third party custodian.
Non-U.S. dollar denominated
o
Recognizing that the safeguards available to investors in U.S.
denominated assets are generally not available in other countries,
investments overseas will be limited to accounts in securities of banks
deemed appropriate by the Finance and Audit Committee. The
Finance and Audit Committee will authorize the initiation of new
relationships in countries other than the United States.
b. Maturity - The maturities on investments for the Operating Fund shall be limited
to two years or less.
ISPE Short-Term Fund
 Purpose
The purpose of the Short-Term Fund is to meet the expenses occurring as the result
of unanticipated activities, improve the return on funds held for expenditure over the
next one to five years, and to manage investment risk.
2. Investment Objectives - The investment objectives of the Short-Term Fund are:

Preservation of Capital

Liquidity

Optimization of the investment return within the constraints of (1.) & (2.)
above

Maintenance of principal in non-US dollar denominated currencies should
always prevail over yield, particularly in relation to minimizing exchange rate
risk.
3. Investment Guidelines
a. Allowable Investments - The President and/or Executive Vice President/CFO
shall be authorized to invest the ISPE Short-Term Fund as follows:

U.S. dollar denominated:
o
Federally insured Certificates of Deposit not to exceed $100,000 per
institution including interest at commercial banks or savings and loans
institutions.
o
Money Market Funds that invest in government backed securities and
are rated Tier 1.
o
Direct Obligations of the U.S. Government, its Agencies and
instrumentalities.
o
Commercial paper rated A-I/P-1 by Standard & Poor’s and Moody’s.
o
Repurchase agreements with institutions whose senior debt rating is
rated AA or better by Standard & Poor's and/or Moody's or where
physical delivery of the collateral is made to a third party custodian.
o
Mutual funds consisting of a portfolio where 100% of the securities in
the fund are obligations of the U.S. Government, its agencies or
instrumentalities or collateralized by obligations of the U.S.
Government, its agencies or instrumentalities.

Non-U.S. dollar denominated
o
Recognizing that the safeguards available to investors in U.S.
denominated assets are generally not available in other countries,
investments overseas will be limited to accounts in securities of banks
that are deemed appropriate by the Finance and Audit Committee.
b. Maturity – Investments in Short-Term Funds shall have a maturity of five years or
less.
ISPE Long-Term Fund
1. Purpose
The purpose of the ISPE Long-Term Fund is to enhance the purchasing power of
funds held for future expenditure, to maintain the financial stability of the Society, and
to provide income to be used during future budget cycles.
2. Objectives
a. The objectives of the portfolio represent a long-term goal of maximizing returns
without exposure to undue risk, as defined herein. It is understood that fluctuating
rates of return are characteristic of the securities markets. The primary concern
should be long-term appreciation of the assets and consistency of total return on
the portfolio. Recognizing that short-term market fluctuations may cause
variations in the account performance, the portfolio is expected to achieve the
following objectives over a three-year moving time period:

The account’s total expected return will exceed the increase in the CPI plus
3% annually. On a quarter-to-quarter basis, the actual returns will fluctuate
and can be expected to exceed the target about half the time.

The account’s total expected return will exceed the increase in the Treasury
Bill Index by a minimum of 3% annually. On a quarter-to-quarter basis, the
actual returns will fluctuate and can be expected to exceed the target about
half the time.
b. Understanding that a long-term positive correlation exists between performance
volatility (risk) and statistical returns in the securities markets, we have
established the following short-term objective: The portfolio should be invested to
minimize the probability of low negative total returns, defined as a one-year return
worse than negative 8%. The goal of this policy is that a loss greater than this will
occur no more than one out of twenty years.
3. Investment Guidelines - The investment policies and restrictions presented in this
statement serve as a framework to achieve the investment objectives at the level of
risk deemed acceptable. These policies and restrictions are designed to minimize
interference with efforts to attain overall objectives, and to minimize the probability of
excluding appropriate investment opportunities.
a. Prohibited Investments - The following investments and investment activities are
prohibited:
 Private Placements
 Letter stock
 Derivatives - However, to the extent that mutual funds are used by ISPE, the
mutual funds may buy or sell derivatives for the purposes of managing
portfolio risk
 Securities whose issuers have filed a petition for bankruptcy
 Commodities or commodity contracts
 Short sales
 Margin transactions
 Any speculative investment activities
b. Diversification
c.

Individual stocks are subject to a maximum 5% commitment at cost or 7%
commitment of the accounts market value for an individual security and 15%
for a particular industry.

Individual bonds not guaranteed by the U.S. Government, its agencies or
instrumentalities, are subject to a maximum 5% commitment at cost.
Long-Term Fund Target Asset Mix
The Long-Term Fund shall be comprised of the asset classes listed in the table
below. The target weight is desired weight for each asset class. The minimum
weights and maximum weights are to allow for normal market fluctuations. It
shall be the responsibility of the financial advisor to remain within the range
specified for each asset class. The financial advisor should re-balance the
portfolio according to the target weights semi-annually.
ASSET CLASS
MINIMUM
WEIGHT
TARGET
WEIGHT
MAXIMUM
WEIGHT
U.S. Large Capitalization Stocks
5%
20%
30%
U.S. Mid Capitalization Stocks
0%
5%
10%
U.S. Small Capitalization Stocks
0%
5%
10%
International Stocks
5%
15%
20%
EQUITY
TOTAL EQUITY
FIXED INCOME
45%
U.S. Government/Corporate
Intermediate Bonds
25%
35%
45%
High Yield bonds
0%
5%
10%
International bonds
0%
5%
10%
TOTAL FIXED
INCOME
ALTERNATIVES
Hedge Funds of Funds
45%
0%
10%
15%
e. Equities
The equity asset classes should be maintained at risk levels roughly equivalent to
the sectors of the market represented, with the objective of exceeding a nationally
recognized index measuring the performance of the designated sector over a
three-year moving time period, net of fees and commissions. Mutual funds
conforming to the policy guidelines may be used to implement the investment
program.
The following definitions shall apply for the purposes of this policy:




f.
U.S. Large Capitalization Stocks: A portfolio of stocks comprised primarily
of U.S. based companies, with the average of the stocks held having a
market value exceeding $10.0 billion and primary shares of which are
traded on a major U.S. exchange.
U.S. Mid Capitalization Stocks: A portfolio of stocks comprised primarily of
U.S. based companies with each individual company having a market value
of between $2 billion and $10.0 billion.
U. S. Small Capitalization Stocks: A portfolio of stocks comprised primarily
of U.S. based companies with each individual company having a market
value less than $2 billion.
International Stocks: A portfolio comprised primarily of stocks of non-U.S.
based companies, the primary shares of which are traded on
exchanges outside the U.S. American Depository Receipts are considered
International Stocks.
Fixed Income
Investments in fixed income securities will be selected to pursue opportunities
presented by changes in interest rates, credit ratings, and maturity premiums.
Mutual funds conforming to the policy guidelines will be used to implement the
investment program. The following definitions shall apply for the purposes of this
policy:

U.S. Government/Corporate Intermediate Bonds: A portfolio consisting
primarily of fixed income securities denominated in U.S. dollars with an A
rating or better, issued by the U.S. Government or U.S. corporations are
having a weighted average maturity of less than 10 years.

High Yield Corporate Bonds: A portfolio consisting primarily of bonds issued
by U.S. corporations where the majority of the bonds are rated below
BBB/Baa. These would be mainly in bond funds.

International Bonds: A portfolio consisting primarily of fixed income
securities denominated in currencies other than U.S. dollars. Issuers may be
both governments and corporations.
g. Performance Reporting

The Long-Term Fund will be evaluated annually on a total return basis.
Returns will be compared to:
o
o
o

Consumer Price Index plus 3%
Three-month Treasury Bill Index plus 3%
Nationally recognized indices measuring the performance of the of the
classes specified in the target asset mix.
Comparisons will show results for the latest year and since inception. The
report will be prepared by the Investment Consultant and will be presented
to the Finance and Audit Committee.