(2) Investment Policy
This statement of investment policy has been adopted by the board of XYZ to guide
investment of funds held by the association.
For purposes of clarity, the following definitions will be used to classify the types of funds
held by the organization.
Operating Funds: Those funds expected to be spent in the normal course of business during
the current budget year. Funds can be retained in a checking account or other suitable format.
Excess funds should be shifted to the reserve fund whenever possible.
Reserve Funds: It shall be the responsibility of the finance committee each fiscal year to
recommend to the board for approval the amount of excess funds not used for day-to-day
operations or given as an endowment to XYZ, which shall be targeted for long-term
investment. Up to 20 percent of the nonendowment funds ($750,000 maximum) may be
transferred to the operating fund with authorization from the chief executive officer and chief
financial officer. Funds taken from the reserve fund for operating contingencies must be
replaced within a reasonable time frame, not to exceed nine months.
Endowment funds: XYZ has established certain restricted and unrestricted funds in
accordance with its endowment fund policy.
Reserve and Endowment Funds Investment Policy Statement:
The purpose of the XYZ reserve fund is to provide financial stability to XYZ and to provide
a growing stream of cash to assist XYZ in fulfilling its mission. The long-term objective is to
maximize capital gains, interest, and dividend income on reserves while reducing risk with a
balance of diversification and prudent management to achieve safety, liquidity, and favorable
total returns. The fund will endeavor to grow principal annually by 5 percent in terms of real
growth (after inflation and fees). This growth target will also be before any income
distribution from the reserve fund to the operating fund.
The purpose of the XYZ Endowment Fund is to permit donors to contribute to the long-term
growth of XYZ and to provide an ongoing stream of income for XYZ. The investment
strategy for endowment principal will parallel XYZ’s reserve fund investment strategy.
However, endowment earnings will be used in accordance with the terms of the specific
endowment. The XYZ reserve fund and endowment fund may be commingled for investment
purposes.
Procedures
1. The investment policy shall be reviewed every two years by the finance committee for
any necessary revisions or modifications.
2. The investment advisory service shall be evaluated every three years. The following
procedures shall be followed to engage a new or replace a current registered investment
advisor:
a) The finance committee will seek bids, review proposals, and recommend the
hiring or replacing of an investment advisor and concurrently;
b) The finance committee will make a final recommendation to the board.
Investment Objectives
The primary objectives should be to provide a balance between capital appreciation,
preservation of capital, and current income. This is a long-term goal designed to maximize
returns without undue risk.
1. The account’s total return should, over a 5 year moving time period, meet or exceed a
balanced index of 60 percent S&P 500 and 40 percent Lehman Brothers
Corporate/Government Intermediate Index.
2. The portfolio should be invested to minimize the likelihood of low or negative total
returns.
3. XYZ anticipates a need of some income from this portfolio each year to meet its
operating budget. The investment advisor shall be notified each budget year of the
amount of investment income included in its budget. The long-term goal is to reinvest
income generated by the reserve fund.
Investment Guidelines
XYZ recognizes that risk, volatility, and the possibility of loss in purchasing power are
present to some degree in all types of investment vehicles. While high levels of risk are to be
avoided, the assumption of some risk is warranted in order to allow the investment advisor
the opportunity to achieve satisfactory long-term results consistent with the objectives of
XYZ.
Target Asset Mix
The board will leave the asset allocation to the investment advisor’s discretion within a target
range of 60 percent equity and 40 percent fixed income (see target mix below). Advisors will
have no limitation on moving out of investments and into money market or cash if deemed
necessary by the market conditions.
Target Asset Mix
Asset Class
Cash & Equivalent
Equity
Fixed Income
Minimum Weight
0%
40%
20%
Target Weight
0%
60%
40%
Maximum Weight
30%
65%
50%
Target of Asset
1. Equity securities include common stocks, preferred stocks, convertible securities
including debentures, and may be selected from the New York, American, and Regional
Stock Exchanges and over-the-counter markets. The equity portfolio should be well
diversified to avoid undue exposure to any single economic sector, industry group, or
individual security.
2. Fixed-income securities may be comprised of obligations of the United States
Government and its agencies, corporate bonds and notes, convertible bonds, mortgagebacked securities, and asset-backed securities. High yield bonds are inappropriate for this
portfolio. All debt instruments must carry investment grade credit rating of Moody’s A3
or S&P A or better. The maximum maturity per security should not exceed 12 years.
3. Cash and equivalents may be invested in commercial paper, repurchase agreements, U.S.
Treasury Bills, money market funds, and certificates of deposit or money market
preferred. Certificates of deposit from U.S. banks having at least $250 million in capital,
surplus and undivided profit accounts, but no more than $250,000 at any eligible bank.
4. Other Assets: The investment advisor is prohibited from investing in commodities,
unregistered letter stock, foreign securities other than those listed on the NYSE, warrants,
purchase of equity securities on margin, selling short, real estate mortgages, all options
and futures, or other specialized investment activities. No client assets should be invested
in speculative securities or companies whose principal lines of business include
manufacture of tobacco products.
5. Investments not specifically addressed by this statement are forbidden without the written
consent of the finance committee.
Performance
XYZ’s reserve fund will be evaluated quarterly. Returns will be compared to the following:
1. An index comprised of the S&P 500 index (60 percent) and the Lehman Corporate &
Government Intermediate Index (40 percent) or other appropriate benchmarks. The fixed
income indices and the equity portion of the portfolio may be compared to the equity
indices separately if deemed appropriate.
Reporting
The following procedures shall be followed in reporting investment performance:
1. The investment performance of the reserve funds and endowment funds may be
commingled for reporting purposes.
2. The portfolio performance will be measured against the objectives stated above and the
investment advisor will also be evaluated against a universe of his peers. All returns are
to be reported on a gross and net return basis. The net basis excludes investment fees and
expenses.
3. The data shall be presented for the latest quarter, year-to-date, annually, and since
inception.
4. The report will be given to the finance and administrative affairs committee quarterly and
to the board semiannually.