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Statement of Investment Objectives
Adopted
by the Board of Directors on June 11, 2004
1. INVESTMENT PHILOSOPHY
The Foundation's Investment Philosophy is
summarized as follows:
- Preserve Capital.
- Strive for consistent absolute returns.
- Preserve the real purchasing power of
permanent assets while conducting an ongoing
grantmaking program that delivers funds
that meet the needs of the St. Croix Valley
Area Community.
- Earn the highest possible return given
the risk tolerance as established by the
board of directors of the Foundation.
2. RISK TOLERANCE
The Foundation's risk tolerance with respect
to the Fund's mission is low to moderate.
The Foundation is unwilling to undertake investment
strategies that might jeopardize the ability
to deliver grants to the St. Croix Valley
Area Community. However, the mission of funding
the needs of the St. Croix Valley is long-term
in scope. Therefore, funding this mission
in an economical manner is critical to the
Foundation's ability to continue to deliver
grants to the St. Croix Valley Area Community.
The Foundation believes that, prudently implemented,
a moderately aggressive investment approach
best serves the long-run interest of the Foundation
and the St. Croix Valley Area Community.
3. DONOR INVESTMENT PORTFOLIO OPTIONS
While most funds will be invested in the
balanced Long Term Balanced Portfolio with
the asset allocation determined by the board
of directors of the Foundation, qualified
donors may choose a different blend of asset
allocations from among the four funds described
below. The mix of asset types may be modified
periodically by the donor advisors. This option
requires a minimum fund balance of $100,000.
In order to meet the near-term liquidity
needs as well as the long-term mission of
the program, the Foundation will employ the
following four strategies:
4. SCVCF INVESTMENT PORTFOLIO FUNDS
4.1. SHORT
TERM PORTFOLIO
Short Term Portfolio investments will be
kept in cash or cash equivalents and are earmarked
for near-term needs.
4.2. LONG TERM BALANCED PORTFOLIO
Policy Asset Mix
Diversification of assets will be employed
to ensure that adverse results from one security
or security class will not have an unduly
detrimental effect on the entire portfolio.
Diversification is interpreted to include
diversification by type, by characteristic,
and by the number of investments as well as
by investment style of management organization.
- For purposes of asset allocation, the
Foundation currently divides the Long Term
Balanced Portfolio into four asset categories:
domestic equities, international equities,
domestic fixed income, and cash. Based on
the long-term mission and overall risk tolerance
of the Foundation, the Committee chose the
following policy asset mix for the long-term
portfolio:
| |
Target |
Minimum |
Maximum |
| Domestic
Equities |
45% |
35% |
55% |
| International
Equities |
10% |
5% |
15% |
| Domestic
Fixed Income |
40% |
32% |
48% |
| Cash
(Term < 1 yr.) |
5% |
0% |
25% |
- Equity. Domestic Equities will
represent 35% to 55% of the market value
of the total long-term portfolio, with
a targeted average of 45%. International
Equities will represent 5% to 15% of the
market value of the total long-term portfolio,
with a targeted average of 10%. Equities
authorized for purchase include common
and preferred stocks, warrants, ADR, REITS,
MLPs, and convertible bonds and convertible
stock. Most mutual funds allow the manager
broad authority as to investments and
often include the authority to use techniques
such as short selling, index futures and
options, foreign currency contracts, synthetic
securities and other types of investments.
The use of Stock Options, Short Sales
or Margin Transactions will not be used
in the management of individual issues
and a mutual fund broadly using these
techniques will not be pursued.
Fixed Income. Bonds will represent
32% to 48% of the market value of the
total long-term portfolio, with a targeted
average of 40%. The objective is to
earn a competitive yield with moderate
risk to investment capital by investing
in assets which have a maturity range
from one to thirty years. The investments
normally used will be U.S. government
or agency bonds, corporate bonds, bank
certificates, taxable municipal bonds
and/or mutual funds which invest in
those types of assets. Bonds may be
held to maturity or sold if appropriate.
All bonds when purchased are to be an
A quality or better as rated by Moody's,
Standard & Poors or other major
rating services. BAA-1 general obligation
bonds and other non-rated bonds may
be considered if the investment appears
unusually attractive and appropriate.
It is assumed that all government securities
are rated AAA. Bank certificates will
be purchased in amounts which are covered
by FDIC or other federal deposit insurance.
It is understood that income type mutual
funds or similar type pooled investment
vehicles in the Income Portfolio with
the purpose of having the general maturity
range stated above and mutual funds
or similar type pooled investment vehicles
which invest in lower quality bonds
and debentures may be used
- Cash. Cash will represent up
to 25% of the total long-term portfolio,
with a targeted average of 5%. The target
allocation of 5% recognizes that 5% of
endowed funds may be distributed at any
time. Cash includes investments with maturities
of less than 1 year.
4.3. FIXED INCOME PORTFOLIO
- Bonds will represent 100% of the market
value of the total Fixed Income portfolio.
The objective is to earn a competitive yield
with moderate risk to investment capital
by investing in assets which have a maturity
range from one to thirty years. The investments
normally used will be U.S. government or
agency bonds, corporate bonds, bank certificates,
taxable municipal bonds and/or mutual funds
which invest in those types of assets. Bonds
may be held to maturity or sold if appropriate.
All bonds when purchased are to be an A
quality or better as rated by Moody's, Standard
& Poors or other major rating services.
BAA-1 general obligation bonds and other
non-rated bonds may be considered if the
investment appears unusually attractive
and appropriate It is assumed that all government
securities are rated AAA. Bank certificates
will be purchased in amounts which are covered
by FDIC or other federal deposit insurance.
It is understood that income type mutual
funds or similar type pooled investment
vehicles in the Fixed Income Portfolio with
the purpose of having the general maturity
range stated above and mutual funds or similar
type pooled investment vehicles which invest
in lower quality bonds and debentures may
be used.
4.4. EQUITY PORTFOLIO
Equities will represent 100% of the market
value of the total Equity Fund Portfolio.
Diversification of assets will be employed
to ensure that adverse results from one security
or security class will not have an unduly
detrimental effect on the entire portfolio.
Diversification is interpreted to include
diversification by type, by characteristic,
and by the number of investments as well as
by investment style of management organization.
| |
Target |
Minimum |
Maximum |
| Domestic
Equities |
80% |
70% |
90% |
| International
Equities |
20% |
30% |
10% |
For purposes of asset allocation, the Foundation
currently divides the Equity Portfolio into
two asset categories: domestic equities, and
international equities. Based on the long-term
mission and overall risk tolerance of the
Foundation, the Committee chose the following
policy asset mix for the long-term portfolio:
Domestic Equities will represent 70%
to 90% of the market value of the Equity
Portfolio, with a targeted average of
80%. International Equities will represent
10% to 30% of the market value of the
Equity Portfolio, with a targeted average
of 20%. Equities authorized for purchase
include common and preferred stocks,
warrants, ADR, REITS, MLPs, and convertible
bonds and convertible stock. Most mutual
funds allow the manager broad authority
as to investments and often include
the authority to use techniques such
as short selling, index futures and
options, foreign currency contracts,
synthetic securities and other types
of investments. The use of Stock Options,
Short Sales or Margin Transactions will
not be used in the management of individual
issues and a mutual fund broadly using
these techniques will not be pursued.
5. ASSET REBALANCING OF INVESTMENT PORTFOLIOS.
The Foundation has established a policy
toward maintaining the Long Term Balanced
Portfolio and the Equity Portfolio at its
policy asset mix over time. Quarterly, the
funds' investment allocation will be examined.
To the extent that the funds' actual asset
allocation deviates outside of specified ranges
from the policy asset mix, assets will be
redistributed among the funds' managers to
achieve the desired allocation. This asset
balancing applies as well to those donor funds
(Donor Option Funds) that elect the option
of establishing a different blend of asset
mixes.
6. ASSET CATEGORY TARGETS
The Foundation has selected asset category
targets for all of its investments. The asset
category target is an investment portfolio
that defines the scope of potential assets
within the asset category. These targets are
used to evaluate investment performance and
align managers within asset categories. The
following asset categories have been selected
by the Foundation:
| Domestic
Equities |
Domestic
Equities |
| International
Equities |
MSCI
EAFE |
| Domestic
Fixed Income |
Lehman
Bros Aggregate Bond Index |
| Cash |
90
Day T-Bills |
7. INVESTMENT MANAGER STRUCTURE
As a general philosophy, the Foundation endorses
the use of passive management in all asset
categories to replicate the returns generated
by the Fund's asset category mix.
The Foundation has chosen not to hire manager
firms whose investment approach involves shifting
funds across asset categories in anticipation
of near-term market movement. Rather, the
Foundation's policy is to retain managers
who focus their efforts on replicating the
portfolio of securities held in their respective
benchmarks.
The Foundation requires that each manager
make available an appropriate benchmark. The
Foundation uses a manager's benchmark to both
evaluate the manager's ability to replicate
that portfolio of securities and to characterize
the manager's investment style for purposes
of efficiently structuring managers within
the asset category.
The Foundation has requested and authorized
First State Bank and Trust to sell all shares
of stock donated to the foundation. Some donations,
such as closely held stock or large blocks
of thinly traded stocks, may require special
treatment.
8. INVESTMENT OBJECTIVES
The Foundation's investment objectives are
expressed in terms of reward and risk expectations
relative to investment benchmarks. The Foundation
specifies investment objectives at three investment
management levels: total fund, asset categories,
and individual managers. At each level, benchmarks
have been established that represent the returns
and risks that could be achieved through passive
management. Performance at all levels of the
investment program is always expressed net
of all fees and expenses. Performance of the
benchmarks is reported without deducting the
costs of passive management. As a result,
the Foundation expects performance to be slightly
below the respective benchmarks at the total
fund, asset category, and manager levels due
to management fees and additional costs associated
with passive management.
At the total fund level, the Foundation expects
that its investment program will produce returns
slightly below (5 - 10 bp for large-cap, 75
bp for small-cap, 50 bp for int'l equity,
10-20bp for fixed income -- all gross of fees)
the returns produced by a combination of the
asset category targets over a minimum evaluation
period of five years. The weights used to
compute that combination represent the asset
categories' respective policy asset mix allocations.
At the individual manager level, the Foundation
expects that each of its investment managers
will slightly under perform their assigned
benchmarks over the five-year evaluation period.
The Foundation insists that the managers follow
the investment styles of their benchmarks
and look to replicate the benchmark without
taking on active management risk.
9. PERFORMANCE AND EVALUATION
Portfolio managers shall provide quarterly
reports that contain fund performance vs.
the benchmark. Annually, portfolio managers
shall provide annualized standard deviation
of tracking error calculations for their funds.
Portfolio managers shall include in each quarterly
report to the Foundation any exceptions to
or deviations from the investment policy.
10. INVESTMENT COMMITTEE
The Investment Committee recognized that
its role is supervisory, not advisory, and
that discretion is delegated to managers as
long as they adhere to general guidelines
established by the St. Croix Valley Community
Foundation. The primary roles of the Investment
Committee are:
- Establish performance goals and recommend
to the Board for acceptance.
- Identify appropriate asset mix guidelines
for Board acceptance.
- Review the results of the investments
on a quarterly basis.
- Select, monitor and, if necessary, replace
the professional investment managers with
Board Approval.
11. ANNUAL REVIEW
These guidelines will be reviewed by the
Investment Committee at least annually. Exceptions
to these guidelines, upon the recommendation
of the investment committee, may be made any
time following approval by the Foundation's
Board.
Who
Manages the Foundation?
The Foundation is governed by a board of
directors who live and work or have their
roots in the region where the Foundation focuses
its efforts - the counties of Polk, St. Croix,
and Pierce in Wisconsin and Washington and
Chisago in Minnesota. Its assets are managed
by the Foundation's Investment Committee,
composed of Board members and other professions
with expertise in the legal, financial, and
public accounting fields, along with the investment
advisor from the First State Bank and Trust
in Bayport. |
