Investment Policy Statement

Investment Policy Statement For The Community Foundation of New River Valley Originated: February 24, 2005 Revised: September 6. 2005 Revised: June 26. 2007 1

Table of Contents ) 1 Introduction... 1 2 Background... 2 3 Investment Policy Discussion:... 4 3.1 Investment Manager Performance Evaluation...4 3.2 Investment Philosophy... 4 3.3 Restricted Funds... 5 3.4 Unrestricted Funds... 5 3.5 General Provisions... 5 4 Investment Objectives:... 7 4.1 Return Requirements... 7 4.2 Risk Tolerance... 8 5 Portfolio Constraints:... 10 5.1 Liquidity... 10 5.2 Time Horizon... 10 6 Asset Allocation... 11 6.1 Updated Allocations... 12 6.2 Rebalancing Procedures... 12 6.3 Adjustment in the Target Allocation... 12 7 Diversification... 13 7.1 Permitted Asset Classes... 13 7.2 Permitted Security Types... 13 7.3 Categories Excluded from Investment... 14 7.4 Prohibited Asset Classes and/or Security Types... 14 7.5 Other Investment Considerations... 14 8 Selection/Retention Criteria for Investments... 15 8.1 Investment Management Selection... 15 8.2 Cash Equivalent Vehicles... 15 8.3 Common Stocks... 16 8.4 Bonds and Other Fixed Income Vehicles... 17 9 Performance Monitoring and Control Procedures... 19 9.1 Reports... 19 9.2 Meetings and Communication... 20 10 Spending Policy... 21 n 2

1 Introduction The purpose of this Investment Policy Statement (IPS) is to establish a clear understanding for The Community Foundation of New River Valley ("Foundation") and with its investment advisors ("Advisors") as to the investment goals and objectives and management policies applicable to the Foundation's investment portfolio ("Portfolio"). This Investment Policy Statement will: Establish reasonable expectations, objectives and guidelines in the investment of the Portfolio's assets. Create the framework for a well-diversified asset mix that can be expected to generate acceptable long-term returns at a level of risk suitable to the Foundation, including: >- describing the appropriate risk posture for the investment of the Foundation's Portfolio; >- specifying the target asset allocation policy; >- establishing investment guidelines regarding the selection of investment managers, permissible securities and diversification of assets; and, >- specifying the criteria for evaluating the performance of the Portfolio's assets. Define the responsibilities of the Foundation and its Advisors. Encourage effective communication between the investment managers and the Foundation. The investment policy is the cornerstone of the investment management process: It establishes the criteria for matching long-term objectives to an appropriate investment plan. It provides a frame of reference that will help keep us focused on longterm objectives. This focus is especially valuable during periods of market volatility when there may be a temptation to react to short-term factors. It establishes the criteria against which progress can be measured. The IPS is intended to be a summary of an investment philosophy and procedures that provide guidance for the Foundation and its Advisors. The investment policies described in this IPS should be dynamic. These policies should reflect the Foundation's current status and philosophy regarding the investment of the Portfolio. These policies will be reviewed and revised periodically. ( \ I The Investment Committee gives managers specific direction according to this IPS to ensure that the overall allocation follows this policy. 1

2 Background The Foundation was founded in 1994 as a tax-exempt organization under Section 501 (c)(3) of the Internal Revenue Code. It is classified by the IRS as a publicly supported charity and not as a private foundation. It administers en-dowed funds established by donors for the long-term and makes grants from these funds. The Foundation strives to be a simple, convenient, tax-wise, and cost-effective vehicle for those individuals, families, estate managers, businesses and industries who care to help others in both significant and lasting ways. The Mission of the Foundation is to enhance the quality of life in Floyd, Giles, Montgomery and Pulaski Counties and the City of Radford. The Foundation strives to accomplish this mission by: >-- Serving the charitable interests of donors, and providing safe, secure, professional management of their philanthropic dollars; >-- Making creative, visionary and sensitive grants to worthy individuals and organizations; especially those that address new, evolving needs in the community; >-- Devoting special emphasis to programs that enrich the spirit and life of our community in the fields of social services, education, community and civic affairs, arts and culture, health, libraries and museums, religion, the conservation and preservation of natural, historical and cultural resources; and by >-- Acting as a catalyst and convenor for leadership and community development. Gifts to the Foundation are usually in one of two general forms: restricted. unrestricted and Unrestricted gifts to the Foundation may be used by the Foundation to support its own operations or for any other charitable purpose that the Foundation deems appropriate. Restricted gifts are usually dedicated to the support of one or more particular charitable organizations or causes, although the Foundation retains the ultimate power to determine the recipients of any distribution. The usual form of a restricted gift is an endowed fund. The typical endowed fund is a permanent fund that distributes a portion of its earnings and/or appreciation annually to one or more charitable organizations and adds the balance of such earnings and/or appreciation to that fund's principal. Over time, it is the Foundation's goal that the endowed funds grow in size and that its annual distributions grow in size. ( \ Unrestricted gifts or restricted gifts that are expected to be disbursed within a short period of time as defined by the Foundation's Board will be invested in liquid investments such as money market funds or short-term bond funds or 2

similar investments. Restricted gifts that endow funds or that are invested for the long term are the primary focus of this IPS. Because of the Foundation's long time horizon and expectation that they will receive significant annual additions to the Portfolio the Foundation is comfortable with a portfolio 70%- 80% invested in equities. (, 3

3 Investment Policy Discussion: 3.1 Investment Manager Performance Evaluation Measuring the time-weighted return is not enough; the risk of each investment portfolio should also be considered. A portfolio that slightly underperforms the S&P 500 but carries only half the overall risk is superior on a risk-adjusted basis to a portfolio that slightly outperforms the S&P 500 but carries a full amount of market risk. Deciding when to replace a portfolio manager is often subjective as much as objective. Just because a manager had a down year or two is not a valid reason for replacement. This IPS lays out the procedures to be followed in order to create a system for making such decisions. 3.2 Investment Philosophy The basic tenets under which the Portfolio will be managed include the following: 1. Modern portfolio theory will be the primary influence driving the way the portfolio will be structured and how subsequent decisions will be made. The underlying concepts of modern portfolio theory include: Investors are risk averse. The only acceptable risk is that which is adequately compensated by potential portfolio returns. Markets are efficient. It is virtually impossible to know ahead of time the next direction of the market as a whole or of any individual security. It is unlikely that any portfolio will succeed in consistently "beating the market." The portfolio as a whole is more important than an individual security. The appropriate allocation of capital among asset classes (stocks, bonds, cash, etc.) will have far more influence on the long-term portfolio results than the selection of individual securities. Investing for the longterm becomes critical to investment success because it allows the long-term characteristics of the asset classes to surface. For every risk level, there exists an optimal combination of asset classes that will maximize returns. A diverse set of asset classes will be selected to help minimize risk. The proportionality of the mix of asset classes will determine the long-term risk and return characteristics of the portfolio as a whole. Portfolio risk can be decreased by increasing diversification of the portfolio and by lowering the correlation of market behavior among the asset classes selected. 2. Investing globally helps to minimize overall portfolio risk due to the imperfect correlation between economies of the world. Investing globally 4

has also been shown historically to enhance portfolio returns, although there is no guarantee that it will do so in the future. 3. Equities offer the potential for higher long-term investment returns than cash or fixed income investments. Equities are also more volatile in their performance. Investors seeking higher rates of return must increase the proportion of equities in their portfolio, while at the same time accepting greater variation of results (including occasional declines in value). 4. Picking individual securities and timing the purchase or sale of investments in the attempt to "beat the market" are highly unlikely to increase long-term investment returns; they also can significantly increase portfolio operating costs. Such practices are to be avoided when possible. 5. The basic underlying approach to the management of this Portfolio shall therefore be to optimize the risk-return relationship appropriate to the Foundation's needs and goals using a globally diverse portfolio of a variety of asset classes using mutual funds or managed portfolios, to "buy and hold" the selected securities and periodically rebalance. 3.3 Restricted Funds Restricted gifts may either be for endowed funds, be distributed relatively quickly to or for the benefit of particular charitable organizations, or some combination. All restricted gifts are held and invested separately from unrestricted gifts. A separate accounting will be maintained for restricted gifts but the gifts will be invested in a commingled basis in accordance with this IPS. A proportionate share of the earnings and/or appreciation of the commingled investment assets will be allocated to each fund or restricted gift unless otherwise provided by the applicable fund agreement or Foundation policy. The Foundation is exclusively responsible for making investment decisions for all gifts. 3.4 Unrestricted Funds Unrestricted gifts will normally be used to support the Foundation's operations, although the Foundation may choose to distribute part or all of such gifts to other charitable organizations or to add part or all of such gifts to a restricted fund of the Foundation. The investment of operating funds shall be determined by the general guidelines of this IPS covering Cash Equivalent Vehicles. 3.5 General Provisions All donations and bequests of marketable securities shall be liquidated as soon as practical and the resulting cash delivered to the selected Advisor(s) in accordance with this IPS. The Investment Committee shall review all proposed gifts or bequests of real estate or assets other than cash or marketable securities according to policy 5

prescribed elsewhere in this document and decide whether the gift will be recommended to the Board for acceptance. If a gift is accepted, the Investment Committee shall devise a plan for the orderly liquidation of such assets to recommend to the Board for approval. The resulting proceeds shall be delivered to the selected Advisor(s) in accordance with this IPS. 6

4 Investment Objectives: 4.1 Return Requirements The return objectives for endowed funds should follow these guidelines: Return focus: The Foundation desires to achieve long-term total returns that are in excess of average returns for an equity-tilted balanced portfolio. An "equity-tilted balanced" portfolio is defined as consisting of the following allocations to the broad asset classes listed below: Investment Grade Bonds and cash 20%- 30% U.S. large company stocks (S&P 500 Index) 45% -55% U.S. small company stocks (Russell 2000 Index) 5% - 15% Foreign Stocks (EAFE Index) 10% - 20% Though historical returns are not a predictor of future results, it is helpful to review historical returns for this type of portfolio to understand an approximate range of possible future returns. For example, as of 06/30/05, the trailing returns for an balanced portfolio were as follows*: equity-tilted Period Returns 1-Year 8.1% 3-Year 8.9% 5-Year 1.4% 10-Year 8.8% 30-Year 11.8% 7

It is important to note that returns can vary significantly. For instance, from 1/1/70-6/30/05 the best and worst returns for an "equity-tilted balanced" portfolio for the following time periods were as follows*: Period Best Return Worst Return 1-Year 49.6% -29.1% (for the period ended (for the period ended 9/30/74) 6/30/83) 3-Year 31.0% -9.9% (for the period ended (for the period ended 3/31/03) 7/31/87) 5-Year 26.7% -1.1% (for the period ended (for the period ended 3/31/03) 7/31/87) 10-Year 17.9% 6.7% (for the period ended (for the period ended 7/31/82) 8/31/87) *This historical performance information is based on the asset allocation of a equity-tilted balanced benchmark. Given the current economic environment, we would expect the long-term average annual returns for this type of portfolio to average between 2.5-11.8% per year with some periods exhibiting significantly higher or lower returns. Relative to inflation: Long-term growth of assets above the CPI (consumer price index) is important. Distribution requirements: It is the goal, but not a legally binding commitment, of' the Foundation to distribute to charities and/or for charitable purposes each year an amount determined in accordance with the Fund Distribution Guidelines adopted by the Board of Directors on an annual basis. 4.2 Risk Tolerance The investment time horizon for the Foundation's investments is (greater than 10 years). long -term In managing portfolio risk, the objective will be to meet the performance guidelines outlined below. While it cannot be guaranteed that these objectives will always be met, they serve as the minimum target during major market declines. 8

Minimum 12-month performance: Losses of 15% are tolerable. Based on the past 30 years, a decline of this magnitude in an equity-tilted balanced account could occur once or twice during a ten-year period. Though we attempt not to breach this minimum loss threshold, losses in excess of 15% are possible. For example, the lowest 12-month return for an equitytilted portfolio since 1970 was -29% (this is based on index performance and the asset allocation indicated in the above table). Minimum 36-month performance: The worst return over a three-year time period is unlikely to be worse than -5% though this objective cannot be guaranteed. 9

5 Portfolio Constraints: 5.1 Liquidity Liquidity is the ease (speed) at which assets can be sold at a fair price. The primary reason for maintaining liquidity in the portfolio is to ensure that cash can be raised rapidly to take advantage of new investment opportunities. The following guidelines are appropriate: Cash Flow Requirements: Current earnings generated by the Consolidated Endowment accounts, i.e., interest and dividends, shall be reinvested in principal. Assets of partially funded endowment accounts, i.e., those with less than $10,000 in principal, shall be invested in accordance with the IPS, but the total return on such accounts shall be paid annually to the Foundation's General Endowment account and no Foundation Administrative Fee shall be assessed. Primary Goal: It is the goal of the Foundation to pay over and distribute to charities and/or for charitable purposes each year an amount approximately in the range of four percent (4.0%) to five percent (5.0%) of the fair market value of the Foundation's Consolidated Endowment as valued at the beginning of each year. Allocation Requirements: The Foundation does not currently use any illiquid investments. 5.2 Time Horizon The time horizon for the Portfolio assets is very long, representing the unlimited life of the Foundation. 10

6 Asset Allocation Our investment strategy will involve under and overweighting various asset classes based on our assessment of the risk and return potential specific to each asset class at any point in time. Based on our analysis, the following allocation guidelines are designed to achieve the objectives outlined above. Equity positions may incorporate diversification by market cap and style. Asset Class Current Target Allocation Range Investment Grade Bonds(a) 15% 0-40% International Bonds 5% See footnote for Investment-Grade Bonds. High-Yield Bonds U.S. Large Company Stocks U.S. Small Company Stocks Foreign Stocks(b) REITs Alternative Investments (c) 0% 0-20% 47.5% 30-65% 9.5% 5-25% 15% 5-30% 0% 0-15% 5% 0-30% Cash 3% See footnote for Investment-Grade Bonds. (a)may mclude cash or foretgn bonds. (b)may include emerging market stocks. (c)may include the following funds: commodity futures, merger/arbitrage, market neutral, etc. It should be recognized that some of the Portfolio will be invested in mutual funds or separate managed accounts. The actual weightings of these accounts can and will vary. It is the goal of the Foundation to allocate investments to the various managers to achieve the overall asset allocation targets of this IPS. Historically, the community foundation has undertaken to respect relationships between donors of substantial gifts to the foundation and their investment advisors, so that it has customarily allocated such gifts to the portfolio of community foundation assets being managed by that advisor, if that advisor is also one of the money managers for the 11

foundation. Since the establishing of a foundation account with American funds, it has been the foundation's practice to allocate substantial gifts from donors whose investment advisors are not among the foundation's money managers to American Funds and identify the donor's investment advisor to American Funds with respect to that gift. The foundation has sought to help assure that each of its money managers attain a portfolio of foundation assets sufficient to make the work of its management cost-effective for each money manager. The foundation does not assure that its historical practice will necessarily be followed in any particular instance of allocating gifts to the foundation. 6.1 Updated Allocations The current target allocation indicates the target percentages to allocate the assets as of the date this report was written. From time to time, it may be desirable to amend the basic allocation policy or calculations. When such changes are made, updates will be attached to this IPS as an Appendix and will be considered part of this IPS. 6.2 Rebalancing Procedures From time to time, market conditions may cause the Portfolio's investment in various asset classes to vary from the established allocation. To remain consistent with the asset allocation guidelines by this IPS, at least each year the Foundation shall review the Portfolio and each asset class in which the Portfolio is invested. If the actual weighting differs from the target weighting by 5% or. more from the recommended weighting (e.g., from a recommended 10% to less than 5% or more than 15% of total assets), the Foundation shall rebalance the portfolio back to the recommended weighting. The practice of the Investment Committee is to generate a Morningstar analysis based upon the 1st quarter of the calendar year reports, and then perform the rebalancing at the June meeting of the Committee. The allocation wi II be checked again at the December meeting against the 3rd quarter reports. 6.3 Adjustment in the Target Allocation Should it become desirable for the Portfolio to become more or less aggressive with its investments that would call for a change in the target allocation, as described above, it would only be made with the concurrence of the Board of Directors, according to the bylaws. 12

7 Diversification Investment of the Foundation's funds shall be limited to individual marketable securities or packaged products (for example, mutual funds or unit investment trusts) in the following categories: 7.1 Permitted Asset Classes 1. Cash and cash equivalents 2. Fixed income - domestic bonds 3. Fixed income - non-u.s. bonds 4. Equities - U.S. 5. Equities - non-u.s. 6. Equities - emerging markets 7. Equities - REITs 8. Direct commercial real property ownership 9. Mortgages 10. Private equity opportunities 7.2 Permitted Security Types 1. Mutual funds - stocks, bonds, money market funds 2. Individual stocks, as long as they are traded on the New York, American or NASDAQ stock exchanges 3. Individual bonds, as long as they are rated A or better and traded on a major U.S. exchange (in other words, investment in high yield bonds and certain convertible bonds will be limited to the use of mutual funds) 4. Closed-end funds 5. Unit investment trusts 6. ishares and other exchange traded funds 7. Covered call options 8. Covered put options 9. Venture capital 10. Bank certificates of deposit 11. Futures contracts 13

7.3 Categories Excluded from Investment The Foundation specifically have directed that no investment shall be made by the Foundation in any limited partnership, unless the Foundation is also a general partner, or unless the vote of the Board of Directors approves of the vote by unanimous vote. 7.4 Prohibited Asset Classes and/or Security Types 1. Precious metals 2. Short sales 3. Purchases of letter stock, private placements, or direct payments 4. Leveraged transactions 5. Commodities transactions except by investing in publicly traded mutual funds that invest in commodities as part of an alternative investment strategy 6. Naked puts, calls, straddles, or other option strategies, except as permitted above or with the specific approval of the Investment Committee 7.5 Other Investment Considerations No individual security, except diversified funds, shall make up more than 5 percent of the total Portfolio. 14

8 Selection/Retention Criteria for Investments 8.1 Investment Management Selection Investments (including mutual funds, money managers, and limited partnership sponsors) shall be chosen using the following criteria: Past performance, considered relative to other investments having the same investment objective. Consideration shall be given to both performance rankings over various time frames and consistency of performance. Costs relative to other funds with like objectives and investment styles. Size of the proposed mutual fund. Length of time the fund has been in existence and length of time it has been under the direction of the current manager(s) and whether or not there have been material changes in the manager's organization and personnel. The historical volatility and downside risk of each proposed investment. How well each proposed investment complements other assets in the Portfolio. The current economic environment. The likelihood of future investment success, relative to other opportunities. Money managers engaged by the Foundation shall exercise their professional judgment regarding investment management consistent with the Prudent Investor Rule in Virginia and the Uniform Prudent Investor Act of Virginia pursuant to Sections 26-45.1 and 26-45.3 of the Code of Virginia. (revision made on 9-6- 05)Cash Equivalent Vehicles All cash equivalent investments shall be pooled investment vehicles, such as money market funds, where the fund's share price is intended to remain constant and the fund's yield is comparable with the current risk-free rate of return. Also permitted in this category shall be United States agency-guaranteed bank certificates of deposit (purchased directly or indirectly through brokerage accounts) or short-term U.S. government securities. For investments directly controlled by the Foundation, the following criteria for selecting and retaining any pooled investment vehicles serving as a cashequivalent investment: 1. The fund will have an investment track record of no less than three years. 15

2. The fund's average annualized yield, net of fund level expenses, over a three-year period, will be no less than 0.5 percent below that of the average of all.other funds sharing a similar investment objective for an equivalent period. The Foundation will review the performance of each cash-equivalent vehicle on an annual basis. The investment vehicle's total returns will be compared with the average returns for all other cash-equivalent funds with a similar investment objective for the previous one-, three-, and five-year periods. In the event a selected fund underperforms the returns established by such averages by more than 0.5 percent for the prior three-year period, such fund(s) will be placed on probation for the subsequent twelve months. If over the subsequent one-year period the fund's average annual return remains 0.5 percent below that earned by the applicable average, the Foundation will make a determination as to whether the fund continues to be a prudent and appropriate investment. 8.2 Common Stocks In the event a selected fund underperforms the returns established by such averages by more than 0.5 percent for the prior three-year period, such fund(s) will be placed on probation for the subsequent twelve months. If over the subsequent one-year period the fund's average annual return remains 0.5 percent below that earned by the applicable average, the Foundation will make a determination as to whether the fund continues to be a prudent and appropriate investment. Any selected common stock funds shall be pooled investment vehicles, such as a publicly traded open or closed-end mutual fund, providing daily asset valuations. Such investments may include focus on any size domestic or non U.S. stock. For investments directly controlled by the Foundation, the following criteria will be used for the selection and retention of any pooled common stock investment vehicles: 1. The fund will have an investment track record of no less than three years. 2. The fund's average annualized returns net of fund level expenses, over a three-year period or more, will be no less than 20 percent below the average returns for equivalent pooled investment vehicles sharing the same investment objective. 3. The fund will incur investment risk no more than 20 percent above that incurred by publicly traded funds with the same investment objective, as measured by the fund's standard deviation. The Foundation will review the performance of each common stock fund on an annual basis. Each fund's total returns will be compared against the average 16

returns for equivalent pooled investment vehicles sharing the same investment objectives for the previous one-, three-, and five-year periods. In the event a selected fund underperforms the applicable averages for a threeyear period, such fund(s) will be placed on probation for the subsequent twelve months. If over the subsequent one-year period the fund's average annual return for the applicable three-year period remains below that earned by the average equivalent pooled investment vehicle sharing the same investment objective, the Foundation will make a determination as to whether the fund continues to be a prudent and appropriate investment. The relative risk of the selected investment vehicle will also be reviewed on an annual basis, as measured by the fund's standard deviation, over the most recent one-, three-, and five-year periods. The fund's relative risk is to be calculated by independent fund evaluation services such as Lipper Analytical Services, Inc. or Morningstar, Inc. In the event the level of risk assumed by the fund exceeds that incurred by the average for equivalent pooled investment vehicles sharing the same investment objectives by more than 20 percent over the previous three-year period, the Foundation will make a determination as to whether the fund continues to be a prudent and appropriate investment. 8.3 Bonds and Other Fixed Income Vehicles Any selected diversified bond fund shall be pooled investment vehicles, such as a publicly traded mutual fund, providing net asset valuations published on a yearly basis. For investments directly controlled by the Foundation, the following criteria will be used for the selection and retention of such diversified bond funds: 1. The fund will have an investment track record of no less than three years. 2. The fund's average annualized returns net of fund level expenses, over a three-year time period or more, will be no less than 20 percent below the average returns for equivalent pooled investment vehicles sharing the same investment objective. 3. The fund will incur investment risk no more than 20 percent above that incurred by publicly traded funds with the same investment objective, as measured by the fund's standard deviation. 4. The fund will invest in no fewer than twenty income-producing securities representing at least twenty corporate issuers or a comparable number of securities backed by the full faith and credit of the U.S. government or one of its agencies or a combination thereof. I ( The Foundation will review the performance of each fund on an annual basis. Each fund's total returns will be compared against the average returns for 17

equivalent pooled investment vehicles sharing the same investment objectives for the previous one-, three-, and five-year periods. In the event a selected fund underperforms the applicable averages for a threeyear period, such fund(s) will be placed on probation for the subsequent twelve months. If over the subsequent one-year period the fund's average annual return for the applicable three-year period remains below that earned by the average equivalent pooled investment vehicle sharing the same investment objective, the Foundation will make a determination as to whether the fund continues to be a prudent and appropriate investment. The relative risk of the selected investment vehicle will also be reviewed on an annual basis, as measured by the fund's standard deviation, over the most recent one-, three-, and five-year periods. The fund's relative risk is to be calculated by independent fund evaluation services such as Lipper Analytical S e r v i c e s, I n c. o r M o r n i n g s t a r, Inc. ) 18

9 Performance Monitoring and Control Procedures It is the duty of the Foundation's Board of Directors and its Investment Committee to monitor the returns generated by its Advisors. The Investment Committee is responsible for establishing the investment parameters for the Advisors of each separately managed account that are in accordance with this IPS. The Foundation may retain the services of a consultant to assist the Foundation in the review of the performance of its Advisors. Any fees for such services will be paid from the Foundation's operating funds unless otherwise directed by action of the Foundation's Board of Directors. 9.1 Reports 1. The investment custodian shall provide Foundation with monthly statements for each account that list all assets held by Foundation, values for each asset and all transactions affecting assets within the Portfolio, including additions and withdrawals. 2. Foundation shall obtain from each Advisor, as appropriate, no less frequently than on a quarterly basis and within 30 days from the end of each such quarter the following management reports: a. Performance results of each individual holding for the quarter b. Performance shall be reported on a basis that is in compliance with AIMR standards c. End of quarter status regarding asset allocation - current versus policy d. Any recommendations for changes of the above 19

Performance numbers for each investment manager will be compared with an appropriate benchmark and indexes. The benchmark for the overall Portfolio outlined above is an equity-tilted balanced benchmark which consists of the following allocations to the index mutual funds listed below: Index Fund Index Benchmark Allocation Vanguard Total Bond Market Lehman Aggregate 25% Fund Bond Index Vanguard 500 Fund S&P 500 (U.S. Large 50% Company Stocks) Russell 2000 Index ishares Russell 2000 (U.S. 10% Small Company Stocks) Vanguard Total International Approximately 90% 15% Fund EAFE Index (developed markets) and approximately 10% Emerging Market Stock Indexes. (Non-U.S. Stocks) 9.2 Meetings and Communication Foundation shall require that each manager or advisor keep the Foundation apprised of any material changes in manager's outlook, recommended investment policy, and tactics. In addition, the Foundation shall meet with each manager or advisor approximately annually to review and explain the Portfolio's investment results and any related issues. Managers or advisors should be available on a reasonable basis for telephone and e-mail communication as needed. Any material event that affects the ownership of the manager or advisor or the management of the Portfolio must be reported immediately to Foundation. 20

10 Spending Policy Within 3 months of the beginning of the calendar year, the Investment Committee will make a recommendation for the approval of the Board of Directors of the amount that will be distributed from each endowed fund of the CFRNV for that calendar year. The expectation of the CFNRV and many donors to endowed funds is that each fund is intended to be perpetual. At the asset allocation described above, numerous studies have indicated that the maximum amount that can be distributed net of fees is in the range of 4-4.5% for an endowment to have a high likelihood of inflation adjusted perpetuity. The Investment Committee will recommend to the Board of Directors a distribution percentage that will maintain the expectation of fund perpetuity. Certain funds have the provision that principle will not be invaded. For these funds, the distribution amount will be that portion of the percentage determined by the Investment Committee that do not invade principle. Some fund agreements specify the recommended amount to be distributed each year. In that case, the Investment Committee will endeavor to follow the donor's wishes, although at all times the Board of Directors of the Foundation will make the final determination. AS ADOPTED BY THE FOUNDATION'S BOARD OF DIRECTORS ON FEBRUARY 24, 2005. REVISED SEPTEMBER 6, 2005. REVISED JUNE 26, 2007. 21