1. Context of Policy

Nature of the Fairhope Educational Enrichment Foundation

The Foundation is a perpetual charitable organization which expects to have no regular funding resources beyond its initial assets and the investment returns thereon, except to the extent it receives additional contributions from fund raising, grants, individual and corporate donations.

Total Return Spending Policy

The Board expects to fund the Foundation’s grants and operating expense from the total investment return generated by its investments, pursuant to this policy.

Committee’s Tolerance for Volatility

Volatility of Investment Performance
A negative total investment return is acceptable for periods lasting up to two years. The Board believes that this limitation will be sufficiently aggressive to realize an above average return, but will also incorporate a level of stability which avoids short term operating problems.

Volatility of Grantmaking Capactiy
To the extent the Foundation expects to fund at least some multi-year grants, in annual increments, the Board considers that the annual volatility of the total value of the Foundation’s investment assets is important, but not controlling, in view of the need for the Foundation to use a significant amount of higher volatility growth assets, in order to both fund spending targets and also preserve purchasing power.

2. Asset Allocations and Portfolios

Endowment Portfolio

It is the intention of the Board to have a conservative portfolio of stocks, bonds and cash. Initially the asset allocation will have a bias towards fixed income investments and transition towards an asset allocation of money management consistent with modern Portfolio Theory that is also consistent with the Board’s risk tolerance.

Asset Classes to be Used

The following six asset classes will be used in the Foundation’s portfolio’s:

Domestic, Small Capitalization Common Stocks
Domestic, Large Capitalization Common Stocks
International Large Capitalization Common Stocks
Domestic Corporate Bonds
U.S. Government Securities and Bank Certificates of Deposits
Cash Equivalents

Asset Allocation

The committee with the help of its advisors will present to the board their recommendations for an appropriate asset allocation using the asset classes set forth in this policy.

Allowable Ranges Around Target Allocations

At any point in time when an investment manager wishes to present what it considers compelling evidence for tactical, short term allocation shifts, the committee should consider such requests.

Committee’s Attitude Toward Market Timing and Short Term Allocation Shifts

The committee should allow its investment counselors and mutual fund managers the opportunity to practice their art without undue influence from the committee. However, it is hereby made clear that this policy statement was the product of the committee’s study of proven performance patterns in capital markets. The committee has reviewed considerable evidence that the passage of time causes the greatest rewards to accrue in favor of consistent investing approaches, and that the Foundation’s risk exposure could become an uncontrolled adventure, without reasonably careful adherence to the asset allocation guidelines in this policy. It is not, therefore, the general intention of this policy to allow short term judgments to introduce significant unplanned risk. The committee shall recognize that adherence to this policy will occasionally appear too risky or too conservative for current market conditions. But the committee should also recognize that experts rarely agree about the near term direction of the capital markets, and that such opinions have generally proven to be a poor guide for action.

Re-Balancing of Assets and Allocation of Net New Contributions

Because different asset classes will perform at different rates, the committee shall keep close watch on the asset allocation shifts caused by performance. Accordingly:

The committee will review the relative market values of the asset segments, and will generally place new money under investment in the category(ies) which are furthest below their target allocations in this policy, and
Rebalancing will typically occur as of any fiscal year-end, when the allocations do not agree with those allocations specified by the committee.

Committee’s Role as Advisor and Portfolio Expenses

Any member of the commirtee can advise the portfolio’s managers regarding this policy’s long term objectives, but will not interfere with the day to day activities of managing this portfolio, take profit in or domicile those assets at their place of employment. The committee should use the prudent rule statutes in regard to all financial dealings with any financial advisor as pertaining to proper money management and expenses. The committee should always be keenly aware of the costs of managing money and seek to minimize those costs where necessary.

Frequency of Measurement

The Board expects the committee to measure investment performance quarterly.

Frequency of Policy Review

The committee shall use each of its periodic investment performance evaluations as occasions to also consider whether any elements of existing policy are either insufficient or inappropriate. Key environmental or operational occurrences which could result in a policy modification include:

impractical time horizons,
change in Foundation’s priorities
convincing arguments for change presented by donors or investment managers, and
areas found to be important but not covered by policy.

Committee’s Philosophy Toward Policy Modification

The committee shall review this policy annually. The committee must be mindful that major changes to investment policy can produce potentially damaging inconsistency. Changes, particularly the type which can be characterized as reversals of direction, or “responses” to current market conditions from time to time, are viewed as particularly undesirable.