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I. Introduction
The XYZ Institution N onprofit Fund (hereafter referred to as the Fund) w as created to provide
perpetual financial support to XYZ Institution (the Institution). The purpose of this Investm ent Policy
Statem ent is to establish guidelines for the Funds investm ent portfolio (the Portfolio). The statem ent
also incorporates accountability standards that w ill be used for m onitoring the progress of the
Portfolios investm ent program and for evaluating the contributions of the m anager(s) hired on behalf
of the Fund and its beneficiaries.
II. Role of the Investment Committee
The Investm ent C om m ittee (the C om m ittee) is acting in a fiduciary capacity w ith respect to the
Portfolio, and is accountable to the Board of XYZ and to the Executive C om m ittee, for overseeing the
investm ent of all assets ow ned by, or held in trust for, the Portfolio.
A . This Investm ent Policy Statem ent sets forth the investm ent objectives, distribution policies, and
investm ent guidelines that govern the activities of the C om m ittee and any other parties to w hom
the C om m ittee has delegated investm ent m anagem ent responsibility for Portfolio assets.
B. The investm ent policies for the Fund contained herein have been form ulated consistent w ith
the Institutions anticipated financial needs and in consideration of the Institutions tolerance for
assum ing investm ent and financial risk, as reflected in the m ajority opinion of the C om m ittee.
C . Policies contained in this statem ent are intended to provide guidelines, w here necessary, for
ensuring that the Portfolios investm ents are m anaged consistent w ith the short-term and long-
term financial goals of the Fund. A t the sam e tim e, they are intended to provide for sufficient
investm ent flexibility in the face of changes in capital m arket conditions and in the financial
circum stances of the Institution.
D . The C om m ittee w ill review this Investm ent Policy Statem ent at least once per year. C hanges to
this Investm ent Policy Statem ent can be m ade only by affirm ation of a m ajority of the C om m ittee,
and w ritten confirm ation of the changes w ill be provided to all C om m ittee m em bers and to any
other parties hired on behalf of the Portfolio as soon thereafter as is practical.
III. Investment objective and spending policy
A . The Fund is to be invested w ith the objective of preserving the long-term , real purchasing pow er of
assets w hile providing a relatively predictable and grow ing stream of annual distributions in support
of the Institution.
B. For the purpose of m aking distributions, the Fund shall m ake use of a total-return-based spending
policy, m eaning that it w ill fund distributions from net investm ent incom e, net realized capital gains,
and proceeds from the sale of investm ents.
Investm ent Policy Statem ent
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C . The distribution of Fund assets w ill be perm itted to the extent that such distributions do not exceed
a level that w ould erode the Funds real assets over tim e. The C om m ittee w ill seek to reduce the
variability of annual Fund distributions by factoring past spending and Portfolio asset values into its
current spending decisions. The C om m ittee w ill review its spending assum ptions annually for the
purpose of deciding w hether any changes therein necessitate am ending the Funds spending
policy, its target asset allocation, or both.
D . Periodic cash flow , either into or out of the Portfolio, w ill be used to better align the investm ent
portfolio to the target asset allocation outlined in the asset allocation policy at Section IV. A . herein.
IV. Portfolio investment policies
A. Asset allocation policy
1. The C om m ittee recognizes that the strategic allocation of Portfolio assets across broadly defined
financial asset and subasset categories w ith varying degrees of risk, return, and return correla-
tion w ill be the m ost significant determ inant of long-term investm ent returns and Portfolio asset
value stability.
2.The C om m ittee expects that actual returns and return volatility m ay vary from expectations and
return objectives across short periods of tim e. W hile the C om m ittee w ishes to retain flexibility
w ith respect to m aking periodic changes to the Portfolios asset allocation, it expects to do so
only in the event of m aterial changes to the Fund, to the assum ptions underlying Fund spending
policies, and/or to the capital m arkets and asset classes in w hich the Portfolio invests.
3.Fund assets w ill be m anaged as a balanced portfolio com posed of tw o m ajor com ponents: an
equity portion and a fixed incom e portion. The expected role of Fund equity investm ents w ill be
to m axim ize the long-term real grow th of Portfolio assets, w hile the role of fixed incom e invest-
m ents w ill be to generate current incom e, provide for m ore stable periodic returns, and provide
som e protection against a prolonged decline in the m arket value of Portfolio equity investm ents.
4.C ash investm ents w ill, under norm al circum stances, only be considered as tem porary Portfolio
holdings, and w ill be used for Fund liquidity needs or to facilitate a planned program of dollar-
cost averaging into investm ents in either or both of the equity and fixed incom e asset classes.
5.O utlined below are the long-term strategic asset allocation guidelines, determ ined by the
C om m ittee to be the m ost appropriate, given the Funds long-term objectives and short-term
constraints. Portfolio assets w ill, under norm al circum stances, be allocated across broad asset
and subasset classes in accordance w ith the follow ing guidelines:
A sset class Subasset class Target allocation
Equity 70%
U .S. 60%
N on-U .S. 10%
Fixed income 30%
Investm ent grade 25%
Below -investm ent grade 5%
Cash 0%
6. To the extent the Portfolio holds investm ents in nontraditional, illiquid, and/or nonm arketable
securities including (but not lim ited to) venture capital, hedge funds, and real estate invest-
m ents, these assets w ill be treated collectively as alternative investm ents for purposes of
m easuring the Portfolios asset allocation. W hile not specifically considered w ithin this policy,
alternative investm ents m ay com prise no m ore than 15% of total Portfolio assets and, to the
extent they are ow ned, w ill proportionately reduce target allocations to the three prim ary asset
classes item ized above.
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B. Diversification policy
1. D iversification across and w ithin asset classes is the prim ary m eans by w hich the C om m ittee
expects the Portfolio to avoid undue risk of large losses over long tim e periods. To protect the
Portfolio against unfavorable outcom es w ithin an asset class due to the assum ption of large
risks, the C om m ittee w ill take reasonable precautions to avoid excessive investm ent concentra-
tions. Specifically, the follow ing guidelines w ill be in place:
a) W ith the exception of fixed incom e investm ents explicitly guaranteed by the U .S. govern-
m ent, no single investm ent security shall represent m ore than 5% of total Portfolio assets.
b) W ith the exception of passively m anaged investm ent vehicles seeking to m atch the returns
on a broadly diversified m arket index, no single investm ent pool or investm ent com pany
(m utual fund) shall com prise m ore than 20% of total Portfolio assets.
c) W ith respect to fixed incom e investm ents, for individual bonds, the m inim um average credit
quality of these investm ents shall be investm ent grade (Standard & Poors B B B or M oodys
Baa or higher).
C. Rebalancing
It is expected that the Portfolios actual asset allocation w ill vary from its target asset allocation as
a result of the varying periodic returns earned on its investm ents in different asset and subasset
classes. The Portfolio w ill be rebalanced to its target norm al asset allocation under the follow ing
procedures:
1. The investm ent m anager w ill use incom ing cash flow (contributions) or outgoing m oney
m ovem ents (disbursem ents) of the Portfolio to realign the current w eightings closer to the
target w eightings for the Portfolio.
2.The investm ent m anager w ill review the Portfolio sem iannually (June 30 and D ecem ber 31) to
determ ine the deviation from target w eightings. D uring each sem iannual review , the follow ing
param eters w ill be applied:
a) If any asset class (equity or fixed incom e) w ithin the Portfolio is + /5 percentage points from
its target w eighting, the Portfolio w ill be rebalanced.
b) If any fund w ithin the Portfolio has increased or decreased by greater than 20% of its target
w eighting, the fund w ill be rebalanced.
3.The investm ent m anager m ay provide a rebalancing recom m endation at any tim e.
4.The investm ent m anager shall act w ithin a reasonable period of tim e to evaluate deviation from
these ranges.
D. Other investment policies
U nless expressly authorized by the C om m ittee, the Portfolio and its investm ent m anagers are prohib-
ited from :
1. Purchasing securities on m argin or executing short sales.
2.Pledging or hypothecating securities, except for loans of securities that are fully collateralized.
3.Purchasing or selling derivative securities for speculation or leverage.
4.Engaging in investm ent strategies that have the potential to am plify or distort the risk of loss
beyond a level that is reasonably expected, given the objectives of their Portfolio.
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V. Monitoring portfolio investments and performance
The C om m ittee w ill m onitor the Portfolios investm ent perform ance against the Portfolios stated
investm ent objectives. A t a frequency to be decided by the C om m ittee, it w ill form ally assess the
Portfolio and the perform ance of its underlying investm ents as follow s:
A . The Portfolios com posite investm ent perform ance (net of fees) w ill be judged against the follow ing
standards:
1. The Portfolios absolute long-term real return objective.
2.A com posite benchm ark consisting of the follow ing unm anaged m arket indexes w eighted
according to the expected target asset allocations stipulated by the Portfolios investm ent
guidelines.
a) U .S. Equity: W ilshire 5000 Total M arket Index
b) N on-U .S. Equity: M SC I EA FE + EM Index
c) Investm ent G rade Fixed Incom e: Barclays C apital U .S. Aggregate Bond Index
d) N on-Investm ent G rade Fixed Incom e: Barclays C apital U .S. C orporate H igh Yield Bond Index
e) C ash: C itigroup 3-M onth T-B ill Index
B. The perform ance of professional investm ent m anagers hired on behalf of the Portfolio w ill be
judged against the follow ing standards:
1. A m arket-based index appropriately selected or tailored to the m anagers agreed-upon invest-
m ent objective and the norm al investm ent characteristics of the m anagers portfolio.
2.The perform ance of other investm ent m anagers having sim ilar investm ent objectives.
C . In keeping w ith the Portfolios overall long-term financial objective, the C om m ittee w ill evaluate
Portfolio and m anager perform ance over a suitably long-term investm ent horizon, generally across
full m arket cycles or, at a m inim um , on a rolling five-year basis.
D . Investm ent reports shall be provided by the investm ent m anager(s) on a (calendar) quarterly basis
or as m ore frequently requested by the C om m ittee. Each investm ent m anager is expected to be
available to m eet w ith the Investm ent C om m ittee once per year to review portfolio structure,
strategy, and investm ent perform ance.
For additional information and one-stop access to other valuable resources,
please visit Vanguards Investment Committee Resource Center at
www.vanguard.com/nonprofitresourcecenter.
2009 The Vanguard Group, Inc.
Al l ri ght s reserved.
IAMIPS 042009
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