Bucyrus Area Community Foundation
Full Investment Policy

Investment Objectives, Policies and Guidelines

Approved November 20, 2003

1. The purposes of this Investment Policy Statement are to
   1. establish an understanding of the philosophy and investment objectives for the Foundation’s Board of Trustees, Finance Committee, donors, grantees, and investment managers;
   2. serve as requirements for the investment managers retained; and
   3. serve as the basis for monitoring the ongoing performance for each investment manager and the Bucyrus Area Community Foundation (“BACF”) in total.
2. Objective of the Foundation
   1. BACF is a public charitable organization incorporated in the State of Ohio in 1984 by citizens of the Bucyrus area and with the help of the Timken Foundation. The charitable features of the Foundation are designed to improve the quality of life in the Bucyrus area through support of non-profit programs and services in the areas of health, economic development, basic human needs, education, cultural activities, environment, and community services. The Foundation provides flexibility in responding to charitable requests and identifies changing needs within the community. The timely shifting of priorities is accomplished by a Board of Trustees, consisting of members selected for their experience in understanding the Crawford County community and awareness of a community foundation’s role in addressing these concerns.
   2. The investment funds of BACF are a vital source of grants to the community. The growth and enhancement of the assets entrusted to the Foundation’s stewardship (measured in constant dollars adjusted for inflation) is necessary to provide funds to enable the Foundation to meet changing conditions and address community pressures and opportunities. For these reasons, superior management of these assets is critical to enable the Foundation to maintain its long-term interest and involvement in the philanthropic needs of the community.
   3. The primary investment objective of the BACF is capital appreciation; income generation is also important to the Foundation’s ability to achieve its goals. Investments that are selected should provide reasonable opportunities to achieve these objectives.
3. Investment Target
   1. The primary investment target of the Foundation is to earn, over a five-year moving period, net of investment management fees and transaction costs, an average annual total rate of return 3% above the risk-free rate (one-month Treasury Bills) plus inflation (Personal Consumption Expenditure, or PCE). Total rate of return takes into consideration dividends and interest income plus realized and unrealized capital appreciation, however the Foundation’s Investment Committee reserves the right to evaluate and make any necessary changes regarding the investment managers over a shorter-term basis using the criteria established in the Evaluation of Investment Managers section of this statement.
   2. The portfolio is expected to perform as well as a “composite” index consisting of a weighting of the Standard & Poor’s 500 Stock Index (equities) and the Shearson Lehman Intermediate Bond Index (fixed income) that equates to the funds weighting in each asset class, net of fees. These objectives are to be measured over running five-year periods. It is recognized that the real return objectives may be difficult to attain in every five-year period but should be so over moving five-year periods.
4. Investment Responsibilities
   
   1. Investment Committee: Responsible for making recommendations to the Board of Trustee of the BACF concerning the investment policies of the Foundation including, but not limited to, establishing investment policies, selecting investment managers, approving the investment strategies of investment managers, selecting master record keepers and custodians, determining asset allocations, monitoring investment performance, and setting standards for portfolio managers.
   2. Investment Managers: The Foundation may authorize the delegation of discretionary investment responsibility to financial institutions and/or independent professional investment management firms, who may use suitable mutual funds. Subject to broad investment policies as outlined in this document and standards of fiduciary prudence, this discretionary responsibility includes the execution of day-to-day investment functions by adhering to the statement of Investment Objectives and Guidelines. The investment managers are responsible for specific investment decisions with regards to security selection, timing, and execution.
   3. Management Style: Each investment manager will identify and describe the investment style it employs in managing the investment funds of the BACF.
5. Investment Guidelines:
   This section outlines overall investment guidelines, which each investment manager, including any banks holding funds in trust for the Foundation, will be expected to follow in developing its investment strategy for meeting the Foundation’s target outlined above.
   
   1. Asset Allocation: The prime factor influencing the risk and ultimately the investment performance of the Foundation’s portfolios is the allocation of assets between security classes. The allocation to common stocks and other permitted equity investments is to be targeted at 50% of the value of the portfolio. The remainder is to be invested in fixed income securities. The Investment Committee recognizes that, due to a variety of factors, these percentages can vary from time to time. The investment managers will have the flexibility, based on their professional expertise, to exceed the stated weighting by no more than 10%. If one class exceeds this variance, a prudent plan must be established within a reasonable period of time to rebalance the portfolio to bring it within the stated asset allocation as set forth in this document. Unless otherwise indicated, convertible securities will be considered as equities in determining asset allocation. International securities will constitute no more than 15% of any asset class and no more than 15% of the total portfolio. Investment managers will monitor asset classes and allocate cash flow so as to maintain the target asset allocation.
   2. Types of Securities:The investments assets of the BACF will be managed in individually-invested portfolios, collective funds including a bank’s common trust funds, and mutual funds. In addition to income, equities provide opportunities to maintain the purchasing power of invested funds through capital appreciation. Fixed-income investments provide an increase to current yield relative to an all-equity approach, while providing an opportunity to meet the foundation’s cash flow requirements. Following is a list of acceptable securities:
      
      • Mutual Funds (Open Ended)
      • Common Stocks
      • Preferred Stocks
      • Convertible Securities
      • Money Market Instruments
      • REITs
      • Mortgage Backed Securities
      • Corporate Bonds
      • Municipal Bonds
      • Government Bonds
      • Agency Bonds
      • Commercial Paper
      • TIPS
      Private investments (which come to the Foundation as donations) may be held as a part of the fixed-income investments and/or equities. This includes, but is not limited to, real estate, mortgages, and the like. Any other security not listed in the prohibitions paragraph may be considered, if the Investment Committee grants approval. Fixed-income investments may include, in addition to US Government and Agencies securities, corporate notes with a Trust quality rating (typically “A” or better by Moody’s and Standard and Poor’s rating services). In the event that a bond or note is downgraded to an “A” rating or less by both rating services, it may remain in the portfolio only if the total of such rated bond issues do not exceed 10% of the fixed income security portfolio market value. The price paid for a bond shall not exceed 101% of par value.
   3. Prohibited Transactions: No funds shall be invested in the following types of securities:
      
      • Companies manufacturing gambling devices or supplying any form of gambling entertainment
      • Companies who primarily manufacture or sell:
        
        • Tobacco Products
        • Alcohol
        • Firearms
      • Options
      • Mutual Funds (Closed End)
      • Futures
      • Venture Capital
      • Short Sales
      • Margin Transactions
      • Derivatives
   4. Proxy Voting: The BACF shall be responsible for voting all proxies or delegating the responsibility for voting proxies and corporate restructuring to each investment manager retained to manage the Foundation’s assets. Each investment manager will submit their Proxy Voting Corporate Policy at the inception of their contract with the BACF and promptly notify the Investment Committee if any changes are made to the policy.
   5. Diversification: Funds will be structured to minimize the risk of large loss. Investment managers will identify a diversification strategy with regard to maximum investment in any one security, company, or sector.
   6. Volatility/Risk: The volatility, as measured by beta relative to the composite, shall be no greater than 1.20.
   7. Liquidity: The Investment Committee will notify the investment manager of any impending distribution that is greater than 5% of the portfolio within a reasonable time period for the investment manager to provide the necessary liquidity. A cash balance will be maintained to accommodate smaller withdrawal needs.
   8. Variation from Stated Asset Allocation: The investment manager may, from time to time, vary from the stated asset allocation if, in their professional opinion, the Foundation’s assets would be negatively impacted by adhering to the policy. The investment manager must provide a timely explanation in writing to the Investment Committee if the investment manager intends to remain outside the stated asset allocation for an extended period of time.
6. Reporting
   Activity of the portfolios held by the investment managers shall be reported at least quarterly to the Foundation. In addition, each investment manager will provide a monthly summary of the account. The one-page summary will include beginning balance, income, expenses, contributions, distributions, fees paid, realized and unrealized gains, and the ending balance. The portfolio will be monitored on a continual basis relative to these investment objectives, to investment risk as measured by asset concentrations, exposure to extreme economic conditions, and to market volatility. The manager’s activity will be reviewed by the Investment Committee on an annual basis, but results will be evaluated on a running five-year cycle. The staff may meet with investment managers when necessary.
7. Evaluation of Investment Managers
   The investment managers will be reviewed on an ongoing basis and evaluated based upon the following additional criteria:
   
   1. adherence to the performance objectives stated in this Statement of Investment Objectives, Policies, and Guidelines;
   2. adherence to the philosophy and style which were articulated to the Finance Committee at, or subsequent to, the time the investment manager was retained;
   3. continuity of personnel and practices at the firm;
   4. compliance with Investment Policy requirements;
   5. timeliness and accuracy of reporting;
   6. an annual presentation by the investment manager covering market conditions, Foundation specifics, and recommendations.
8. Conclusion
   This statement of investment policy shall be reviewed annually. The investment performance will be measured on a quarterly basis. The investment managers may provide any suggestions regarding appropriate adjustments to this statement or the manner in which investment performance is reviewed. In the event that the BACF and investment manager(s) terminate their relationship, investment manager(s) will work with the Foundation to expedite the immediate transfer of authority and/or securities.