GENERAL INFORMATION

The Mission of the UNT Foundation
Structure of the Foundation
Staffing the Foundation
Board of Directors Volunteer Position Description
Conflict-Of-Interest Policy
Directors and Officers Liability
Communicating with the Board
Nondiscrimination/Equal Opportunity/Affirmative Action/Sexual Harassment Policy Statement
Whistleblower Policy
Public Information

ACCOUNT MANAGEMENT

Definitions throughout this Manual
Establishing a New Account
Types of Accounts
Account Holders
Deposits (Contributions) to Accounts
Procedure for Acknowledging and Receipting Gifts

INVESTMENT MANAGEMENT

Endowment Account - Investment Vehicles
Operating Account - Investment Vehicles
Bank, Cash and Funds Management Accounts
Investment Policy
Appendix A
Appendix B
Appendix C

OBTAINING FUNDS FROM ACCOUNT

Withdrawals of Amounts from Endowment Accounts
Distribution Policy
Fees Charged to Endowed Accounts

SPECIAL INFORMATION

Funding Requests from Foundation Unrestricted Assets
Executor Functions
Trustee Functions

GIFT PLANNING AND ACCEPTANCE POLICIES

Overview
Liquidation of Gifts
Appraisal
Tangible Personal Property
Life Insurance
Guidelines for Gifts of Life Insurance
Gifts of Cash
Securities
Individual Wills
Charitable Gift Annuities
Charitable Remainder Trusts
Management
Real Estate Policies

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INVESTMENT MANAGEMENT

Endowment Account - Investment Vehicles

Foundation endowment assets are invested through fund managers in one or more diverse portfolios designed to generate stable but growing returns with minimal risk, in line with generally accepted “prudent investor” guidelines.

Fund managers provide the Foundation earnings and valuation reports on a quarterly basis. These reports are used to calculate and distribute earnings and fees among the individual program accounts, and to prepare financial statements and reports.

All Foundation endowment investments are pooled into one or more large groups. Individual account balances, earnings, fees, and transactions are accounted for individually in accord with Financial Accounting Standards Board (FASB) standards, and Generally Accepted Accounting Procedures (GAAP). An external public accounting firm audits foundation financial reports annually.

The Foundation uses several different accounts to manage its endowment investments. To maximize return to the pool of investments, minimal amounts of cash are maintained in liquid investments. This is in keeping with the Foundation’s goal for these endowment funds of long-term, relatively stable growth, with a corresponding limited requirement for immediate funds availability.

(See Investment Policy Section)

Operating Account - Investment Vehicles

Foundation operating account assets are invested through financial institutions in cash management vehicles; these funds experience no market volatility.

The financial institutions utilized provide the Foundation earnings and valuation reports on a monthly basis. This information is used to prepare reports to the Board of Directors, to account holders and to others.

All Foundation operating account investments are pooled into one or more large groups. The Foundation uses several different accounts to manage its operating account investments. To ensure a stable valuation to the pool of operating accounts, these funds are maintained in a combination of 100% insured accounts, Federal Agency issues, and Federal Funds; and all are liquid investments. This is in keeping with the Foundation’s goal for these funds of short-term availability.

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Bank, Cash and Funds Management Accounts

CHECKING ACCOUNT –local bank account

• Receives all gifts of cash and checks through daily deposits
• Electronic wire transfers to custodian bank by last working day of month
• Used to make all disbursements to University account holders
• Electronic wire transfers from custodian bank as needed for disbursements
• Maintain $100,000+ balance, or more

ENDOWMENT FUNDS – custodian bank

• Account for Money Managers for each asset class
• All endowed and quasi-endowed funds
• Intra-bank transfers from local bank (10 working days notice before 1st working day of month, only)
• Fund Income (interest + dividends) swept to cash monthly

TYPES OF TRANSACTIONS

• Gifts of Cash and Checks received daily - All are deposited into the Foundation’s local bank checking account
• Transfers to/from local bank checking from/to custodian bank accounts monthly - All are transferred by electronic wire transfer
• Distributions to account holders for scholarship awards, lectureships, etc. - Checks written to specific UNT accounts
• Local bank checking account is re-supplied by new gifts, interest, and wire transfers from custodian bank account
• Distributions of total return from pooled investment portfolio - wire transfer from custodian bank to local bank account as needed
• Balancing amounts in local bank checking account ($100,000+) swept to pledged collateral account overnight

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Investment Policy

Executive Summary

Roles and Responsibilities

• Members of the Board of Directors (“the Board”) of the University of North Texas Foundation, Inc. (“the Foundation”) are responsible as fiduciaries for managing the Foundation. The Board of Directors delegates responsibility for ongoing oversight of the Foundation to the Investment Committee.
• The Investment Committee is charged with managing the Foundation’s investments consistent with the policies approved by the Board.
• The Foundation Staff is responsible for implementing the decisions of the Investment Committee or the Board.
• The consultant is charged with monitoring the Foundation’s performance and recommending investment strategies and managers in order to obtain the long-term objective of the Foundation.

General Investment Philosophy

• The time horizon for the management of Foundation held endowment funds is infinite. The Foundation supports the concept of intergenerational equity in the management of permanent endowment funds.
• The long-term minimum need of the Foundation is to achieve a total return averaging at least eight percent (8.0%). This is comprised of the spending rate plus inflation, administrative fees, investment management and a real return.
• The spending allowance is calculated by multiplying the Board established spending rate times the individual account’s trailing 12-quarter average market value, as of each quarter. Since the spending allowance is based upon market value instead of income received, there may be individual quarters in which more or less funds are distributed than actually earned by the Foundation.
• With regard to risk, the focus is on overall portfolio risk, not risk related to specific asset classes. The overall level of risk in the Foundation’s investment portfolio will be primarily mitigated by attention to asset allocation.

Introduction and Purpose

This Statement of Investment Policy is set forth to:

1. Define the investment policies, guidelines and objectives of the University of North Texas Foundation, Inc. investment portfolio.
2. Create a framework from which the Investment Committee can evaluate performance, explore new opportunities and make recommendations to the Board of Directors.
3. Provide guidance for, expectations of, and limitations on all parties bearing responsibilities related to the Foundation Fund.

The intent of this statement is to design an investment environment with specific parameters that reflects the philosophy of the Board, thereby providing the Investment Committee, Foundation Staff, and the consultant with clearly defined policies and objectives. Although these policies and objectives are intended to govern the investment activity, they are designed to be sufficiently flexible so as to be practical. This document is also intended to serve as a guide to improve communications between the Board, the Investment Committee, Investment Managers, advisors, consultants, account holders and past and prospective donors.

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Roles and Responsibilities

Board of Directors

Members of the Board of Directors, ultimately, are responsible as fiduciaries for managing the Foundation.

Therefore, the Board of Directors’ specific responsibilities are as follows:

1. Set overall policies for the investment of the Foundation and approve a written Investment Policy Statement
2. Establish the Foundation’s spending rate and the institution’s real return need (i.e. sum of spending rate, management costs, expected inflation rate, and desired growth rate, if any)
3. Oversee activities of the Investment Committee as they relate to the investment of the Foundation’s assets
4. Subject to approval by the Board of Directors, the Chair of the Board of Directors of the Foundation will appoint the members of the Investment Committee.

Investment Committee

The Investment Committee’s responsibilities are as follows:

1. Review and approve the Investment Policy annually. Ensure that the Investment Policy is being implemented
2. Recommend to the Board appropriate Investment Policy guidelines, to include:
• the spending rate and calculation thereof
• the institution’s real return need (i.e. sum of spending rate, management costs, expected inflation rate and desired growth rate, if any)
• new guidelines as appropriate
3. Establish appropriate implementation guidelines, to include:
• the time horizon for the portfolio
• the acceptable level of volatility for the portfolio
• the acceptable asset classes for investment (e.g. U.S. large-cap stocks, U.S. small-cap stocks, emerging market stocks, etc.)
• the allocation of assets among the available asset classes (e.g. 15% to U.S. large-cap stocks, 10% to U.S. small-cap stocks, etc.)
4. Recommend the investment consultant to the Board and evaluate the investment consultant once approved by the Board
5. Establish investment practices, including:
• determine criteria for hiring and terminating investment managers (e.g. past performance relative to benchmark, within allowable tracking error, etc.)
• determine distribution of assets among investment managers (e.g. split the 15% U.S. large-cap equity allocation among two different managers such that one manager receives two-thirds of the allocation, while the other manager receives one-third of the allocation)
• determine the portfolio’s rebalancing rules (e.g. quarterly; at what variance from policy)
6. Monitor, review and evaluate investment results in the context of predetermined performance standards
7. Monitor the performance of the individual fund managers, hire and terminate investment managers as appropriate
8. Ensure that adequate and appropriate research is being conducted concerning the future performance of the portfolio and its investments
9. Confer at least quarterly to review the performance of the portfolio and the managers, interface with Foundation Staff and the consultant to address current issues, and develop recommendations for policy changes to be reviewed and presented for adoption to the Board
10. Report regularly on the status of the Foundation investment pool(s) to the Board
11. Review the level of expenses incurred at least annually
12. Monitor annually the performance of all Foundation assets not managed by the consultant.

Foundation Staff

The Foundation Staff’s responsibilities are as follows:

1. Implement the decisions reached by the Investment Committee and/or Board
2. Invest new gifts made to the Foundation according to established guidelines
3. Initiate the sale of assets as needed to fund the spending allowance
4. Rebalance the portfolio as directed by the Investment Committee as per the Investment Policy
5. Serve as the primary communication link with the Investment Committee and investment consultant
6. Prepare and present quarterly performance and evaluation reports on all Foundation assets not managed by the consultant.

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Consultant

The consultant’s responsibilities are as follows:

1. Assist in the development and implementation of investment policies, objectives and guidelines
2. Prepare an asset allocation analysis and recommend an asset allocation strategy with respect to the Foundation’s objectives
3. Review investment managers - including search, selection and recommendation
4. Prepare and present performance evaluation reports
5. Attend Investment Committee meetings to present evaluation reports on a quarterly basis (attendance at other meetings is on an “as needed” basis)
6. Review contracts and fees for both current and proposed investment managers
7. Review and develop special investment strategies that complement existing asset classes or strategies to be considered by the Investment Committee
8. Communicate investment policies and objectives to the managers, monitor their adherence to such policies and report all violations to the Investment Committee and Foundation Staff
9. Notify the Investment Committee and Foundation Staff of any changes in personnel or ownership of the consulting firm
10. Assist the Investment Committee and Foundation Staff in special tasks
11. Notify the Foundation Staff and Investment Committee immediately of any litigation or violation of securities regulations in which any Investment Manager utilized by the Foundation is involved
12. Notify the Foundation Staff and Investment Committee of any significant changes in portfolio managers, personnel or ownership of any investment management firm, which is utilized by the Foundation, and
13. Adhere to all regulatory agency guidelines.

Investment Managers

The investment managers’ responsibilities are as follows:

1. Invest assets under their management
2. Exercise discretionary authority over the assets entrusted to them
3. Provide written documentation of portfolio activity, portfolio valuations, performance data, and portfolio characteristics on a quarterly basis in addition to other information as requested by the Investment Committee or investment consultant
4. Vote proxies vigorously in the best interest of the Foundation; and
5. For those investment manager/products that are registered with the SEC, they must annually provide an updated copy of the investment advisor’s form ADV Part II.

Custodian

The custodian’s responsibilities are as follows:

1. Provide timely reports detailing investment holdings and account transactions monthly and a quarterly report summarizing the following to be submitted to the Foundation Staff within 21 days following each calendar quarter end
2. The reports will include the following:
   1. Statement of all securities and other assets on hand,
   2. Statement of all property received representing contributions to the accounts,
   3. Statement of all sales, redemptions, and principal payments,
   4. Statement of all distributions from the account,
   5. Statement of all expenses paid,
   6. Statement of all purchases, and
   7. Statement of all income.
3. Establish and maintain an account(s) for each Investment Manager of the Foundation
4. Provide all normal custodial functions including security safekeeping, collection of income, settlement of trades, collection of proceeds of maturing securities, daily investment of uninvested cash, etc. and
5. Prepare additional accounting reports as requested by the Foundation Staff or investment consultant.

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Investment Policies and Objectives

General Investment Philosophy

Providing for future spending needs while meeting current spending needs is the objective of the University of North Texas Foundation, Inc.

1. Time Horizon: The Foundation has an infinite life. The Foundation supports the concept of intergenerational equity in the management of its permanent endowment funds.
2. Return: The long-term minimum need of the Foundation is to achieve a total annual return averaging at least eight percent (8%), which includes the spending rate plus inflation, administrative fees, investment management and a real return.
3. Risk: The overall level of risk in the Foundation’s investment portfolio will be primarily mitigated by attention to asset allocation. The focus is on overall portfolio risk, not risk related to specific asset classes.
4. Taxes: The Foundation is a tax-exempt, not-for-profit organization.

Return Measurement Objectives

The investment objectives of the Foundation are based upon a long-term investment horizon allowing interim fluctuations to be viewed in an appropriate perspective. While there cannot be complete assurance that the defined objectives will be realized, it is believed that the likelihood of their realization is enhanced by the Investment Policy Statement and practices of the Foundation.

Over time, the Foundation will aim to achieve the return goal while maintaining acceptable risk levels. To accomplish this goal, the Foundation will diversify its assets among several asset classes. Appendix A provides permissible asset classes and appropriate index measures of these classes. Active managers will be expected to provide returns greater than or equal to their appropriate benchmark while utilizing acceptable risk levels.

All return objectives described are understood to be net of (after) investment expense.

1. Investment portfolio assets should return, over the time horizon, an annualized nominal rate of return greater than or equal to the long-term return objective plus the rate of inflation, net after all fees and costs.
2. Investment portfolio assets should return, over rolling twelve-month periods, a nominal rate of return greater than or equal to a composite index created by combining various indices (Appendix A) in the same proportion as the Foundation’s policy allocation (described in Asset Allocation section).
3. Each investment manager should return, over rolling twelve-month periods, a nominal rate of return greater than or equal to the appropriate market index for that asset class (Appendix A), with not more than commensurate risk.

Volatility and Risk

The return objectives can be achieved while assuming acceptable risk levels commensurate with “market” volatility. “Market” volatility is defined as the trailing three-year standard deviation of investment returns (based on monthly data) of the benchmark indices deemed appropriate.

The maximum acceptable level of volatility (trailing three-year standard deviation of monthly returns) for each asset class is defined by the policy R2 described in Appendix A, as measured over moving 36-month periods.

The risk is defined as the probability of failing to meet the Foundation’s objectives over the time horizon. Therefore, in order to minimize the probability of failure, thereby minimizing risk, the following variables should be considered in all aspects of the decision-making process with regards to the Foundation’s investable assets:

• Probability of Missing the Goal Return
• Inflation
• Asset/Style Allocation

Spending Policy

The purpose of the Foundation investment portfolio is to provide funding, in perpetuity, for programs and capital needs of the University of North Texas. The amount of this funding each year is determined by the Boards Spending Policy. The Board has currently selected a spending rate of 4.0% as being appropriate for sustaining the purchasing power of the Foundation and yet still providing the funding for which the Foundation was established. This spending rate will be reviewed annually in light of evolving trends with respect to investment returns and the rate of inflation. Adjustments will be made when appropriate. When considering the investment performance of the Foundation, the Board will consider the total returns of the Foundation, including dividends on stock, interest on fixed-income securities, and capital gains, both realized and unrealized. This 8.0% return need is comprised of 4.0% for spending rate and the balance for administrative costs, anticipated inflation, investment management fees and a real growth rate.

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Asset Allocation

The single most important decision, which affects the Foundation, is the asset allocation decision. Investment research has determined that a significant portion of a Foundation’s investment behavior can be attributed to (1) the asset classes/styles which are employed by the Foundation, and (2) the weighting of each asset class/style. Given its importance, the policy asset allocation shall be reviewed periodically and revised as necessary. The target asset allocation is shown in Appendix B.

The target asset allocation is based on a comprehensive allocation study completed by the investment consultant. The target asset allocation of the Foundation is designed to give balance to the overall structure of the Foundation’s investment program over a long-term horizon. Asset allocation decisions will not be based on market timing. However, some factors may impact the policy allocation, thereby requiring an asset allocation review and possible rebalancing. Some of these factors include a change in the assessment of the intermediate or long-term outlook for different types of asset classes and styles or divergence in the performance of the different asset classes and styles.

Portfolio Rebalancing

Since asset allocation is the most critical component of the Foundation’s return, the portfolio will be rebalanced at least annually. In addition, the Foundation will be rebalanced in the event any asset class allocation differs from policy (see targets in Appendix B) by more than 20% of the target weight, but with a 2% minimum deviation threshold (before rebalancing is required). Alternative asset classes may require a longer period of time to achieve target allocation.

Permissible Investments

The policy asset allocation of the Foundation is expected to include a wide range of asset classes. Their relative comparative indices are displayed in Appendix A. The permissible asset classes are as follows:

• Domestic Large-Capitalization Equity
• Domestic Large-Capitalization Value Equity
• Domestic Mid-Capitalization Equity
• Domestic Small-Capitalization Equity
• Domestic Small-Capitalization Value Equity
• International Large/Mid-Capitalization Equity
• International Small-Capitalization Equity
• International Emerging Markets Equity
• Pacific Rim Equity
• Domestic Fixed Income
• Inflation Protected Bonds
• Domestic High-Yield Bonds
• International Fixed Income
• International Emerging Markets Fixed Income
• Real Estate Investment Trust
• Cash Equivalents
• Hedge Funds
• Private Equity
• Real Asset Investments

Investment Policies & Performance Goals for Investment Managers

The performance goals and constraint guidelines placed on individual managers within specific asset classes are listed in Appendix C. Investment managers may engage in securities lending to broker dealers as a means of enhancing income. The Investment Committee shall continue to review the relative advantages of passive versus active management in the context of reduced management expenses, stable performance and constant, complete exposure to the particular asset class with regard to the excess return provided by the individual manager.

Conflicts of Interest

All persons responsible for investment decisions or who are involved in the management of the Foundation or who are consulting to, or providing any advice whatsoever, to the Investment Committee shall disclose in writing at the beginning of any discussion or consideration by the Investment Committee, any relationships providing material benefit, which the person has or may reasonably be expected to have, with respect to any investment issue under consideration. The Board may require such persons to remove themselves from the decision-making process.

Any members of the Investment Committee responsible for investment decisions or who are involved in the management of the Foundation shall refuse any remuneration, commission, gift, favor, service or benefit that might reasonably tend to influence them in the discharge of their duties, except as disclosed in writing to and agreed upon in writing by the Investment Committee. The intent of this provision is to eliminate conflicts of interest between the Investment Committee membership and the Foundation itself. Failure to disclose any material benefit shall be grounds for immediate removal from the Investment Committee. This provision shall not preclude the payment of ordinary fees and expenses to the Foundation’s custodian(s), investment managers and consultant in the course of their services on behalf of the Foundation. The Foundation will not loan funds to related parties defined as an officer, Investment Committee member, member of the Foundation Staff, employee, or donor, either current or prospective.

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Appendix A

Comparative Indices for Traditional Investment Managers

Asset Class	Comparative Index	Target R2
		Index	Active
Equity
Domestic Equity
U.S. Large Stocks	S&P 500	99.9	95.0
U.S. Large Value Stocks	S&P Barra Value	99.9	95.0
U.S. Mid Stocks	S&P MidCap 400	99.9	90.0
U.S. Small Stocks	Russell 2000	99.0	85.0
U.S. Small Value Stocks	Russell 2000 Value	99.0	85.0
International Equity
International Large Stocks	EAFE	99.9	95.0
International Small Stocks	EMI-EPAC X-EAFE	99.5	90.0
Emerging Market Stocks	MSCI EMF Index	99.0	85.0
Fixed Income
Domestic Fixed Income	Lehman Aggregate Bond	99.9	95.0
Inflation Protected Bonds	Citigroup Inflation Linked Bond	99.5	95.0
High-Yield Fixed Income	Citigroup High-Yield Bond	99.5	90.0
International Fixed Income	Citigroup World Gov't Bond	99.5	90.0
Emerging Market Bonds	JPM Emerging Market Bond	99.0	85.0
Real Estate	Wilshire REIT Index	99.9	95.0
Cash Equivalents	U.S. Treasury Bills	100.0	100.0
Private Equity	Venture Economics	--	--
Hedge Funds	HFR Fund of Funds	--	--
Real Assets	--	--	--

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Appendix B

Policy Asset Allocations 1-1-06

Asset Class	Target (%)
Total Growth Assets	55
Domestic Equity	28
U.S. All-Cap Stocks	17
U.S. Large-Cap Quality Stocks	6
U.S. Small/Mid-Cap Stocks	5
International Equity	27
International Large-Cap Stocks	13
International Small-Cap Stocks	6
Emerging Market Stocks	8
Risk Reduction Assets	23
US/Global Fixed Income	13
Hedge Funds	10
Inflation Protection Assets	22
US Inflation Protected Bonds	12
Real Assets	10
Total	100

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Appendix C

Investment Policies and Performance Goals for Investment Managers

All Traditional Managers

1. All managers shall demonstrate a reasonable match, or “fit”, with their respective index, as measured by acceptable R2 and tracking error (see Appendix A).
2. Active managers shall be terminated if tracking error is consistently out of policy and net performance is statistically indistinguishable from the benchmark return.
3. Index managers shall be terminated if tracking error is consistently out of policy.
4. No manager shall be permitted to use margin or to otherwise leverage the portfolio, without the prior written consent of the Investment Committee.

Domestic Equity

1. The maximum weighting (cost basis) in any one company for active managers is 10%.
2. The maximum allocation to cash, at any time, will be 5% unless written permission is communicated to the consultant by the Investment Committee.
3. Trading and Execution: Managers should execute trades on a competitive basis, considering both commission and market impact, as compared to relative size Foundations.

Domestic Fixed Income

The maximum weighting (cost basis) in any one security for active managers is 10%. This does not apply to U.S. government and agency issues.

International Equity and Fixed Income

The use of currency futures to enhance performance and/or hedge currency exposure by international and/or global managers is at the discretion of the manager, provided the hedging in any one currency will never exceed the market value of the assets in the currency. A detailed description of a manager’s currency strategy must be submitted to the consultant and the Investment Committee.

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