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TERMS OF APPOINTMENT: DR. SARA HOPKINS-POWELL

Summary

On May 19, 2000, the Board named Dr. Sara Hopkins-Powell interim president at Southern Oregon University, subsequent to the pending departure of President Stephen Reno. At the Board meeting, Chancellor Cox explained that he would return with information pertaining to Dr. Hopkins-Powell's terms of employment for final Board consideration. Below is an outline of the agreement and the Chancellor's recommendation.

Term of Office (start/end dates)

Plan for Appointing a Successor

Recommended Salary/Fringe

Recommendation to the Board

Chancellor Cox recommends Board approval of the terms of appointment for Dr. Sara Hopkins-Powell as interim president of Southern Oregon University.

BOARD ACTION:

INVESTMENT OBJECTIVES AND POLICY GUIDELINES

Summary

At its October 21, 1999, meeting, the Board approved for recommendation to the Oregon Investment Council (OIC) revised Investment Objectives and Policy Guidelines for the OUS Pooled Endowment Fund (Policy).

The revised Policy went before the OIC in March 2000. The OIC's investment consultants expressed concern with the asset allocation ranges, benchmarks, and performance objectives within Schedule I and Exhibit A of the policy. The OIC requested that their consultants work with the OUS investment consultants to address these concerns and bring a revised Policy to the April 2000 meeting.

The discussions between the consultants resulted in minor changes to Schedule I--Allocation of Assets and Exhibit A--Performance Monitoring Return Expectations. These changes resulted in a tightening of the asset allocation ranges of the equity category and fixed income category, adding Policy benchmarks to Schedule I, defining a Target Allocation benchmark for the Total Fund (found on Schedule I), and adding a performance objective for the Total Fund (Item 1 under Total Fund) found on Exhibit A. The revised Policy was approved by the OIC at their April 2000 meeting. No changes were made to the body of the Policy.

The Investment Committee reviewed and approved the revisions to Schedule I and Exhibit A of the Policy in their May 2000 meeting, and agreed to forward the revised documents to the Board for approval in June 2000.

Schedule I and Exhibit A, as revised and approved by the OIC, are presented below, followed by the original versions of Schedule I and Exhibit A, as previously approved by the Investment Committee and Board, with the changes highlighted.

Version Approved by the OIC

SCHEDULE I
ALLOCATION OF ASSETS

The following represents target asset allocations and the ranges by asset category.

Allocation of asset by class:    
Class

Target Allocation

Ranges

Policy Benchmark

Equity Category

70%

60%-80%

 

Fixed Income Category

25%

20%-30%

Lehman Aggregate

Cash

5%

0%-10%

90 Day T-Bill

Alternative Assets

0%

0%-10%

 



The allocation of equity assets shall be as follows:

Class

Target Allocation
% of Equity


Ranges


Policy Benchmark

Large-Cap Equity

65%

55%-75%

S & P 500

Small-Cap Equity

20%

15%-25%

Russell 2000

International Equity

15%

10%-20%

MSCI EAFE

The Target Allocation Policy Benchmark is 59.5% Russell 3000 Index, 10.5% MSCI EAFE Index, 25.0% Lehman Aggregate Index and 5.0% 90 Day T-Bills.

Version Approved by the OIC

EXHIBIT A

Performance Monitoring Return Expectations

Spending Policy

The distribution rate for the Fund is 5.0 percent of the five-year moving average unit market value.

Total Fund

The total fund will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Exceed the return of the Policy benchmark (Schedule I) by 0.50 percent (after fees) over a market cycle;
  2. Exceed the level of inflation by 5.0 percent or more as measured by the Consumer Price Index (CPI) over a market cycle; and
  3. Exceed the median fund in a universe of other endowments over a market cycle. A market cycle is defined as an investment period lasting three to five years.

U.S. Equities - Large Capitalization

Equity accounts will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Exceed the return of the S&P 500 Index by 0.25 percent (after fees) over a market cycle; and
  2. Rank at or above median of a nationally recognized universe of equity managers possessing a similar style.

U.S. Equities - Small Capitalization

Small capitalization accounts will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Equal the return of the Russell 2000 (before fees) over a market cycle.

International Equities

International equity accounts will be evaluated quarterly. Performance objectives include, but may not be limited to, the following:

  1. Exceed the Return of the EAFE Index by 1.0 percent (after fees) over a market cycle; and
  2. Rank in the 40th percentile of a nationally recognized universe of equity managers possessing a similar style.

Fixed Income

Fixed income accounts will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Exceed the Return of the Lehman Aggregate Index by 0.5 percent (after fees) over a market cycle; and
  2. Rank in the 40th percentile of a nationally recognized universe of fixed income managers possessing a similar style.

Original Version with Changes

Added or changed language is in bold and italics; deleted or relocated language is shown in [brackets].

SCHEDULE I
ALLOCATION OF ASSETS

The following represents target asset allocations and the ranges by asset category.

Allocation of asset by class:    
Class

Target Allocation

Ranges

Policy Benchmark

Equity Category

70%

60%-80%

 

Fixed Income Category

25%

20%-30%
[20%-40%]

Lehman Aggregate

Cash

5%

0%-10%

90 Day T-Bill

Alternative Assets

0%

0%-10%

 

The allocation of equity assets shall be as follows:

Class

Target Allocation
% of Equity


Ranges


Policy Benchmark

Large-Cap Equity

65%

55%-75%
[50%-75%]

S & P 500

Small-Cap Equity

20%

15%-25%
[10%-30%]

Russell 2000

International Equity

15%

10%-20%
[10%-30%]

MSCI EAFE

The Target Allocation Policy Benchmark is 59.5% Russell 3000 Index, 10.5% MSCI EAFE Index, 25.0% Lehman Aggregate Index and 5.0% 90 Day T-Bills.

Original Version with Changes

Added or changed language is in bold and italics; deleted or relocated language is shown in [brackets].

EXHIBIT A

Performance Monitoring Return Expectations

Spending Policy

The distribution rate for the Fund is 5.0 percent of the five-year moving average unit market value.

Total Fund

The total fund will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Exceed the return of the Policy benchmark (Schedule I) by 0.50 percent (after fees) over a market cycle;
  2. Exceed the level of inflation by 5.0 percent or more as measured by the Consumer Price Index (CPI) over a market cycle;
  3. Exceed the median fund in a universe of other endowments over a market cycle. A market cycle is defined as an investment period lasting three to five years.

U.S. Equities - Large Capitalization

Equity accounts will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Exceed the return of the S&P 500 Index by 0.25 percent (after fees) over a market cycle; and
  2. Rank at or above median of a nationally recognized universe of equity managers possessing a similar style.

U.S. Equities - Small Capitalization

Small capitalization accounts will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Equal the return of the Russell 2000 (before fees) over a market cycle.

International Equities

International equity accounts will be evaluated quarterly. Performance objectives include, but may not be limited to, the following:

  1. Exceed the Return of the EAFE Index by 1.0 percent (after fees) over a market cycle; and
  2. Rank in the 40th percentile of a nationally recognized universe of equity managers possessing a similar style.

Fixed Income

Fixed income accounts will be evaluated quarterly. Specific performance objectives include, but may not be limited to, the following:

  1. Exceed the Return of the Lehman Aggregate Index by 0.5 percent (after fees) over a market cycle; and
  2. Rank in the 40th percentile of a nationally recognized universe of fixed income managers possessing a similar style.

Investment Committee Recommendation to the Board

The Investment Committee recommends that the Board approve the revised Schedule I and Exhibit A of the Investment Objectives and Policy Guidelines for the OUS Pooled Endowment Fund.

BOARD ACTION:

ENDOWMENT SPENDING POLICY

Summary

The amounts of distributions from the OUS Pooled Endowment Fund (Fund) made available for spending are based on the distribution rate and methodology (Spending Policy) included in the OUS Pooled Endowment Fund Investment Objectives and Policy Guidelines (Policy). The Investment Committee, at its May 2000 meeting, reviewed the current distribution rate and methodology, which is five percent of a 20 quarter (five-year) moving average of the unit market value. Based on their review (summarized below), the Investment Committee believes it is appropriate to decrease the distribution rate from five to four percent over a two-year period.

The Board has the responsibility of maintaining the purchasing power of the endowment fund principal. To achieve this goal, the distribution rate, plus inflation, must be less than or equal to the expected return for the Fund. As the distribution rate changes, the growth of the Fund over time is impacted. If the distribution rate is reduced, more income will be available to reinvest and the Fund will grow at a faster rate. If the distribution rate is increased, the opposite is true. The total amount distributed from the Fund will increase over time if the distribution rate is reduced due to the compounding effect of the reinvested income.

The Board's investment consultants, R.V. Kuhns, presented analyses to the Investment Committee indicating that the current distribution rate of five percent, plus inflation, is approximately .5 percent below the expected return for the Fund. However, this provides only a narrow cushion to protect the endowment principal and limits the growth of the Fund over time.

Each year the National Association of College and University Business Officers (NACUBO) prepares the NACUBO Endowment Study (NES), which is a study of more than 500 colleges and university endowment funds. The NES is the industry standard for evaluating institutional performance and management priorities for endowment funds. A review of the NES data from 1998 and 1999 shows that the average distribution rate for endowments with assets of less than $75 million was 4.2 percent.

Assuming that the market value of the Fund remains constant in the next four years, a decrease in the distribution rate of .5 percent per year for two years (total of 1.0 percent decrease resulting in a 4.0 percent distribution rate by 2001-02) would have a minimal impact on the projected distributions to campuses, would help insure protection of the principal, and improve prospects for growth of the Fund over time.

The table on page 10 shows the projected results of this change.

OUS POOLED ENDOWMENT FUND
2000-01 TO 2003-04 FULL YEAR DISTRIBUTION
AT 5.0%, 4.5%, 4.0%, 3.5%, AND 3.0%
OF THE FIVE-YEAR MOVING AVERAGE OF THE UNIT MARKET VALUE
(Assume Unit Market Value does not change from 3-31-00 value)

  1999-00 2000-01 2001-02 2002-03 2003-04
5.0% 2,479,259 2,696,216 3,035,688 3,253,971 3,383,258
4.5% 2,230,023 2,426,988 2,732,187 2,928,619 3,044,864
4.0% 1,982,242 2,157,397 2,428,460 2,603,267 2,706,471
3.5% 1,73,4462 1,887,582 2,124,959 2,277,915 2,368,303
3.0% 1,486,682 1,617,992 1,821,458 1,952,338 2,029,910

The shaded amounts represent the estimated distributions from the Fund for the current year and over the next four years if the market value of the Fund remains constant and the distribution rate is reduced as recommended by the Investment Committee.

This planned reduction in the distribution rate was reviewed by the Administrative Council in May 2000, and the Vice Chancellor for Finance and Administration recommends this change.

The current language in the Policy states: "The distribution rate for the Fund is 5.0 percent of the five-year moving average unit market value." If the Investment Committee recommendations are approved, the language will read: "The distribution rate is 4.5 percent of the five-year moving average unit market value for 2000-01 and 4.0 percent of the five-year moving average of the unit market value in 2001-02 and thereafter."

Investment Committee Recommendation to the Board

The Investment Committee recommends that the Board approve a plan to decrease the distribution rate incrementally from 5.0 percent to 4.5 percent for 2000-01 and to 4.0 percent for 2001-02 and thereafter.

BOARD ACTION: