DIXIE STATE COLLEGE OF UTAH

POLICIES AND PROCEDURES MANUAL


Section: 6-Administration

Policy No: 5

Approved: 6/5/98

Policy: INVESTMENT OF DIXIE STATE COLLEGE FUNDS

6-5 INVESTMENT OF DIXIE STATE COLLEGE FUNDS

5.1 Purpose of an Investment Policy

5.1.1 To provide guidelines for the management and reporting of institutional investments.

5.1.2 To provide written procedures for the investment of designated college assets and to provide for the growth of, and the income from, those assets.

5.1.3 To provide for the preservation of the assets' principal beyond the rate of inflation, while producing market level income.

5.1.4 To establish appropriate objectives, an investment time horizon, and asset allocation guidelines.

5.2 References

5.2.1 53B-2-106, Utah Code Annotated, 1953

5.2.2 51-7 et seq., Utah Code Annotated 1953

5.2.3 Applicable rules of the State Money Management Council

5.2.4 Regents' Policy and Procedures R541, Management and Reporting of Institutional Investments.

5.3 Delegation of Responsibility

5.3.1 The Board of Regents has delegated to the Dixie State College Board of Trustees full responsibility to manage and report the College's investments in compliance with Regents' Policy and Procedures R541.

5.3.2 It shall be the responsibility of the Trustees to adopt institutional policy and procedures regarding investments, including any changes in such policy and procedures.

5.4 Designation of Public Treasurer - The Dixie State College Board of Trustees has designated the Controller to serve as the public treasurer of the College.

5.5 Duties of the Public Treasurer

The Public Treasurer of Dixie State College will:

5.5.1 Invest all Dixie State College public funds in compliance with state law and policy.

5.5.1.1 Such investments shall be made at a time and in the maturity determined appropriate by the Public Treasurer in consultation with the Dixie State College Investment Committee.

5.5.2 Place funds in deposits or investments such as the public treasurer's fund of the Utah State Treasurer, United States Treasury bills, notes or bonds, or other debt type investments which are qualified under the Money Management Act.

5.5.2.1 Any other investment will require the majority vote of the committee with at least one favorable vote from Board of Trustees committee members.

5.5.3 Report investment transactions to the Dixie State College Board of Trustees in accordance with the prescribed schedule.

5.5.4 Include the following statement over the dated signature of the Public Treasurer in all reports:

5.5.4.1 "To the best of my knowledge, the investment activities of Dixie State College, comply in every respect with the Policies of Dixie State College, State Money Management Act, the Rules of the State Money Management Council, and the policies of the State Board of Regents."

5.5.5 Prepare and submit the annual Money Management report as required under Regents' policy and make all records and documents pertaining to the annual report available for audit.

5.6 The Investment Committee will consist of two members of the Board of Trustees as designated by the Trustees; a member of the Dixie State College Development Office; business office staff as appointed by the chief business officer; and others as may be appointed by the Investment Committee.

5.6.1 The Dixie State College Investment Committee functions under the direction of the Board of Trustees and the President of the College.

5.6.2 The chairman of the committee is appointed by the college president.

5.6.3 The purpose of the Investment Committee is to support the college and its mission over the long term, through the prudent investment of designated college assets and maintain compliance with law.

5.6.4 The committee shall review and recommend investments, guidelines, procedures, objectives, and strategies to the college Public Treasurer, who will implement those recommendations.

5.6.5 The Investment Committee shall meet as required to carry out its functions and responsibilities, usually monthly, to review investments and to receive in-person reports from Investment Managers.

5.7 Reports to the Dixie State College Board of Trustees

5.7.1 At the next Board of Trustees meeting following the month end, a portfolio analysis will be submitted to the Trustees which summarizes the portfolio of investments held by the College.

5.7.2 The report will also highlight portfolio activity that has occurred during the reporting period.

5.8 Copies of Reports Submitted To Board Of Regents

5.8.1 The Public Treasurer shall submit to the Board a copy of the reports submitted to the Dixie State College Board of Trustees.

5.8.2 Reports submitted to the Board shall be accompanied by a transmittal letter to the Commissioner of Higher Education indicating that the College President has reviewed the reports.

5.9 Annual Money Management Report

5.9.1 Annually, the Public Treasurer shall submit, on forms provided by the Commissioner of Higher Education, a summary report of the College's money management activities for the year.

5.9.2 This report shall include an auditor's opinion regarding:

5.9.2.1 The fairness of presentation of the report in accordance with generally accepted accounting principles; and

5.9.2.2 Compliance with applicable statutes, rules of the State Money Management Council, and this policy.

5.9.2.3 Draft reports shall be submitted to the Commissioner's Office not later than October 15 of each year.

5.9.3 Final reports, including the auditor's opinion, shall be submitted not later than November 30 of each year.

5.10 Definitions: The following definitions pertain to the investing of designated college funds:

5.10.1 Endowment and Challenge Grant Funds - Funds given to the college with a donor imposed restriction that the funds are not to be expended, but are allowed to be invested for the purpose of producing income. Unless otherwise stated by the donor, the funds are to be maintained in perpetuity. Some grants, such as challenge grants, take a role similar to endowment funds. They, too, are kept in perpetuity and are invested.

5.10.2 Institutional Funds - Institutional funds are those funds that are appropriated by the State Legislature or come from the collection of tuition and fees. These funds may or may not be invested long-term, depending upon the time horizon for the use of the funds.

5.10.3 Total Return and Real Return - Total return is the sum of capital appreciation (or loss) and current income achieved in the form of interest, dividends, and rents. Real return is the total return adjusted for inflation as measured by the Consumer Price Index (CPI).

5.11 Investment Objective: The minimum investment objective is to achieve a consistent, real total rate of return as determined by the investment committee.

5.12 Time Horizon: Scholarship and similar college endowment assets have a long term, indefinite time horizon that runs concurrent with the endurance of the institution, in perpetuity.

5.12.1 These funds can assume a time horizon that extends well beyond a normal market cycle, and can assume an above-average level of risk as measured by the standard deviation of annual returns.

5.12.2 It is expected that both professional management and sufficient portfolio diversification will smooth volatility and help to assure a reasonable consistency of return.

5.12.3 The time horizon for other investments will be in accordance with direction in the Utah Money Management Act.

5.12.4 The time horizon for the investments will be determined by the Business Affairs Office.

5.13 Assets to be Invested: The Dixie State College Business Affairs Office will designate the assets of the institution to be invested by action of the Investment Committee.

5.14 General Investment Principles to be followed by the Investment Committee, in compliance with the Money Management Act and the State Board of Regents' policies:

5.14.1 Investments shall be made solely in the interest of Dixie State College for the exclusive purpose of providing benefits accrued to meet the college's goals and objectives and for the defraying of reasonable expenses.

5.14.2 Investments shall be made with the care, skill, prudence and diligence under the circumstances prevailing at a given time that a prudent person, acting in a like capacity and familiar with such matters, would use in the investment of funds of like character and like aims.

5.14.3 Investment of the college's assets shall be diversified so as to minimize the risk of large losses, unless under particular circumstances it is clearly prudent not to diversify.

5.14.4 Short-term fluctuations in value or rate of return shall be considered secondary to long term results.

5.14.5 All investment decisions must be in accordance with applicable statutes.

5.14.6 The Investment Committee, acting for the Board of Trustees and Public Treasurer, may retain one or more Investment Managers to reach the objectives defined by this document.

5.14.7 Cash is to be productively employed at all times by investment in short term cash and equivalent reserves to provide safety, liquidity, and return.

5.14.7.1 It is recognized, however, that some cash will be needed to meet institutional obligations.

5.14.8 The college seeks a balanced portfolio of cash and equivalents, equity securities and debt securities instruments.

5.14.9 The college anticipates growth and dividends associated with equity securities, and current interest income generated by the debt securities and cash equivalent components.

5.14.10 Portfolio assets should be invested to maximize returns over a three to five year period. Investment objectives are long-term in nature. There is, however, a need for annual income from investments to fund scholarships and other institutional needs.

5.14.11 The committee will consider the need for rebalancing the portfolio at least annually.

5.15 Asset Allocation: To achieve the investment objectives, the Investment Committee shall direct that assets be invested among a number of asset classes.

5.15.1 These asset classes may include: domestic equity, domestic fixed income, international equity, international fixed income, real estate, venture capital, money market funds, and cash.

5.15.2 The purpose of allocating among asset classes is to maximize return while minimizing risk at the targeted rate of return.

5.15.2.1 The investment committee will develop an asset allocation table which it will use as a guide in making investments.

5.16 Professional Investment Managers:

5.16.1 Professional Investment Managers will sign a contract with the College defining services to be performed and standards to be met.

5.16.2 Professional investment managers will be used in the investment of designated funds.

5.16.3 These investment managers will be provided with a copy of this investment policy and the asset allocation table used by the investment committee.

5.16.4 All investment managers retained by the Investment Committee will exercise the due diligence necessary for the Investment Committee to comply with the Prudent Man Rule under such federal and state laws as now apply or may in the future apply, to the investment of any college assets subject to their control.

5.16.5 The Investment Committee requires all investment managers so retained to be registered under the Investment Advisors Act of 1940, and to provide to the Investment Committee, annually, a copy of their Form ADV, as referenced by rule 204-3 of the Act.

5.16.6 The Primary Dealer must also be certified by the State of Utah.

5.16.7 Investment managers will be selected by the Investment Committee following a review of past performance, research facilities, national affiliation, skilled manpower, investment philosophy and a satisfactory presentation of their investment plan to the Investment Committee.

5.16.8 Investment managers must provide evidence that their performance has been calculated in accordance with the Association for Investment Management and Research (AIMR) standards. Investment managers are prohibited from selling securities short, buying securities on margin, borrowing money or pledging assets, or trading uncovered options, commodities or currencies without the advance written approval of the Public Treasurer.

5.16.9 Investment managers are also restricted from investing in private placements and restricted stock unless otherwise permitted in writing by the Public Treasurer.

5.16.10 Investment dealers must have certification in accordance with the State of Utah Money Management Act.

5.17 The investment polices, guidelines and restrictions presented in this policy statement serve as a framework to help the Investment Manager(s) achieve the investment objectives at a level of risk deemed acceptable.

5.17.1 The designated assets invested will be diversified both by asset class and within asset classes.

5.17.2 Within each asset class, securities will be diversified among economic sector, industry, quality, and size.

5.17.3 The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the performance of the total fund. As a result, the risk level associated with the portfolio investment is reduced.

5.17.4 Within the equity and fixed income asset classes, managers with different investment styles will be employed.

5.17.5 Diversification by investment style is also an important step in reducing the risk of the overall investment portfolio.

5.17.6 In all cases, the equity and fixed income/debt security investments will be made within the guidelines of the Utah Money Management Act and Rules of the Money Management Council.

5.17.7 Decisions as to individual security selection, number of industries and holdings, current income levels and turnover are left to broad manager discretion, subject to the standards of fiduciary prudence and the Utah Money Management Act.

5.18 Investment Manager Reporting and Evaluation:

5.18.1 It is expected that professional management responsible for the investment of designated funds shall provide monthly printed reports on the performance of the portfolio, including comparative gross returns for the funds and their respective benchmarks, as well as a complete accounting of all transactions involving the college funds during the month together with a statement of the beginning balance, fees, capital appreciation, income, and ending balance for each account.

5.18.2 Professional investment managers are encouraged to communicate routinely with the Chairman of the Investment Committee, and are required to report twice annually, in person, to the Dixie State College Investment Committee.

5.18.2.1 Additional meetings with the Committee or the Board of Trustees may be requested.

5.18.3 Managers will be evaluated on the basis of performance.

15.19 Restricted Investments:

5.19.1 Occasionally, gifts are offered to the college that carry certain restrictions on the form of investment to which these amounts may be applied.

5.19.2 Restricted Investment funds will be invested according to the donor's requirement only to the extent such requirement is a condition of the gift. These monies will be excluded from the total pool of available funds for the purposes of establishing asset allocation percentages as directed in this policy.

5.19.3 Spending of these funds may also have restrictions that affect reinvestment of a portion of income generated.

5.19.4 As a normal course, donors will be encouraged to entrust endowed gifts to the institution without restriction of the investment of these funds.

15.20 Spending of Invested Assets:

5.20.1 It is recommended that the college spend annually a percent of the invested assets total asset value (growth plus income), as determined by the investment committee and approved by the President, with the understanding that this spending rate, plus inflation, will not exceed total return from investment.

5.20.2 If investments return a rate that exceeds the investment objective, the President may approve spending beyond the determined percent, so long as the spending rate does not exceed the real return from investment.

5.20.3 The President may elect, in any year, to approve the expenditure of all of the spendable return available.

5.20.4 Any amounts not expended shall be reinvested in the funds generating the return or placed in restricted reserve accounts as appropriate.