Fixed Income Portfolio

The Foundation has a 14.5% allocated to the fixed income asset class target allocation plus certain fixed income strategies in the alternative investment portfolio. The overall investment strategy is to achieve a diversified sector allocation that ranges from the fundamental inflation adjusted securities to the higher risk distressed debt. Certain of the sector allocations include higher risk securities, but the overall diversification provides the potential for higher risk adjusted returns.

Exhibit A includes an analysis of the December 31, 2002 fixed income portfolio comparing the actual portfolio to a proforma target allocation. No changes are recommended in the 14.5% fixed income allocation of the total portfolio and the allocations to the fixed income sector allocations: Bond portfolio (8.5%), REITs (4.0%) and High Yield (2.0%). The following changes are recommended within the fixed income sector allocations:

Bond Portfolio

1.	Allocate ¼ each to Treasury Inflation Protected Securities (TIPS) and the active bond manager and 50% to index funds.

(The changes result in a slight increase in the allocation to the TIPS fund. TIPS provide a relatively conservative base level diversification strategy. This recommendation is consistent with the Stratford Advisory recommendation but at a lower allocation level at least in the near term. The Finance Committee already approved a $10,000,000 investment and the recommendation would increase it to approximately $10,246,000 level based on the 12/31/02 portfolio amount. The increase should be implemented at $1,000,000 per month until the target allocation is achieved.

We agree with Stratford that bond index funds provide broad exposure to the bond market at very low fees. We recommend the bond portfolio include a 50% allocation to bond index funds. This would increase the allocation to bond index funds to $20,505,000 based on the 12/31/02 portfolio amount or $6,535,000 more than the current allocation. The rebalancing should be implemented over a 6 month period and coordinated with the spending needs of the Foundation.)

2.	Retain the two existing bond index funds but allocate 50% to each of the funds.

(The two bond index funds provide broad bond sector diversification that patterns the Lehman Aggregate Bond Index at a very low cost (8-10 bps). Monitoring two index funds is not an administrative issue and there is no appreciable fee reduction with one fund versus two funds. Vanguard employs an "enhanced" index approach that includes a 15% discretionary allocation, which over the long term has provided 10 basis points of additional return. Vanguard's discretionary overweighting in investment grade corporate securities and underweighting in U.S. Treasuries complements the TIPS and basic index bond fund diversification strategy. Both funds are very liquid, which facilitates funding of required expenditures when needed.)

3.	Evaluate the merits of a core plus manager as recommended by Stratford.

(Baird Advisors has a basic duration neutral strategy. In 2002 their performance was 224 basis points below their target benchmark before fees. As of December 31, 2002 they have a net unfavorable performance deviation of ($764,325). We suggest an evaluation and search be completed for a core plus manager to possibly replace Baird Advisors.)

High Yield Bonds

Retain 2% allocation and allocate 50% to each of the two existing high yield funds.

(We recommend continuation of the 2% high yield bond allocation with 50% allocated to each of the high yield managers. The 50% allocation provides diversification that targets credit quality of the upper range B's (BB) and mid-range (B) of non-investment grade bonds.

A dedicated high yield mandate provides more consistent exposure to the asset class than opportunistically investing in high yield through a core plus allocation. The dedicated high yield portfolio is also typically more diversified than a core plus high yield component. For example, the Hartford High Yield portfolio has more than 100 securities while a typical core plus high yield component would have far fewer. A dedicated high yield portfolio also permits retaining investment manager expertise that specializes in high yield bonds.

The high yield bond sector has struggled in recent years. Hartford Asset Management (Hartford) does not expect a great deal of price appreciation in the fixed income sectors that typically comprise the largest segment of a core bond mandate. However, they believe high yield corporate bonds offer an excellent possibility of price appreciation. This view was rewarded in the fourth quarter of 2002 with Hartford achieving a high yield bond return of +7.66% versus +1.57% for the Lehman Aggregate Index.

The Foundation has experienced some "lean years" for the high yield bond portfolio and, at least in the near term, this does not appear to be an appropriate time to exit the strategy. The upside potential outweighs the downside.)

The diversification benefit, specialized manager expertise and potential for higher returns are some of the factors to support retaining the 2% dedicated high yield allocation.

Formal Investment Policy

We agree with Stratford that preparation of a formal investment policy is beneficial. The formal policy will not result in any significant change in the investment approach but it will consolidate in one document the investment strategy, approach and procedures employed by the Foundation. It should better clarify the role, responsibilities and accountability of the various parties (Board, Finance Committee, Finance Staff), responsible for the Foundation's investment program. In fact, since October 2002 the Finance Staff has obtained sample investment policies and has already prepared a preliminary draft investment policy. A final draft will be prepared for review and approval at the June 2, 2003 Finance Committee meeting.

Foreign Equity Portfolio

The Foundation has a 20% target allocation to foreign equities. At December 31, 2002 the actual allocation was 19.81%. While the benefit of non-correlation with the U.S. domestic market has subsided in recent years, the fundamental benefit of maintaining exposure to over 50% of the world's equity market capitalization and the relatively attractive valuations of foreign stocks continue to support the 20% foreign equity allocation.

A summary of the Foundation's foreign stock equity allocation is presented in Exhibit B.

At December 31, 2002 Acacia represents 20.22% of the foreign equity portfolio. This is unusually high and is due in part to the positive performance of the foreign stock of the Acacia portfolio in 2002. The investments were opportunistic and included both developed and emerging market countries. Minimal restrictions have been placed on Acacia as to investments in foreign stocks. This flexibility requires timely monitoring to insure that the interface of the Acacia portfolio is consistent with the overall asset allocation strategy of the total portfolio. Thus far the Foundation's overall asset allocation has not been adversely affected by Acacia but it does require a flexible investment manager structure to permit rebalancing when there are significant asset allocation changes within the Acacia portfolio.

Recommendations as to the foreign equity portfolio are as follows:

1.	Retain 20% of the total portfolio allocation to foreign equities and within the foreign equity portfolio allocate as follows (see Exhibit B):

Large cap	66.0%

All cap - Acacia	12.0%

Small cap	14.0%

Emerging markets	8.0%

100.0%

2.	We anticipate a reduction in the foreign allocation for the Acacia portfolio. Accordingly, a 12% all cap foreign stock allocation is recommended for Acacia. Given the opportunistic strategy of Acacia, it is recommended that there be no specific allocations within the Acacia portfolio as to emerging markets and small and large cap stocks.

3.	We agree in principle with the Stratford recommendation to increase the small cap foreign and emerging market allocations. Because of the all cap allocation for Acacia and the small cap exposure in the other large cap portfolios, we recommend a 14% versus 20% specific allocation for small cap and an 8% versus 10% specific allocation for emerging markets.

4.	We recommend retaining Alliance Bernstein as a foreign large cap value manager. The balance in the Alliance Bernstein portfolio at December 31, 2002 is relatively small because they were in the process of being terminated. However, in 2002 they had a negative return of -7.46% compared to their target benchmark of -21.65% and -15.31% for the foreign component of the Capital Guardian portfolio. Also, recent discussions with Alliance Bernstein personnel suggest they have improved their investment team and strategy. Alliance Bernstein provides a large cap value style diversification component which complements the overall asset allocation of the foreign equity portfolio. While the current balance in this portfolio is relatively small, the Alliance Bernstein portfolio would be the recipient of additional funds from the rebalancing actions associated with the expected reduction in the Acacia foreign equity allocation.

5.	At December 31, 2002 the Nicholas Applegate foreign small cap portfolio has a net unfavorable performance deviation of ($342,184). Because of the many changes that have occurred within the organization of Nicholas Applegate as noted by Stratford, combined with the unfavorable performance deviation, an immediate evaluation needs to be completed to either retain or terminate the Nicholas Applegate foreign small cap growth portfolio.

6.	The specific target rebalancing amounts based on the aforementioned recommendations are included in Exhibit B. The timing of the rebalancing is predicated to some extent on the changes in the Acacia portfolio and the decision regarding the future of Nicholas Applegate. As these issues become clearer, rebalancing actions should be implemented in 2003 over a 6 to 12 month period.

Total Equity Portfolio

Recommendations as to the total equity portfolio are as follows:

We agree with Stratford that Capital Guardian and Acacia are dominant equity managers and recommend that their portfolios be limited to no more than 20% of the total portfolio and 27% of the equity portfolio. At December 31, 2002 Capital Guardian and Acacia manage 22.4% and 20.2%, respectively, of the total portfolio.

Domestic Equity Portfolio

The Foundation's domestic portfolio is well diversified as to size and style. Three equity managers represent approximately 65% of the domestic equity portfolio. All three managers have positive alphas and a net favorable performance deviation totaling approximately $95,542,000 at December 31, 2002. Exhibit C includes a summary of the domestic equity portfolio at December 31, 2002.

Recommendations for the domestic portfolio are as follows:

1.	We agree with Stratford to an increase in the S&P 500 Index fund, but in the near term to 10% of the total portfolio. Future increases could be considered as the composition and performance of the managers change.

2.	We continue to believe small cap domestic stocks have the potential to provide greater long term returns compared to large cap domestic stocks. However, we recommend the specific small cap domestic allocation be reduced to 18% from 20% because of the "size drift" of the large cap portfolios to include a component of small cap stocks.

3.	We do not believe four to five active small cap managers are excessive. Small cap managers have broad and diverse strategies as to sector, company and valuations. The number of small cap managers was increased due in part to gain exposure in the micro-cap domestic sector. This strategy proved beneficial with both Babson and Nicholas Applegate achieving positive alphas and favorable performance deviation.

Wasatch and Veredus were hired in March 2002 to replace the TCW Small Cap growth portfolio. Neither manager has met our expectations. Of the two, Wasatch is winning the "horserace" and has demonstrated a more consistent investment strategy. Veredus has turned out to be a mistake and should be considered for termination.

4.	We are reluctant to terminate the TCW Large Cap Value and TCW Mid Cap Value portfolios. They both have positive alphas and positive performance deviations and add style balance to the domestic portfolio. We suggest both portfolios be monitored closely in 2003. If their performance adds demonstrated value, their allocations should be increased; if performance lags, we then suggest possible termination.

Spending Policy

We agree that the spending policy needs further discussion by the Board and Management. The negative returns for the last three years have created significant challenges to balance the many program needs with the declining portfolio.

Enclosed as Exhibit D is an analysis that compares the actual grant award budget for a ten year period to a grant award budget based on a prior 12 quarter average of the cash/investment balance. For the ten year period, the total actual grant award amount is only $7.5M greater than a 5.5% grant award budget based on the 12 quarter average methodology. In other words, one could conclude that the Foundation did appropriately adjust the annual grant award budget to current market conditions and the changes in the annual portfolio balance. On the other hand one could argue that the 12 quarter average methodology provides a comparable total amount of grant awards with a more level annual grant award budget that minimizes annual budget fluctuations due to erratic investment performance in a particular year. We do not suggest any changes for the 2003 budget year, but the matter deserves serious consideration for future budgets. Changes to a 12 quarter average methodology should be implemented over approximately a three year period with consideration given to changing market conditions.