SMALL CAP MANAGER REVIEW AND PROPOSED CHANGES

The Investment Committee at the June 2, 1997 meeting directed that a review be completed to evaluate the performance of the Foundation's small cap managers and the need for changes, if any. The following factors were considered in evaluating the changes, if any, for the Foundation's small cap manager team:

1.	Asset Allocation

2.	Performance

3.	Investment Style

4.	Costs

Asset Allocation

The small cap portfolio at July 31, 1997 is summarized below:

($000 Omitted)

U.S.	Foreign

Manager	Domestic	Equities	Other	Total

TCW-Small Cap	$57,860	1,957	207	60,024

Founders Asset

Management	25,919	243	4,729	30,891

Acacia Institu -

tional Partners

($50% classified

as small cap)	25,443	2,827	0	28,270

$109,222	$5,027	$4,936	$119,185

% of Total

Portfolio	18.78%	0.86%	0.84%	20.48%

Target

Allocation	18.0%

Performance

Presented below is a performance summary of the small cap managers compared to various indices:

Year	Trailing	Trailing

July	June	Trailing	To	12	3

1997	1997	3 Months	Date	Months	Years

TCW Small Cap	5.98	5.28	26.81	1.61	-5.25	31.71

Founders Asset

Management	8.59	4.38	15.76	-0.16	5.28	26.55

NASDAQ Composite	10.52	3.01	18.13	11.87	22.10	27.53

Russell 2000	4.65	4.29	16.21	10.20	16.33	20.05

The net performance deviation for the small cap managers is as follows:

Cumulative Since

Inception To 7/31/97

YTD 7/31/97	Favorable (Unfavorable)

TCW Small Cap	($6,780,400)	$1,835,098

Founders Asset Management	($3,786,000)	($2,624,743)

Acacia Institutional

Partners (50% assigned

to small cap)	$847,559	$1,077,799

The performances of both TCW Small Cap and Founders have been less than acceptable during the past year. For the trailing three year period, TCW Small Cap has exceeded the target NASDAQ composite index. They both have exceeded the Russell 2000 index. In addition, both managers had relatively strong performances in June and July 1997. However, Founders has a cumulative unfavorable net performance deviation of ($2,624,743).

Investment Style

The Foundation's current small cap portfolio clearly has a significant bias to growth style investing. In prior years this created above average returns. In the past year the Foundation's small cap managers have incurred subpar performances. Growth style managers in general have had a difficult year as evidenced by the following results of the Russell 2000 index for the trailing 12 months June:

Russell 2000 Value	14.81%

Russell 2000 Growth	5.23%

The debate between growth and value style investment can be confusing depending on the statistics and periods of time used in presenting the debate. However, there is substantial merit in creating a portfolio that is more style neutral as suggested by Wilshire Associates in their Asset Allocation Study.

Investment performance statistics do support the fact that value style investing provide returns that are equal to or exceed the growth style. Exhibits A and B include various statistics comparing growth and value style investing. As indicated on Exhibit A (page 5) the trailing 5 year performance for the Russell 2000 Value index was 20.17 compared to 15.13 for the Russell 2000 Growth index. Exhibit B (page 6) provides more dramatic comparisons for the 20 years through December 1976.

Costs

Changing managers can be costly because of transactions costs, excise taxes on realized gains and impairment of investment performance during the transition period. Wholesale manager changes should be avoided where possible.

Recommendations

Based on the aforementioned factors, the following recommendations are proposed:

1.	The principal recommendation for the small cap portfolio is reallocation of $50 million from a growth style to a value style to create a more style neutral small cap portfolio and better position the portfolio to achieve performance results from the diverse growth and value investment cycles. The $50 million reallocation would result in a 58%/42% split between growth and style, respectively.

2.	Given the 3 year performance record of TCW Small Cap, the cumulative favorable net performance deviation, and the aforementioned cost considerations, complete termination of TCW Small Cap does not appear appropriate at this time. It is recommended that the portfolio be reduced by $19 million and reallocated to a new small/mid-cap investment manager.

3.	Terminate Founders Asset Management and reallocate portfolio to a new small/mid-cap manager. Their performance has not met expectations and the organization may undergo changes from a possible merger or sale in the near future.

4.	Employ the following two value managers and allocate $25,000,000 to each of these managers:

Firm	Style	Amount

Rosenberg Institutional	Small Cap Value	$25,000,000

Equity Management

Moody, Aldrich & Sullivan	Mid Cap Value	$25,000,000

$50,000,000

Both of these managers have experienced personnel, excellent track records, reputable client references and understand value style investing. Their investment approach is different in that Rosenberg utilizes a disciplined quantitative approach with a higher number of stock holdings, where Moody, Aldrich & Sullivan utilize a bottom up fundamental stock selection approach with more concentrated stock holdings.

A summary of the investment search process is outlined in Tab IV.

The proposed reallocations are presented in the table below:	($000 omitted)

Present Allocation	Proforma Proposed

7/31/97	Reallo-	Allocation 7/31/97

Growth	Value	Total	cation	Growth	Value	Total

TCW Small Cap	$60,024	--	60,024	-19,109	40,915	--	40,915

Founders Asset

Management	30,891	--	30,891	-30,891	--	--	--

Acacia Institutional

Partners	28,270	--	28,270	28,270	--	28,270

Small Cap Value

Manager	+25,000	--	25,000	25,000

Mid-Cap Value

Manager	+25,000	--	25,000	25,000

$119,185	--	119,185	69,185	50,000	119,185

Percent	100%	0%	100%	58%	42%	100%

STADIUM DISTRICT FINANCING COMMITMENT UPDATE

Background

The Foundation has committed a $20,000,000 charitable investment to the Southeast Wisconsin Professional Baseball Park District for the development and construction of a new stadium complex in Milwaukee. The charitable investment will be in the form of a refundable grant (loan) at a below market interest rate with flexible repayment terms.

The refundable grant agreement and related documents have been finalized and signed. The protracted negotiations resulted in reasonable risk sharing provisions among the City, Businesses and Foundations. However, the Foundations clearly provided the most liberal terms especially as related to the interest rate and repayment terms.

The current schedule, although tentative, requires the $20,000,000 to be disbursed beginning July 1, 1998. The total amount would be disbursed over approximately three months.

The total cost of the new stadium will clearly exceed the $250 million original cost estimate. Revised estimates range from $300 million to $350 million. The Stadium District is planning to utilize Certificates of Participation (COP's) to absorb a portion of the cost above $250 million. COP's are a form of leasing and will be utilized for leasing of the roof mechanism, escalators and other equipment. Exhibit A includes a recent newspaper article regarding the stadium cost, use of COP's and continuing controversies concerning the stadium project.

Question

Most likely the funding of the $20,000,000 commitment would require sale of a portion of the equity portfolio. Given the relatively high price level existing in the current stock market and the equity portfolio exceeding the target allocation at July 31, 1997, should the Foundation reduce the equity portfolio by $20,000,000 now and invest the proceeds in low risk, low volatile short term investments? It should be noted that the Investment Committee rejected this idea at the November 25, 1996 meeting.

Discussion

The Foundation's investment performance returns over the past five and one-half years are as follows:

Fixed

Year	Equity	Income

1997 YTD	22.33%	5.12%

1996	19.45%	6.30%

1995	26.80%	16.24%

1994	(0.89)%	(1.82)%

1993	12.60%	9.88%

1992	7.61%	5.96%

Average Return	14.65%	6.94%

(assumes 1997 as

full year)

A review of the investment returns of a $20,000,000 investment based on various alternatives are as follows:

$20,000,000 over 1 year

Balance After

12 Months	Increase

Six year average equity

return	$22,930,000	$2,930,000

Six year average fixed

income return	$21,388,000	$1,388,000

Five year average Portico short

term portfolio (5.73%)	$21,146,000	$1,146,000

Current 1 year U.S. Treasury

note (5.70%)	$21,140,000	$1,140,000

One Year U.S. Treasury bill

(5.50%)	$21,100,000	$1,100,000

If the six year average equity return is achieved over the next year, the investment return on $20,000,000 would be approximately $1,790,000 higher than the return on a one year U.S. Treasury note. In other words, the $1,790,000 would be the insurance cost to remove the volatility and risk to achieve a guaranteed investment return of $1,140,000.

"Pros" and "Cons"

"Pros" and "Cons" regarding the funding of the $20,000,000 charitable investment commitment through a current reduction of the equity portfolio and the investment in short term U.S. Treasury notes or bills is presented below.

Cons:

1.	The Foundation's investment strategy normally does not support the use of market timing.

2.	The Foundation's fixed income portfolio could provide for at least a portion of the $20 million commitment when needed.

Pros:

1.	The stock market is at historically high levels resulting from the largest bull market in history. Achieving even the historical equity performance returns is doubtful, especially in a one year time period.

2.	Opinions regarding further gains in the stock market, especially in the short term, are widely diverse.

3.	The Foundation's equity portfolio has a relatively high beta at 1.47 and a P/E ratio of 33.55. The investment manager beta's range from 1.00 to 1.55 and the P/E ratio's range from 17.95 to 52.12.

4.	The $20,000,000 reduction represents approximately 4.49% of the equity portfolio and 3.43% of the total portfolio. Accordingly, the proposed equity reduction is not a major asset allocation change but recognizes the need to provide funding for an unusual short term financial commitment. In addition, the reduction would rebalance the equity portfolio to an amount below the target allocation. Proforma asset allocation amounts reflecting the $20,000,000 equity reduction as of 7/31/97 are summarized below:

Actual 7/31/97	Proforma 7/31/97

($000's omitted)

Amount	%	Amount	%

Equities	$444,897	76.5%	$424,897	73.1%
Fixed	109,727	18.9	129,727	22.3

Alternative

Investments	20,959	3.6	20,959	3.6

Other	5,985	1.0	5,985	1.0

$581,568	100.0%	$581,568	100.0%

Recommendation

The Foundation has generally not attempted any form of market timing, however, the $20,000,000 commitment is relatively short term and there is a possible need to rebalance the equity portfolio now or in the near future. The matter is brought to the Investment Committee for further discussion and counsel.

If the Investment Committee approves funding of the commitment, a suggested equity reduction is presented below:

Amount	Reason

Fayez Sarofin	$10,000,000	Lock in recent gains!
Future increase in large cap stocks in the short term is uncertain.

Capital Guardian	7,000,000	Foreign stocks at 7/31/97

Global	represent 21.36% of the portfolio versus a target

Sanford Bernstein	3,000,000	allocation of 20%.

$10,000,000	Reduction would reduce allocation to more comparable actual/target relationship of other

stock classes.

$20,000,000

Exhibit A

U.S. Equity Markets

Performance Summary

Russell 2000 Index

As of June 30, 1997

Russell	Russell	Russell

2000	2000	2000

Composite	Value	Growth

June 1997	4.29	5.06	3.39

Trailing 3 Months	16.21	16.09	17.55

Year to Date	10.20	14.81	5.23

Trailing 12 Months	16.33	28.24	4.60

Trailing 3 Years	20.05	21.20	18.52

Trailing 5 Years	17.87	20.17	15.13

Source: Wilshire Report