THE LYNDE AND HARRY BRADLEY FOUNDATION, INC.

Proforma Cash Flow and Asset Allocation Analysis

Since the 1998 cash needs of the Foundation have a direct effect on the asset allocation and rebalancing decisions for 1998, the two items need to be discussed together.

Page III-2 includes a proforma Statement of Uses and Sources of Funds for the year ended December 31, 1998. Total cash needs for 1998 approximate $58,080,000. In prior years a substantial portion of the cash needs were withdrawn from the fixed income portfolio as the Foundation was growing the equity portfolio to achieve the 75% target allocation. Now that the target equity allocation has been achieved, approximately $44,500,000 of the total 1998 estimated cash needs will be funded from the equity portfolio.

Page III-3 includes a proforma asset allocation analysis demonstrating the impact of funding the cash needs based on the assumptions in the aforementioned proforma Statement of Uses and Sources of Funds. Using the equity portfolio for funding cash needs presents a new set of challenges necessary to maintain the asset allocation targets as well as minimizing the impact on the investment managers' investment strategy due to the need for periodic withdrawals of equity funds.

The planed approach for the funding and rebalancing strategy will be based on the Equity Portfolio Rebalancing Guidelines approved by the Investment Committee on November 17, 1997. A summary of those guidelines is included on page III-4.

No changes are recommended in the target asset allocation percentages at this time.

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