THE LYNDE AND HARRY BRADLEY FOUNDATION, INC.

Proforma Cash Flow and Asset Allocation Analysis

Since the 1997 cash needs of the Foundation have a direct effect on the asset allocation and rebalancing decisions for 1997, the two items need to be discussed together.

Page IV-3 includes a proforma Statement of Uses and Sources of Funds for the years ended December 31, 1997 with two possible alternatives (Page IV-2) presented for discussion. Total cash needs for 1997 approximate $44,000,000 of which $28,000,000 is unfunded.

Page IV-4 includes a proforma asset allocation analysis demonstrating the impact of the aforementioned alternatives.

Alternative A represents business as usual with all unfunded cash needs funded from the fixed income portfolio. This alternative would result in the equity portfolio growing to the target allocation of 75%. Some rebalancing of the foreign equity portfolio should be considered.

Alternative B provides that $14,000,000 (50%) of the cash needs are funded from the fixed income portfolio and $14,000,000 (50%) from the equity portfolio. The foreign portfolio would be reduced by $10,000,000 to rebalance to the 18% target allocation and $4,000,000 from the small cap portfolio to reduce the portfolio's volatility and lock-in prior year gains.

We recommend that the Foundation continue funding the current cash needs from the fixed income portfolio and other known sources during the first half of 1997 (Alternative A). This approach would be consistent with the current asset allocation targets outlined on page IV-4. The asset allocation status could again be reviewed at the June 2, 1997 meeting and a decision made regarding the funding of cash needs during the last half of 1997.

The foreign equity portfolio exceeds the target allocation (18.47% versus 18.00%) at January 31, 1997. This amounts to approximately a $2,400,000 excess over target. Given this excess is not material, no change is proposed at this time. This item will be a topic of discussion at the February 24, 1997 meeting.

Pages IV-5 and IV-6 include historical data regarding nominal returns for major asset classes and selected financial markets. Such information may be useful for the discussion regarding the asset allocation targets.

IV-1

FINANCIAL MARKETS BENCHMARK

As Of December 31, 1996

December	Trailing	Year	Trailing	Trailing	Trailing

U.S. Equity Markets	1996	3 Months	To Date	12 Months	3 Years	5 years

Standard & Poor's 500 - Cap. Weighted	-1.96%	8.37%	23.07%	23.07%	19.67%	15.21%

Dow Jones Industrial Average	-0.92	10.30	29.13	29.13	23.23	18.98

NASDAQ Composite	-0.09	5.32	23.17	23.17	19.14	17.98

U.S. Fixed Income Markets

Salomon Brothers Broad Investment

Grade Index	-0.88%	3.02%	3.62%	3.62%	6.07%	7.13%

Lehman Bros. Govt/Corp Index	-1.11	3.06	2.91	2.91	5.79	7.18

Other Markets

MSCI EAFE Index (Gross Dividend)	-1.26%	1.66%	6.35%	6.35%	8.63%	8.48%

MSCI World Index (Gross Dividend)	-1.59	4.69	14.00	14.00	13.45	11.38

MSCI World Ex. U.S. (Gross Dividend)	-1.36	2.07	7.19	7.19	8.85	N/A

IV-6