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Museum of
Northern Arizona
Endowment Investment Policy
PURPOSE
This investment policy is set forth in order to provide a clear
understanding of the investment objectives and all relevant constraints in
management of the Museum of Northern Arizona’s Endowment assets.
1. The scope of this policy includes all
investable Endowment assets of the Museum of Northern Arizona ((hereafter
Museum). Endowment funds should be invested and administered in accordance
with this policy. Except for the investable funds that must be invested in
accordance with contractual or other arrangements or subject to other
restrictions on investment alternatives, all investable funds of the
Museum will be invested based on an asset allocation strategy. The
strategy will be based on a portfolio management approach known as Modern
Portfolio Theory. The theory states that for every level of risk there
exists an optimum and efficient mix of assets. The Museum’s Finance and
Investments Committee (hereafter Committee) will enforce this policy,
acting under the Uniform Prudent Investor Act (UPIA), A.R.S. §§ 14-7601 to
7611 (see attached) and the Revised Uniform Principal and Income Act,
A.R.S. §§14-7401 to 7431.
DEFINITIONS
The following definitions as set forth in the Revised Uniform Principal
and Income Act, A.R.S. §§ 14-7401 to 7431, shall govern and apply to this
Policy:
a. "Accounting period" means a calendar year unless another twelve month
period is selected by a fiduciary and includes a portion of a calendar
year or other twelve month period that begins when an income interest
begins or ends when an income interest ends.
b. "Beneficiary" includes, in the case of a decedent's estate, an heir,
legatee and devisee and, in the case of a trust, an income beneficiary and
a remainder beneficiary.
c. "Fiduciary" means a personal representative or a trustee and includes
an executor, an administrator, a successor personal representative, a
special administrator and a person performing substantially the same
function.
d. "Income" means money or property that a fiduciary receives as current
return from a principal asset and includes a portion of receipts from a
sale, exchange or liquidation of a principal asset, to the extent provided
in sections 14-7410 through 14-7424.
e. "Income beneficiary" means a person to whom net income of a trust is or
may be payable.
f. "Income interest" means the right of an income beneficiary to receive
all or part of net income, whether the terms of the trust require it to be
distributed or authorize it to be distributed in the trustee's discretion.
g. "Mandatory income interest" means the right of an income beneficiary to
receive net income that the terms of the trust require the fiduciary to
distribute.
h. "Net income" means the total receipts allocated to income during an
accounting period minus the disbursements made from income during the
period, plus or minus transfers under this article to or from income
during the period.
i. "Person" means any individual, corporation, business trust, estate,
trust, partnership, limited liability company, association, joint venture,
government, governmental subdivision, agency or instrumentality, public
corporation or other legal or commercial entity.
j. "Principal" means property held in trust for distribution to a
remainder beneficiary when the trust terminates.
h. "Remainder beneficiary" means a person entitled to receive principal
when an income interest ends.
i. "Terms of a trust" means the manifestation of the intent of a settlor
or decedent with respect to the trust expressed in a manner that admits of
its proof in a judicial proceeding, whether by written or spoken words or
by conduct.
j. "Trustee" includes an original, additional or successor trustee,
whether or not appointed or confirmed by a court.
RESPONSIBILITY AND
AUTHORITY
The investment of all Endowment assets of the Museum is to be controlled
and supervised by the Finance and Investment Committee of the Museum’s
Board of Trustees (hereafter Board), who may employ the services of a
qualified investment advisor (Advisor) and a custodian for the Museum’s
Endowment assets. The Committee’s actions are to be reported to the Board.
The Committee will regularly review the performance and fee schedule of
all advisors and custodians and report them to the Board. The Committee
will oversee the allocation, portfolio development and performance of the
total investment portfolio and will have the authority to change the
portfolio allocation, advisors and investment managers as they deem
suitable. The Committee shall act within the guidelines of the UPIA. The
Committee is under a duty to the beneficiaries to invest and manage the
funds of the trust as a prudent investor would, in light of the purposes,
terms, distribution requirements, and other circumstances of the
Endowment. The following standards should be followed:
a) Exercise of reasonable care, skill,
and caution is to be applied to investments not in isolation but in the
context of the Endowment portfolio and as a part of an overall investment
strategy, which should incorporate risk and return objectives reasonably
suitable to the Endowment.
b) In making and implementing investment decisions, the Committee has a
duty to diversify the investments of the trust unless, under the
circumstances, it is prudent not to do so.
c) In addition, the trustee must:
1) conform to fundamental fiduciary duties of loyalty and impartiality
2) act with prudence in deciding whether and how to delegate authority and
in the selection and supervision of agents; and
3) incur only costs that are reasonable in amount and appropriate to the
investment responsibilities of the advisor
At least annually the Committee, with the
assistance of independent consultants/advisors approved by the Committee,
if necessary, will implement an asset allocation strategy suitable for the
Endowment and report these to the Board.
The advisor shall construct a benchmark
allocation deemed suitable for the mix of assets in the Endowment’s
portfolio. The advisor should also provide quarterly performance monitors
for the Endowment funds as well as an annual composite benchmark of
indices closely resembling the Endowment blend of assets. This shall serve
as a measure to analyze performance of the overall portfolio as well as
individual portfolio managers.
The Committee may update and revise this
policy as needed.
SPENDING POLICY
In determining each year’s level of distribution to support the Museum’s
programs, Endowment assets will be governed by a spending policy that
seeks to distribute up to five percent (5%) of the market value of the
investment portfolio, calculated on a three year average. To protect the
intrinsic value of the Endowment assets against the expected impact of
inflation, the Committee shall set a payout rate for the Endowment assets’
earnings and income that provides a prudent rate of real growth of
Endowment funds while also providing a relatively constant funding stream.
The main objective is to maintain or grow the real (inflation-adjusted)
value of the Endowment assets after accounting for the overall spending.
To achieve it, the long-term return of the Endowment assets should meet or
exceed the spending rate (5%) plus inflation as measured by an appropriate
benchmark, such as the Consumer Price Index.
Earnings and income in excess of the
payout rate shall be reinvested. If the payout rate exceeds the endowment
yield, then previously reinvested income and accumulated realized gains
shall be transferred to current funds to ensure the payout rate. In
addition, the Committee is authorized to pay reasonable fees and expenses
of the Endowment assets. Expenses can only be paid from the Endowment
assets’ income.
INVESTMENT OBJECTIVES
This policy provides that investable funds be invested in an efficient
manner that produces the optimum return to the Museum, such that the
Museum receives the highest return commensurate with an agreed upon level
of risk. The risk/return parameters for the portfolio are determined and
administered by the Committee. The emphasis is on long-term total rate of
return, and the Museum’s strategy de-emphasizes a trading or market timing
strategy. Capital preservation and modest growth are the main objectives
of the Endowment. A reasonable rate of return complying with a moderate
amount of risk is the overall objective.
CONSTRAINTS
The asset allocation strategy will consider, among other things, the
liquidity, interest rate sensitivity, debt service, and capital
requirements of the Museum. The policy specifically prohibits any
borrowing of the funds for the purpose of leveraging the portfolio by
investing those funds and engaging in any investment activity that would
be considered speculative according to the principles of the UPIA. The
Committee shall invest the Endowment funds in any kind of property or type
of investment consistent with the standards of the UPIA. The Committee may
select professional managers or use pooled funds for implementing the
asset allocation at their discretion.
The Committee will compare (time and
dollar weighted) investment results on a total return basis, to the
following recognized indices:
• 90 Day Treasury Bills
• Lehman Brothers Government/Corporate Bond Index
• Standard and Poor’s 500 Index
• MSC EAFE International Equity Index
• Russell Indices
The Committee or designee will report at
least quarterly to the Board on the composition of the Endowment
investment portfolio, commensurate rates of return for each of the
portfolio managers and the underlying benchmarks. A composite index will
be used as a benchmark for performance in comparing returns for all
segregated accounts.
ASSET ALLOCATION
GUIDELINES
The designated and general Endowment funds of the Museum should be
invested in accordance with the purpose and future needs of the Endowment.
General investment objectives have been set. The Committee shall work with
the investment advisor or independently to establish an allocation that
coincides with the long-term goals of the Endowment. That allocation
should be reviewed at least annually for re-balancing and review. The
allocation must be deemed efficient and relevant to the Committee’s
tolerance for risk.
In cases where we are not within the
allocation guidelines, up to one year may be taken to meet these
guidelines.
A.R.S. §§ 14-7601 to
7611
1 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7601 (2004)
§ 14-7601. Prudent investor rule
A. Except as provided in subsection B, a
trustee who invests and manages trust assets owes a duty to the
beneficiaries of the trust to comply with the prudent investor rule
requirements of this article.
B. The prudent investor rule is a default rule, and may be expanded,
restricted, eliminated or otherwise altered by the provisions of a trust.
C. A trustee is not liable to a beneficiary to the extent that the trustee
acted in reasonable reliance on the provisions of the trust.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
2 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7602 (2004)
§ 14-7602. Standard of care; portfolio
strategy; risk and return objectives
A. A trustee shall invest and manage
trust assets as a prudent investor would, by considering the purposes,
terms, distribution requirements and other circumstances of the trust. In
satisfying this standard the trustee shall exercise reasonable care, skill
and caution.
B. A trustee's investment and management decisions respecting individual
assets shall not be evaluated in isolation but in the context of the trust
portfolio as a whole and as a part of an overall investment strategy
having risk and return objectives reasonably suited to the trust.
C. Among circumstances that a trustee shall consider in investing and
managing trust assets are any of the following that are relevant to the
trust or its beneficiaries:
1. General economic conditions.
2. The possible effect of inflation or deflation.
3. The expected tax consequences of investment decisions or strategies.
4. The role that each investment or course of action plays within the
overall trust portfolio, which may include financial assets, interests in
closely held enterprises, tangible and intangible personal property and
real property.
5. The expected total return from income and the appreciation of capital.
6. Other resources of the beneficiaries.
7. Needs for liquidity, regularity of income and preservation or
appreciation of capital.
8. An asset's special relationship or special value, if any, to the
purposes of the trust or to one or more of the beneficiaries.
D. A trustee shall make a reasonable effort to verify facts relevant to
the investment and management of trust assets.
E. A trustee may invest in any kind of property or type of investment
consistent with the standards of this article.
F. A trustee who has special skills or expertise, or who is named trustee
in reliance on the trustee's representation that the trustee has special
skills or expertise, has a duty to use those special skills or expertise.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
3 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7603 (2004)
§ 14-7603. Diversification
A trustee shall diversify the investments
of the trust unless the trustee reasonably determines that, because of
special circumstances, the purposes of the trust are better served without
diversifying.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
4 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7604 (2004)
§ 14-7604. Duties at inception of
trusteeship
Within a reasonable time after accepting
a trusteeship or receiving trust assets, a trustee shall review the trust
assets and make and implement decisions concerning the retention and
disposition of assets, in order to bring the trust portfolio into
compliance with the purposes, terms, distribution requirements and other
circumstances of the trust and with the requirements of this article.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
5 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7605 (2004)
§ 14-7605. Loyalty
A trustee shall invest and manage the
trust assets solely in the interest of the beneficiaries.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
6 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7606 (2004)
§ 14-7606. Impartiality
If a trust has two or more beneficiaries,
the trustee shall act impartially in investing and managing the trust
assets, taking into account any differing interests of the beneficiaries.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
7 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7607 (2004)
§ 14-7607. Investment costs
In investing and managing trust assets, a
trustee shall only incur costs that are appropriate and reasonable in
relation to the assets, the purposes of the trust and the skills of the
trustee.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
8 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7608 (2004)
§ 14-7608. Reviewing compliance
Compliance with this article is
determined in light of the facts and circumstances existing at the time of
a trustee's decision or action and not by hindsight.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
9 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7609 (2004)
§ 14-7609. Delegation of investment and
management functions
A. A trustee may delegate investment and
management functions that a prudent trustee of comparable skills could
properly delegate under the circumstances. The trustee shall exercise
reasonable care, skill and caution in:
1. Selecting an agent.
2. Establishing the scope and terms of the delegation, consistent with the
purposes and terms of the trust.
3. Periodically reviewing the agent's actions in order to monitor the
agent's performance and compliance with the terms of the delegation.
B. In performing a delegated function, an agent owes a duty to the trust
to exercise reasonable care to comply with the terms of the delegation.
C. A trustee who complies with the requirements of subsection A is not
liable to the beneficiaries or to the trust for the decisions or actions
of the agent to whom the function was delegated.
D. By accepting the delegation of a trust function from the trustee of a
trust that is subject to the laws of this state, an agent submits to the
jurisdiction of the courts of this state.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
10 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7610 (2004)
§ 14-7610. Prudent investor rule;
language to invoke standard
The following terms or comparable
language in the provisions of a trust, unless otherwise limited or
modified, authorizes any investment or strategy permitted under this
article:
1. Investments permissible by law for investment of trust funds.
2. Legal investments.
3. Authorized investments.
4. Using the judgment and care under the circumstances then prevailing
that persons of prudence, discretion and intelligence exercise in the
management of their own affairs, not in regard to speculation but in
regard to the permanent disposition of their funds, considering the
probable income as well as the probable safety of their capital.
5. Prudent man rule.
6. Prudent trustee rule.
7. Prudent person rule.
8. Prudent investor rule.
HISTORY: Last year in which legislation
affected this section: 1996
NOTES:
PUBLISHER'S NOTE
Repeal of this section by Laws 2003, Ch. 212, § 12 is nullified by Laws
2004, Ch. 148, § 1.
11 of 11 DOCUMENTS
ARIZONA REVISED STATUTES
Copyright © 2004 by Matthew Bender & Company, Inc.
a member of the LexisNexis Group.
All rights reserved.
*THIS DOCUMENT IS CURRENT THROUGH 3RD
SPECIAL SESSION OF THE 46TH LEGISLATURE*
* ANNOTATIONS CURRENT THROUGH NOVEMBER 4, 2004 *
TITLE 14. TRUSTS, ESTATES AND PROTECTIVE
PROCEEDINGS
CHAPTER 7. TRUST ADMINISTRATION
ARTICLE 6. REVISED ARIZONA PRUDENT INVESTOR ACT
GO TO CODE ARCHIVE DIRECTORY FOR THIS
JURISDICTION
A.R.S. § 14-7611 (2004) |
