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[[underlined]] Asset Allocation [[/underlined]]

The Committee reviewed the memorandum prepared by Cambridge Associates and distributed in advance of the meeting. Mr. Mott concurred with Cambridge Associates that a higher concentration of bond holdings would provide a better hedge against inflation. The present ratio of bond holdings, less than 10%, is all with Fiduciary. Mr. Lewis reiterated that most college and university portfolios hold 25%-30% in bonds, on the average. Mr. Salomon suggested that cash holdings might yield as good returns as bonds in the current environment. Concerns were expressed over the potential impact of inflation, disinflation, farm prices, interest rates, budget deficits and potential bond volatilities. The Secretary pointed out that Smithsonian income requirements are significantly different from most universities in that the Institution's endowment income is a relatively small percentage of the total operating budget.

The Committee discussed at length whether the selection of either a bond manager or a balanced manager would be preferable to instructing the existing managers to maintain a fixed percentage in bonds. The consensus seemed to be that it would be preferable to maintain the longstanding "hands-off" approach to asset allocation.

[[underlined]] Manager Performance [[/underlined]]

The Committee expressed general satisfaction with the overall performance of the three principal managers. Concerns were expressed over Torray-Clark's concentration on energy-related issues as well as Fiduciary's performance which has been lagging the market. (Subsequent to the meeting, Messrs. Mott, Moriarty and Salomon arranged a luncheon to discuss asset allocation and performance with Jeremy Biggs and Anne Tatlock of Fiduciary.] The Nova Fund was noted for having kept up with the indices, in a market not favorable to technology issues.

[[underlined]] Next Steps [[/underlined]]

The Committee indicated an interest in exploring the possibility of selecting an additional investment manager at the Committee's spring meeting. The selection of an additional balanced manager might serve the Institution's desire to be more diversified and lead to an increase in the portfolio's bond holdings. Staff, with such outside assistance as may be necessary, will draw up a list of firms for the Committee, focusing on those firms with either a balanced approach or a bond orientation.

Mr. Humelsine thanked the members of the Committee and Mr. Lewis for their attendance and active participation, whereupon the meeting was adjourned at 3:45 p.m.