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-22- Mr. Biggs thought that the establishment of asset guidelines would be useful. Mr. Beck described Fiduciary Trust's fixed income policy as focussing on low risk, high quality intermediate bonds ranging from one to fifteen years in maturity. This approach includes a global aspect to investing since over half of the available market is found outside the United States. Fiduciary Trust presently has about $7 billion in fixed income investments (of which $6 billion is in institutional accounts), representing about half of all assets under their management. Mr. Mott asked whether Fiduciary's fixed income staff would do the investing should the Institution become a "balanced" account, as opposed to present practice whereby fixed income investing is overseen by Mr. Biggs and Mrs. Tatlock. Mrs. Tatlock affirmed that this would be the case. Mr. Biggs added that probably 25% to 35% of the fixed income holdings might be in foreign instruments. Mr. Mott inquired as to why a limit would be placed on foreign holdings, to which Mr. Biggs replied that the Smithsonian was a dollar-based account and too high a level could increase risk. Mr. Forrestal introduced Mr. Worley, Miller, Anderson's fixed income manager. Mr. Worley began by saying that Miller, Anderson has been investing in foreign currency bonds since 1985. About half of all assets under management at Miller, Anderson are in bonds of which about 10% are foreign instruments. He felt that one should not buy foreign securities simply for the sake of diversification, but rather one should invest to the extent that a manager feels that foreign markets in bonds [[underlined]] or [[/underlined]] equities will outperform domestic equities. With respect to domestic fixed income holdings, Miller, Anderson generally holds intermediate range bonds. Mr. Worley classified Miller, Anderson's philosophy as being value managers that utilize market timing for fixed income investing. Given the present outlook on interest rates and inflation, an average maturity should be about five and one-half years. Mr. McHenry called for discussion on the establishment of a fixed income minimum percentage. Mr. Bailey stated that if each of the two managers present were at a level of 25% for fixed income, the total fund percentage would be at 17.5% and if they were at 30%, the total fund would be at 20.8%. Mr. Forrestal explained further his proposal of February 12 distributed to the Committee along with one from Fiduciary Trust. Mrs. Tatlock stated that the Smithsonian presently had a 58% equity component in the Fiduciary portfolio. Her proposed flow of funds would equalize holdings and minimize the transaction costs. There was agreement by the Committee that any established ranges or weighting mechanisms should be the same for both managers. Mr. McHenry called for an overall consensus of the Committee as to the establishment of a total portfolio minimum level for fixed income investments. Mr. Mott commented that he did not feel that the 25% should be an unchangeable rule - the managers must be able to ask the Committee for exceptions if they feel conditions warrant. He also wondered whether a 45% minimum level should be established for equities. Mr. Moriarty had no objection to the fixing of a minimum, but felt strongly against the imposition of a range for any one asset class. Whereupon the Committee agreed to the establishment of a 25% minimum fixed income level and a 45% minimum equities level for the
