THE NORTHWEST FOUNDATION ENDOWMENT

INVESTMENT POLICY

October 11, 2012

I. STATEMENT OF PURPOSE

The purpose of this Investment Policy is to serve as a flexible framework within which the Northwest Foundation Inc. (the “Foundation”) Board of Directors (the “Board”) oversees the management of the Foundation endowment (the “Endowment”). While it should be interpreted in the context of applicable laws and regulations, as well as the Foundation’s Bylaws, it is not intended to establish by its own force any legally binding obligations.

II. AUTHORITY

The Endowment. The Endowment is a collection of assets which serves as a source of funds primarily for student scholarships. The Endowment has disciplined investment objectives and consistent management strategies that are intended to raise the corpus over time at a rate equal to or greater than the rate of inflation.

The Board. The Board establishes guidelines for the Endowment and designates a subset of the Board membership as the Finance Committee to assist it and its Executive Committee,as described below, in the implementation of this Investment Policy.

The Board oversees the investment practices of the Endowment, managed within the total assets of the Foundation. It monitors adherence to the Endowment investment philosophy, objectives and guidelines and makes appropriate changes.

The Board mayretain, and terminate at any time for any reason, the services of professional experts in various fields to assist in its oversight of the investment practices of the Endowment. These include:

•Investment Management Consultant. The “Investment Management Consultant"will provide recommendations to the Board in establishing investment philosophy, objectives, and guidelines; establishing efficient asset mixes; researching and recommending investment managers; reviewing such managers over time; measuring and evaluating investment performance; and performing other appropriate tasks.

•Investment Managers. An “Investment Manager” is an investment firmtypically recommended by the Investment Management Consultant andrecommended by the Finance Committee and approved by the Board. Individual mutual funds will be considered as “Investment Managers” for the purpose of this document. Investment Managers are initially chosen on the basis of theirestablished skill, prudence and diligence in the management of investment portfolios. Subject to this Investment Policy and any instructions from the Board, they will have the discretion to purchase, sell, or hold the specific securities that will be used to meet the Foundation’s investment objectives.

•Custodian. The “Custodian” will physically (or through agreement with a sub-custodian) maintain possession of securities owned by the Foundation, collect dividend and interest payments, redeem maturing securities, and effect receipt and delivery following purchases and sales. The Custodian may also perform regular accounting of all assets owned, purchased, or sold, as well as movement of assets into and out of Foundation accounts.

•Additional Specialists. Additional specialists, such as attorneys, auditors, and others may be retained by the Board as it deems appropriate.

III. ADDITIONS AND EXPENDITURES

Additions to Endowment. The Endowment increases in value by virtue of the earnings of the corpus (net of management costs), transfers of funds from other Foundation accounts, and through contributions to the Endowment fund (the “Fund”). All gifts of cash will be deposited immediately in the segment of the Fund designated by the donor.

Endowment Expenditures. Expenditures out of the Fund will be made periodically in accordance with the distribution policy established by the Board (the “Distribution Policy”). The Distribution Policywill recognize that the corpus of the Endowment produces earnings that are intended to serve the purpose established by the donor. Significant contributions have been made to the Endowment over the years with the donors’ stated intent that they be employed to earn income that will be applied to specified purposes of the university, such as scholarshipsor department grants.

IV. INVESTMENT PHILOSOPHY, OBJECTIVES AND GUIDELINES

Investment Philosophy. The Board’s investment philosophy is to exercise reasonable and prudent care in its investment of Foundation assets in considering the long- and short-term needs of the Foundation in carrying out its operations, as well as anticipated financial obligations or other purposes as set forth in the Distribution Policy. The Board recognizes that all investments are subject to unforeseen circumstances impacting markets and market volatility. Accordingly, while high levels of risk are to be minimized or avoided, the assumption of moderate risk with a reasonable portion of Foundation investments may be warranted in order to ensure a total return necessary to achieve Foundation objectives.

Investment Objectives. Foundation assets should be invested in a manner consistent with the following objectives:

  • Maximum Return. The primary objective of the Foundation is to achieve the highest rates of return feasible within the risk parameters set forth in this Investment Policy. The investment horizon for this Foundation is generally considered to be long-term (i.e. 25 years and beyond).
  • Total Return. While the investment horizon for the Foundation is generally long-term, one of the key objectives is total return, defined as capital appreciation (long-term growth of principal) combined with dividend and interest income to meet short-term funding requirements.
  • Preservation of Capital. Investment guidelines should be structured with the understanding that preservation of capital is necessary for meeting short-term financial obligations.
  • Risk Aversion. While the Foundation’s investment philosophy recognizes that some level of risk may be necessary to achieve Foundation objectives, excessive risk (control risk) should be avoided.
  • Liquidity. It may be necessary to liquidate investments in order to meet short-term financial requirements. Unless otherwise expressly approved by the Board, investments should be readily marketable with pricing no less frequent than daily and liquidity no less frequent than monthly. For equities, approved liquid markets include the New York Stock Exchange, American Stock Exchange and NASDAQ. The use of any other equity exchange by anInvestment Manager requires prior Board approval.

Investment Guidelines. Foundation assets should be managed in a manner consistent with the following guidelines:

  • Investment Asset Classes. Foundation assets may be invested in cash and cash equivalents; fixed income securities (bonds and preferred stock) for a dependable source of interest and dividend income; equity securities (common stocks including convertibles) for capital appreciation and dividend income; and alternative investments (absolute return funds, hedge funds, private equity obligations, natural resources, commodities, managed futures and real estate) for diversification and enhanced returns. A complete listing of permissible investments is detailed in the Allowable Assets section below.
  • Equities Concentration Restrictions. With respect to equities, investments in a particular industry or company shall be based on a demonstrable analysis of the prospects for above-average return potential. No industry shall represent more than 20% of the equities portfolio, nor a single company more than 5%, without prior Board approval. Purchasing or holding title to real estate also requires prior Board approval. Real estate held for the operations of the Foundation or for the benefit of the university shall not be considered part of the assets subject to this Investment Policy.
  • Investment Restrictions. Foundation assets may not be deployed in any investments not specifically allowed above. Margin transactions are explicitly prohibited.
  • Asset Allocation. Investments shall be allocated to the asset classes in accordance with the Asset Allocation section below.

V. ALLOWABLE ASSETS

The following list represents allowable asset components within each asset class. The use of any other asset component by the Investment Manager requires prior approval.

Cash Equivalents

  • Treasury Bills
  • Money Market Funds
  • Commercial Paper
  • Banker's Acceptances
  • Certificates of Deposit

Fixed Income Securities

  • US Government and Agency Securities
  • Corporate Notes and Bonds
  • Mortgage Backed Bonds
  • Preferred Stock
  • Fixed Income Securities of Foreign Governments and Corporations
  • Collateralized Mortgage Obligations

Equity Securities

  • Common Stocks
  • Convertible Notes and Bonds
  • Convertible Preferred Stocks
  • American Depository Receipts (ADR's) of Non-US Companies
  • Ordinary Shares of Non-US Companies, Including Emerging Market Securities
Alternative Investments
  • Arbitrage\Absolute Return
  • Hedge Funds
  • Private Equity\Private Capital
  • Real Estate
  • Energy & Natural Resources
  • Equity Real Estate
  • Debt Strategies\Distressed Debt
  • Venture Capital
  • Options
  • Commodities
  • Managed Futures
VI. ASSET ALLOCATION

Foundation assets will be fully invested within the asset allocation ranges identified below. In the unusual case that a temporary defensive position is warranted, the Foundation may, without limitation hold cash, U.S. government securities, or money market instruments backed by U.S. government securities. The Foundation's investment objectives may not be met during periods when a temporary defensive position is taken. The flexibility provided by the ability to take a temporary defensive position should not be construedas authorizing“market timing” strategies.

Strategic Tactical Tactical

Asset Class TargetMinimumMaximum

Cash and Equivalents 0.0% 0.0% 20.0%

Fixed Income Securities

Intermediate Bonds 25.0% 15.0% 35.0%

Other Fixed Income 0.0% 0.0% 10.0%

Total Fixed Income Securities 25.0% 15.0% 35.0%

Equities

Large Cap Domestic Equities 27.0% 15.0% 35.0%

Small Cap Domestic Equities 9.0% 5.0% 15.0%

International Equity 18.0% 10.0% 25.0%

Global/Unconstrained 6.0% 0.0% 10.0%

Total Equities 60.0% 50.0% 70.0%

Alternative Investments

Hedge Funds 5.0% 0.0% 10.0%

Real Estate 5.0% 0.0% 10.0%

Natural Resources 5.0% 0.0% 10.0%

Total Alternative Investments 15.0% 8.0% 23.0%

VII. PERFORMANCE REVIEW AND EVALUATION

Performance Review. Performance reports generated by the Investment Management Consultant will be compiled at least quarterly and communicated to the Finance Committeefor review. A formal annual performance review will be conducted with the Board. The investment performance of the total portfolio, as well as asset class components, will be measured against appropriate performance benchmarks. Consideration will also be given to the extent to which the investment results are otherwise consistent with thisInvestment Policy.

The guideline benchmark (based on the minimum target net annual rate of6.25% in excess of inflation) for the entire Endowment, except for those assets employed to fund current operations and meet fixed obligations as they come due, is the blended policy index 40% S&P 500 Index, 30% MSCI EAFE Index, and 30% Barclay’s Capital Aggregate Bond Index.

Performance Evaluation. The following considerations will apply to the evaluation of theperformance of any Investment Manager:

  • The time period for evaluation will generally be rolling three-year periods. Interim or shorter-term fluctuations in results will be viewed with appropriate perspective.
  • The Board will from time to time adopt standards for the evaluation of the performance of any Investment Manager, and such standards will be attached as Appendix 1 to this Investment Policy.
  • No individual standard will be more important than another. Instead, all standards will be considered in aggregate.
  • It is recognized that at varying points in time, individual Investment Managers may not generate a performance that achieves all standards concurrently.
  • The evaluation will not be limited to the adopted standards. Organizational stability and adherence to investment style/process will be among the other areas given consideration.
VIII.INVESTMENT POLICY AND PORTFOLIO REVIEW

The Board will review this Investment Policy and the performance of the Endowment portfolio at least annually.

IX. EXECUTIVE COMMITTEE

In accordance with the Bylaws of the Foundation, Article II, Section 13(a), the Executive Committee has “general powers to manage the affairs of the corporation and to act on behalf of the Board of Directors in the intervals between meetings of the Board of Directors,” and will practically manage the investment portfolio and carry out the provisions of this investment policy.

The Directors of the Northwest Foundation, Inc. adopt this statement of investment policy.

President, Northwest Foundation, Inc.

Appendix 1

to

THE NORTHWEST FOUNDATION ENDOWMENT

INVESTMENT POLICY

April 29, 2011

Performance Standards

Standard No. 1 - Market Indices

Investment Managers:

  • Each Investment Manager’s performance will be measured relative to the performance of a market index reflective of the manager’s asset class and investment style.
  • The performance target for active managers shall be to equal or exceed, net of fees, the total return of the index benchmark.
  • The performance target for passive (index) managers shall be to replicate the results of the benchmark index before the deduction of investment management fees.

Total Fund:

  • The overall performance target for these assets shall be to equal or exceed, net of fees, the total return of a traditional institutional asset mix consisting of 40% S&P 500 Index, 30% MSCI EAFE Index and 30% Barclays Capital Aggregate Bond Index.

Standard No. 2- Risk

For each investment style, the standard deviation of returns (risk) shall be no more than 120% of the index benchmark noted in Standard No. 1 over a period of at least three years. Managers exceeding the 120% standard will be held to a proportionately greater return expectation.

Standard No. 3 - Investment Manager Universe Comparison

A widely recognized national database and their peer group universes shall be utilized. The performance benchmark for each of the Investment Managers is stated below.

  • 3 Years: Top One-Half of Peer Universe
  • 5 Years: Top One-Third of Peer Universe

Review and Analysis

The Finance Committee is aware that the ongoing review and analysis of investment managers is just as important as the due diligence implemented during the manager selection process.

Therefore, a review of an Investment Manager will be conducted if:

  • A manager performs in the bottom quartile (75th percentile) of his or her peer group over an annual period.
  • A manager falls in the southeast quadrant of the risk/return scattergram for three- and/or five-year periods.
  • Additionally, performance may require the replacement of an individual investment manager if:
  • A manager consistently performs below the median (50th percentile) of his or her peer group over rolling three-year periods.
  • A manager performs below the median (50th percentile) of his or her peer group over a five-year period.
  • A manager fails to adhere to the investment style for which they were employed.

Major organizational changes also warrant immediate review of the manager, including:

Change in professionals;

Significant account losses;

Significant growth of new business; or

Change in ownership.

Investment Managers will be monitored on an ongoing basis and it is at the Finance Committee’s discretion to replace a manager at any time if they deem it appropriate.

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