You have been named as an investment adviser to a foundation established by Dr Donald Samaita with an original contribution consisting entirely of the common stock of Pure Drugs, Inc founded by Dr Samaita. Pure Drugs manufactures and markets medical solutions invented by the doctor and collects royalties on other patented innovations.

All of the shares that made up the initial contribution to the Foundation were sold at a public offering of Pure Drugs common stock, and US$5 million proceeds will be delivered to the foundation within the next week. At the same time Mrs Samaita will receive US$5 million in proceeds from the sale of her stock in Pure Drugs.

Dr Samaita’s purpose in establishing the Samaita Foundation was to offset the effect of inflation on medical school tuition for the maximum number of worthy students.

You are preparing for a meeting with the Foundation trustees to discuss investment policy and asset allocation.

Required:

a. Define and give examples that show the differences between an investment objective, an investment constraint, and an investment policy.

b. Identify and describe an appropriate set of investment objectives and investment constraints for Samaita Foundation.

c. Based on the investment objectives and investment constraints identified in part (b), prepare a comprehensive investment policy statement for Samaita Foundation to be recommended for adoption by the trustees.