INV 3

Investment Committee Memorandum

Subject: Proposed Changes for Domestic Equity Fund Managers and Manager
Allocations

Prepared by: Pamela M. Elliott

Date Submitted: September 1, 2004

Recommended Actions:
Recommend the Board approve, for the institutional endowment portfolios:
1. Selection of Goldman Sachs Asset Management as the new large
capitalization domestic equity fund manager with an enhanced index
philosophy.
2. Selection of Lotsoff Capital Management as the large capitalization
domestic equity fund manager with an active, fundamental, bottom-up
philosophy.
3. Termination of Vanguard, the Board’s current large capitalization index
fund manager. Modification to the manager allocation section of the
Board’s investment policy as included in Attachment A.
4. Immediate modification to the manager allocation section of the
Board’s investment policy as included on page 4.

Executive Summary:
Previous Board At its December 2003 meeting, the Board moved to sever the investment
Actions relationships with Alliance Bernstein (international equity) and Invesco (a
domestic equity portfolio and a fixed income portfolio).
In February 2004, the Board approved:
• The selection of a new international equity fund manager.
• The selection of a new fixed income fund manager.
• The temporary transfer of Invesco’s domestic equity portfolio to
Vanguard, the Board’s large capitalization index fund manager.
Since the transition of the large capitalization domestic equity funds to
Vanguard was temporary, Wilshire Associates was asked to identify and
evaluate a small group of qualified large core equity fund managers.
Domestic Equity Institutional officials and Board Office staff worked with representatives from
Considerations Wilshire Associates, the Board’s investment advisor, to develop a strategy for
handling the large capitalization domestic equity portion of the endowment
portfolios.
Wilshire delineated search specifications for large core equity managers,
which included typical characteristics, benchmarked to the S&P 500 Index,
and three- to five-year performance expectations of at least 1% above the
benchmark.
Wilshire Associates identified and provided evaluation summaries for a small
group of qualified managers. A Regent fund manager selection group
 conducted interviews of the top four domestic equity fund managers.
Recommendations The group recommends the selection of two active large capitalization
domestic equity fund managers with differing investment philosophies:
Goldman Sachs Asset Management and Lotsoff Capital Management.
Each manager would be allocated an equal share of the large
capitalization component of the endowment portfolios to optimize returns
and limit risk.
To implement this recommendation:
• The relationship with Vanguard, an index fund manager with a passive
investment philosophy, would need to be terminated.
• The Board’s policy on manager allocations would need to be modified.
The transition of all of these funds to the new managers would take place as
soon as practical after Board approval.

Background and Analysis:

Previous Board At its December 2003 meeting, the Board moved to sever the investment
Actions relationships with two of its investment fund managers.
• Alliance Bernstein managed the Board’s international equity component
of the endowment portfolio valued at $24.1 million at the end of the
calendar year.
• Invesco managed both a domestic equity portfolio of $109.1 million and a
fixed income portfolio of $88.9 million as of December 31, 2003.
In February 2004, the Board:
• Selected Grantham, Mayo, Van Otterloo & Co. (GMO) as the new
international equity fund manager.
• Selected Dodge and Cox as a new fixed income fund manager.
• Transferred Invesco’s domestic equity portfolio to Vanguard, the
Board’s large capitalization index fund manager. (This action
maintained compliance with the Board’s investment policies. The
portfolio would then be evaluated in several months, with an emphasis
on the domestic equity component.)
• Provided the institutions with an option of splitting its fixed income
portfolios between the two managers, given the relative size and risk
of the portfolios.
• Selected BlackRock as a contingent fixed income manager, should a
new fixed income manager be necessary within the next year, with the
utilization of this manager subject to further approvals.
Domestic Equity The transition of the domestic equity fund to Vanguard replaced the
Fund Manager domestic equity portfolio managed by Invesco, which totaled
$109.1 million at December 31, 2003.
Vanguard was authorized as the Board’s large capitalization index
portfolio in September 2002. Vanguard, as of June 30, 2004, managed
$147.9 million (37.1%) of the Board’s combined endowment portfolio.

INV 3
Page 2
Process Since the transition of the domestic equity funds to Vanguard was
temporary, Wilshire Associates was asked to identify and provide
evaluation summaries for a small group of qualified active large core
equity fund managers.
• Wilshire’s manager selection process:
• Uses extensive technology and both qualitative and quantitative
measures to identify managers who will successfully execute the
fund’s investment structure.
• Incorporates ongoing research as well as focused analysis. Wilshire
maintains comprehensive databases on managers in all asset
classes and has staff dedicated to researching investment managers.
• Careful monitoring of managers by Wilshire at all times is essential to
having reliable information to help locate suitable managers.
• Wilshire consultants have experience in meeting new managers and
viewing first hand manager relationships with Wilshire’s existing clients.
• Wilshire also calculates and audits performance for client accounts on
over 900 managers.
Selection Group On Thursday, August 26, 2004, a Regent selection group conducted
interviews of the top four large capitalization domestic equity fund managers.
The selection group consisted of representatives from the Investment
Committee, the universities, the Board Office, and Wilshire Associates.
The group interviewed the following managers:
• Goldman Sachs Asset Management
• AXA Rosenberg Investment Management LLC
• UBS Global Asset Management
• Lotsoff Capital Management
Recommendations The group recommends the selection of two domestic equity fund
managers:
• Goldman Sachs Asset Management as the new domestic equity fund
manager with an enhanced index philosophy.
• Lotsoff Capital Management as the domestic equity fund manager with
an active, fundamental, bottom-up philosophy.
Because of the differences in the investment philosophies, Wilshire was
requested to determine the optimal allocation to the domestic equity fund
managers. The optimization resulted in the following recommendation:
• Termination of Vanguard, the Board’s current large capitalization index
fund manager.
• An equal share of the large capitalization domestic equity portfolio
between Lotsoff and Goldman.

INV 3
Page 3
Board Policy The group recommends that the modifications to the Board’s investment
Changes policy, noted below, be implemented immediately:
Chapter 7.03 Investment Activity
Section F. Endowment Funds Investment Guidelines
Subsection 5. Asset Allocation Guidelines
The allocation ranges shown below are intended to serve as a guide to
the individual institutions in formulating asset mixes for their portfolios
and may in the future be changed.
Allowable
Asset Class Target Range Benchmark
U.S. Equities 63% 58-68% Wilshire 5000
Large Cap Core (Active) 2435 19-2930-40 S&P 500 Index
Large Cap Enhanced Index 2413 19-2910-16 S&P 500 Index
Mid Cap Growth 10 8-12 Russell 2500
Growth
Small Cap Value 5 3-7 Russell 2500
Value
U.S. Bonds 30% 25-35%
Core 30 25-35 Lehman
Aggregate
International Equities 7% 4-10% MSCI EAFE
Other * 0% 0-15%
* Other asset classes to be added in the future.

H:\BF\2004\04sepdoc\0904_INV03.doc

INV 3
Page 4