Report on Investment Policy Statement on Microsoft Corporation

        Purpose of statement is to develop guiding principles for all the investable assets (the portfolio) of the Microsoft Corporation. Document concerns with the Investment Consultant, Investment Committee and investment manager the expert for managing the investment Portfolio and all the investable assets.

Constraints and Objectives for Investment of  Microsoft Corporation 

    Following considerations are the main objectives and constraints about the investment Portfolio. Objectives are enlisted in descending order of priority.

Risk Factor of  Microsoft Corporation 

    Absolute and relative risk for portfolio including all the investable assets will be measured. Fund manager will work on the portfolio to minimize risk factor through the development of a fully diversified investment portfolio.

Objectives for return of  Microsoft Corporation 

    Investors has great attraction for the return on investment or invested assets (dividend or ROI earned on the shares) (stock) therefore fund manager will take the responsibility to develop the investment portfolio is such a way that minimize the risk factor and maximize the possibility of yield in results of returning the assets. It will be also the responsibility of the fund manager to determine the investor’s required and desired amount of return to develop a portfolio that can cater the desired return and ensure satisfaction of investor.

Diversification of  Microsoft Corporation 

Fund manager should develop the fully diversified portfolio in order to maximize the chances of profit and minimize the risk factor associated with investable assets as securities, bonds and shares.

B  Following constraints are also subject of the Portfolio

Unforeseen Circumstances

Liquidity

Legal and Regulatory Requirements

Tax

Time Horizon

Responsibilities Description of  Microsoft Corporation 

All the entities and parties involved in the portfolio management has some responsibilities that are mentioned below:

Investment Manager of  Microsoft Corporation 

Under the policy, investment manager are obliged to

To manage the portfolio and funds i.e actively take decisions related to buying and selling the securities, and shares in the market to earn maximum profit.

To take the responsibility of adhering the guiding principles presented by the investment committee and other regulatory entities involved in the investment management with the purpose to reduce the chances of issues related to accountability.

Investment Consultant of  Microsoft Corporation 

To provide assistance to the investment committee in developing the required profitable policies and strategies for investment and restructuring the portfolio through changes in assets.

To select the investment manager with the support of investment committee

To comprehensively reviewing the performance of invested assets and overall portfolio with investment committee to figure out weakness for improvement.

To support investment committee in writing detailed report for the performance measurement.

Investment Committee of  Microsoft Corporation 

Under the policy, responsibilities and duties set out for the investment committee are mentioned below according to that investment committee is responsible to:

To make the portfolio and fund according to the objectives of the investment.

To monitor policies, performance, risk management, and strategies of investment in the portfolio.

To check the responsibilities and duties performed by the investment manager and investment consultant

To take corrective action if things goes against objectives

To review, maintain and develop the policy for the investment on regular basis.

To efficiently manage conflict of interests among all the stakeholder of investment

Fiduciary Duty of  Microsoft Corporation 

For the accomplishment of all the predefined objectives in the (Investment Policy Statement), prudent investor rule will be applied. According to this investment committee is obliged to work under the Microsoft Corporation for the management of portfolio and invest as prudent investor.

The investment committee will have a duty to make investment decisions and make implementations. However, diversifications of the portfolio also goes under their duties, unless under circumstances it is prudent not to diversify.

The exercise of cautions, care and skills (in a reasonable way) that is required to apply in the whole portfolio of investment, which must be incorporated with the return and risk objectives related to the investment portfolio.

Moreover, investment committee also must have to

Imitate to the fiduciary duties concerning with impartiality and honestly.

Act with prudence in making a decision for the authority delegation as how and whether delegate the rights and authority. Also make decision for the agent’s supervision and selection for instance the investment managers and consultants for investment.

Make sure to only incur the appropriate, reasonable, and most relevant costs for the portfolio management.

Following principals provide basis for the Prudent Investor Rule:

Investor committee will have duty and right for the delegation of authority as prudent investors would

Return and risk has direct relations as both goes hand in hand, regarding this it is the prime responsibility of the Investment committee to make analysis and draw conclusions for decisions. Consider the distribution requirements, portfolio specifications, purpose of the investment and circumstances, while taking decisions for risk mitigation and risk minimization.

Investment Committee ordinarily need to prefer the diversification strategy as solution for risk associated with investable assets.

It is under the duty of investment committee to avoid irrelevant costs and expenses as administration expenses, transaction costs, and fees. Only realist and justified costs are acceptable that meet the objectives of portfolio.

Fiduciary duty of the investment committee is to create balance for the elements of return between protection of purchasing power, and income production.

Philosophy of Investment

The fundamental principles and philosophy used in the Investment Policy Statement are enlisted below in points.

the objectives should be considered as main basis for the development of portfolio

Real purchasing power of the investors should be maintained in the portfolio for long term growth.

Better alignment of the investment portfolio should be ensured by the strategy of asset allocation that will includes periodic cash flows in or out the investment portfolio.

Total return based policy will be used in the portfolio distribution (i.e. asset investment portfolio discussed in this IPS will receive a good proportion from sales, gains, net income on investment.

Guideline for Asset Allocation of  Microsoft Corporation 

the following section contains information about the strategy for asset allocation, also includes the applicable guiding principles and permissible asset classes: the detailed description is mentioned below:

Strategic Allocation of Assets of  Microsoft Corporation 

        includes the allocation of long-term asset on the basis of client’s risk tolerance, expected rate of return (ERR), objectives, and volatility. While the expected primary change drivers for the strategic allocation of assets are investment objectives (discussed in this statement in the previous sections) and unique tolerance of the clients. In the Annual review of Investment Policy statement investment committee will suggest alterations and changes in the asset allocation.

Tactical Allocation of Assets of  Microsoft Corporation 

    as a tool used for active management that develops allocations of short-term assets in opposite to the long-term assets that are included in the strategic allocation assets. Here objective is to select and develop portfolio with the short-term assets that are diversified. Market risk and inefficiencies can be increased because of continuous or severe shirts in the asset classes, therefore tactical asset allocation are required to be disciplined and infrequent.

Constrains for Asset Class of  Microsoft Corporation 

        constrains within +/- 10% will be used for weighting all different classes of assets included in the strategic allocation of assets. Constraints that can shift the tactical in the investment portfolio must be remained.

Rebalancing of  Microsoft Corporation 

        rebalancing strategy will be used at least on annual basis or when the asset class weighting exceeds the constraints. If no tactical changes are made in the investment portfolio then rebalancing will be used to bring back all the asset class on the list weighting targets.

Asset Class Definitions of  Microsoft Corporation 

U.S. Equity

Eligible Securities: all the unrestricted, and publically traded stock. Investment will follow the percentages as 70% equity, 25% small cap, and 45% blue chip.

Excluded Investment: private placements, initial public offerings, margined transactions, options, derivatives.

Benchmark: S&P 500

Fixed Income: Investment grade

Eligible Securities: the portfolio for the fixed income securities may include the securities having maturities of 10 year or less than 10 year duration. While More than 30% of the total bonds should be from A class.

Diversification: not exceeding the limit of 10% for fixed income portfolio, excluding U.S government and its instrumentalities.

Duration: the durations should meet the designated bond index +/_ one and 1/5 year.

Excluded Investment: foreign denominated bonds, derivatives (other than floating-rate coupon bonds), private placements, and margined transactions

Benchmark: Lehman Brothers Government/Corporate Index

Fixed Income: Investment Grade

Eligible securities:  Portfolio should be according to the interest obligations and traditional principals. Maturity of 10 or less than ten year is appropriate.

Diversification: not exceeding the limit of 5% at cost and 10% for fixed income portfolio at market value, excluding U.S government and its instrumentalities.

General Guidelines for asset class of  Microsoft Corporation 

The following section covers the guidelines for the asset class:

Excluded investments of  Microsoft Corporation 

In the category of junk bonds excluded investment is securities having fixed income

Poor rating bonds

Diversification of  Microsoft Corporation 

Different securities should be included in the portfolio for instance equity stock and securities with fixed income.

In the debt portion of the investment portfolio at least 2 investments are required in the fixed income securities. In the similar way, investment in the equity stock should not be limited to 1 company only. Invest in more than 2 companies working in the different sections for equity stock portion.

Monitoring Portfolio Investments and Performance of  Microsoft Corporation 

Investment Consultant will develop a performance report on the quarterly basis, that must contains that performance of portfolio, allocation of assets, and compliance with all the principles predefined in the Investment Policy Statement. Benchmarks will be used to evaluate the performance of the portfolio and individual manager. Benchmarks used for the evaluation are enlisted below:

Market Benchmarks

Asset Class-Specific Benchmarks

Appropriate benchmarks (discussed above) will quarterly measure the performance of investment managers and portfolio in 3 year and 5 year periods.

With the purpose to ensure that managers are in compliance with all the discussed philosophies and principles quarterly measurement and evaluations is must.

Review of the Investment Policy Statement of  Microsoft Corporation 

IPS will require review in case of changes in these sections

Changes made in the objectives of investment

Annual review is must for the accuracy and continuous improvement of the investment policy statement (IPS) (even if no changes are made in the investment objectives)