The Medical Research Foundation (MRF), based in the United States, was established to provide grants in perpetuity. MRF has just received word that the foundation will receive a $45 million cash gift three months from now. The gift will greatly increase the size of the foundation's endowment from its current $10 million. The foundation's grantmaking (spending) policy has been to pay out virtually all of its annual net investment income. Because its investment approach has been conservative, the endowment portfolio now consists almost entirely of fixed-income assets. The finance committee understands that these actions are causing the real value of foundation assets and the real value of future grants to decline because of inflation effects. Until now, the finance committee believed it had no alternative to these ctions, given the large immediate cash needs of the research programs being funded and the small size of the foundation's capital base. The foundation's annual grants must at least equal 5 percent of its assets market value to maintain MRF's U.S. tax-exempt status, a requirement that is expected to continue ndefinitely. The foundation anticipates no additional gifts or fundraising activity for the foreseeable uture Given the change in circumstances that the cash gift will make, the finance committee wishes to develop new grant-making and investment policies. Annual spending must at least meet the 5 percent of mar value requirement, but the committee is unsure how much higher spending can or should be. The committee wants to pay out as much as possible because of the critical nature of the research being equally important in.order.to preserve its future grant-making capaeilities. You have been asked to assist the committee in developing appropriate policies. A. Identify and discuss the three key elements that should determine the foundation's grant-making (spending) policy B. Formulate and justify an investment policy statement for the foundation