The Medical Research Foundation (MRF) has just learned that it will receive a $45 million cash gift in three months. The gift will greatly increase the size of the foundation's endowment from its current $10 million. The foundation's grant-making (spending) policy has been to pay out virtually all of its annual net investment income. Because MRF's 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 has believed it had no alternative to these actions, given the large immediate cash needs of the research programs being funded and the size of the foundation's capital base. The foundation's annual grants must at least equal 5% of its assets' market value to maintain its U.S. tax-exempt status, a requirement that is expected to continue indefinitely. No additional gifts or fundraising activity are expected for the foreseeable future. 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% of market 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 funded; however, it understands that preserving the real value of the foundation's assets is equally important in order to preserve its future grant-making capabilities. You have been asked to assist the committee in developing appropriate policies. Given the capital market forecast below, recommend and justify a long-term asset allocation