[January 18, 2001]

The University of California Board of Regents reaffirmed its practice of not investing in tobacco-related stocks today (January 18) as it unanimously adopted a policy to exclude such companies from its passively managed index funds and to continue the existing exclusion from investments actively managed by the Treasurer.

With the Regents' vote, a portion of the University's pension fund investments in public equity will be transferred to two tobacco-free index funds – the Russell 3000 Tobacco Free Index for U.S. companies and the Morgan Stanley MSCI EAFE Tobacco Free Index for non-U.S. equities.

The tobacco-free indexes adhere to the same standards as the Russell 3000 and MSCI EAFE indexes, respectively, with the exception that they exclude tobacco products companies. Since tobacco stocks currently constitute only 0.57% and 0.47% of the original indexes, respectively, the exclusion should have no material effect upon potential investment returns or portfolio diversification.

The investment in the tobacco-free index funds represents one step in implementing the Asset Allocation Plan approved by the Regents in March 2000. Together with a series of other policy measures, this slight shift was initiated to further diversify the pension fund portfolio, which is an important factor in reducing investment risk.

President Richard C. Atkinson recommended the action to the Board of Regents in recognition of the convergence of a number of factors, including the negative financial risk and liability circumstances affecting tobacco companies, the related health effects of tobacco use, the small percentage such stocks comprise of total index funds, the Treasurer's current practice of excluding tobacco stocks from actively managed investments, and the availability of established tobacco-free index funds.

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