Statement of Investment Policy

Endowment

Revised: October 1, 2017
TABLE OF CONTENTS

Purpose of Statement...... 3

Description of the Endowment...... 3

UPMIFA – Uniform Prudent Management of Institutional Funds Act...... 4

Responsibilities – Investment Subcommittee...... 5

Responsibilities – Finance/Facilities and Investment Committee...... 6

Responsibilities – Investment Consultant...... 7

Responsibilities – Custodian...... 8

Responsibilities – Investment Managers...... 9

Responsibilities – College Administration...... 10

General Investment Principles...... 10

Investment Objective...... 11

Asset Allocation...... 13

Selection of Investment Managers...... 14

Performance Measurement & Guidelines...... 15

Conflicts of Interest...... 17

Appendix A...... 19

I.Purpose of Statement

This Statement of Investment Objectives and Policies (the “Statement”) is intended to:

  1. Outline the investment-related responsibilities of the College staff, Board of Directors and the providers of investment services retained to assist with the management of the Endowment’s assets.
  1. Establish formal yet flexible investment guidelines incorporating prudent risk parameters, appropriate asset allocation guidelines and realistic return goals.
  1. Provide a framework for regular constructive communication between the Board, staff and the College’s providers of investment services.
  1. Create standards of investment performance which are historically achievable and by which the Investment Consultant and Investment Managers agree to be measured over a reasonable time period.

In general, the purpose of this policy is to outline a philosophy and attitude which will guide the investment management of the assets toward the desired results. It is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical.

It is expected that this Statement will be reviewed by the Board of Directors; the Investment Subcommittee; and the Finance/Facilities and Investment Committee to insure the relevance of its contents to current capital market conditions and the needs of the Endowment.

  1. Description of the Endowment

The Morningside College Endowment (the “Endowment”) has been established to provide investment earnings (realized and unrealized) for capital expenditures and operating expenses, as a supplement to other sources of income for Morningside College (the “College”).

The Endowment includes two distinct fund categories. True endowments are those the donor specifically directs will be part of the endowment fund. These gifts may be the general endowment or the donor may further restrict this type of gift to a specific purpose, i.e. scholarships. The second category is those funds, which are included in the Endowment by direction of the Board of Directors. An example is estate gifts which, when unrestricted, are placed in the Endowment by policy adopted by the Board of Directors.

Assets which are, or may be included, in the Endowment include stocks, bonds, mutual funds, and other asset (“Other Assets”) including: receivables; real estate including farm land and mineral rights; life insurance; rental housing; works of art, jewelry, and collectibles; and cash. Some of these Other Assets by their nature are not available for “active” investment management. Also, donors may (but rarely) impose investment restrictions on gifts to the Endowment. However, most assets in the Endowment funds are not restricted as to investment type and are eligible for more active investment management decisions. The majority of these funds are placed with professional investment managers selected by the Investment Consultant (as applicable), the Investment Subcommittee and approved by the Finance/Facilities and Investment Committee.

III.UPMIFA: The Uniform Prudent Management of Institutional Funds Act

It is the intent of the Board of Directors,the Finance/Facilities and Investment Committee and the Investment Subcommittee of Morningside College to follow the provisions and apply the investment standards of UPMIFA ( in the management of the Endowment investment assets. In managing and investing an institutional fund, all of the following factors, if relevant, must be considered:

  • General economic conditions.
  • The possible effect of inflation or deflation.
  • The expected tax consequences, if any, of investment decisions or strategies.
  • The role that each investment or course of action plays within the overall investment portfolio of the Endowment.
  • The expected total return from income and the appreciation of investments.
  • Other resources of the Endowment and the College.
  • An asset’s special relationship or special value, if any, to the charitable purposes of the College.
  • The needs of the College and the Endowment to make distributions and to preserve capital.
  • Management and investment decisions about an individual asset must be made not in isolation but rather in the context of the College Endowment’s portfolio of investments as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the Endowment and to the College.
  • Except as otherwise provided by law other than UPMIFA, the College may invest in any kind of property or type of investment consistent with this investment policy.
  • The College shall diversify the investments of the Endowment unless it reasonably determines that, because of special circumstances, the purposes of the Endowment are better served without diversification.
  • Within a reasonable time after receiving gifts of property or assets, the College shall make and carry out decisions concerning the retention or disposition of the property or assets and whether to rebalance the portfolio, in order to bring the Endowment into compliance with the purposes, terms, and distribution requirements of the College as necessary to meet other circumstances of the College and the requirements of this investment policy.
  • A person that has special skills or expertise, or is selected in reliance upon the person’s representation that the person has special skills or expertise, has a duty to use those skills or that expertise in managing and investing institutional funds.

IV.Responsibilities – Investment Subcommittee

The Board of Directors (the “Board”) is ultimately responsible for the stewardship of the Endowment. The Board acts upon the recommendations of the Finance/Facilities and Investment Committee. The Finance/Facilities and Investment Committee (the “Committee”) in turn acts upon the recommendations of the Investment Subcommittee (the “Subcommittee”).

The primary responsibilities and functions of the Subcommittee are as follows:

  1. Adhere to the guidelines as defined in the Uniform Prudent Management of Institutional Fund’s Act (UPMIFA) and all other applicable regulations. (Continuously)
  1. Understand Morningside’s investment goals and how these objectives support Morningside’s mission. (Every meeting)
  1. Review and recommend to the Committee policies related to the investment of Morningside’s assets and funds with the assistance of Morningside’s Vice President for Business and Finance (Annually)
  1. Develop and recommend a Statement of Investment Policy for approval by the Committee and the Board. The policy statement should include investment goals and objectives based upon the needs of Morningside College. (Annually)
  1. Develop, review and recommend to the Committee the overall diversification of the Endowment assets and the strategic asset allocation. (Periodically)
  1. Develop, review and recommend to the Committee the overall asset allocation for each investment account, as well as funding levels for each individual investment manager. (Every meeting) It is understood that the Investment Consultant has full discretionary authority for the marketable securities portion of the portfolio and non-discretionary authority for the alternative asset portfolio.
  1. In conjunction with the Investment Consultant, develop an investment fund monitoring report to be compiled and reviewed each calendar quarter. This investment monitoring report will compare the actual performance (return and risk) for each fixed income or equity investment fund against predetermined benchmark indexes. Establish expected standards of investment fund return and risk performance relative to the predetermined benchmarks. Monitor the performance of the Endowment and individual investment managers against the stated investment objective and broad market performance and report to the Board and/or the Committee on key performance measures as appropriate. (Every meeting)
  1. Monitor and manage all defined risks in the portfolio, with the assistance of the Investment Consultant.
  1. Recommend to the Committee any changes to the strategic asset allocation and alternativeinvestment managers that may need to be made from time to time. (As appropriate)
  1. Evaluate and recommend to the Committee and/or Board the appointment or removal of Investment Consultants or any other service provider. (As appropriate)
  1. Review and recommend to the Committee an annual endowment spending rate (Annually)

V.Responsibilities – Finance/Facilities and Investment Committee

The primary responsibilities and functions of the Finance/Facilities and Investment Committee are as follows:

  1. Adhere to the guidelines as defined in the Uniform Prudent Management of Institutional Fund’s Act (UPMIFA) and all other applicable regulations.
  1. Develop, review and present this Statement of Investment Policy to the Board along with subsequent modifications;
  1. Develop, review and approve the overall strategic asset allocation for the Endowment, as well as funding levels for each individual investment manager. It is understood that the Investment Consultant has full discretionary authority for the marketable securities portion of the portfolio and non-discretionary authority for the alternative asset portfolio.
  1. Periodically review and recommend to the Board the Endowment spending policy;
  1. Appoint, evaluate or remove investment managers for the assets of the Endowment, as appropriate;
  1. Appoint, evaluate or remove any other service providers, such as Investment Consultant or custodians, that it deems necessary for the Endowment;
  1. Report its recommendations, conclusions, and actions to the Board not less than annually.
  1. Committee Operation
  1. The Committee shall meet as required, but not less than twice a year.
  1. The actions of the Committee shall be recorded in formal minutes.
  1. The Committee may adopt procedures necessary to conduct its affairs.
  1. The Committee may authorize members or agents to execute or deliver any instrument on its behalf.

VI.Responsibilities – Investment Consultant

The Subcommittee and Committee may elect to engage an independent investment consulting firm to assist with the management of the Endowment assets. It is understood that the Investment Consultanthas full discretionary authority for the marketable securities portion of the portfolio and non-discretionary authority for the alternative asset portfolio. Investment advice concerning the Endowment assets offered by the Investment Consultantwill be consistent with the investment objectives, policies, guidelines and constraints as established in this Investment Policy Statement.

The primary responsibilities and functions of the Investment Consultant are as follows:

  1. Manage the Endowment assets in compliance with the standards according to Uniform Prudent Management of Institutional Fund’s Act (UPMIFA).
  1. Assist in the development and periodic review of investment policy and objectives.
  1. Assist in the development and periodic review of the strategic asset allocation.
  1. Implement tactical asset allocation changes within the guidelines of this policy.
  1. Review the capital markets in light of the Endowment’s investment objectives.
  1. Assist in the management and tracking of all defined risks in the portfolio.
  1. Implement portfolio rebalancing within the guidelines of this policy.
  1. Provide quarterly performance reporting for the total Endowment and individual Investment Manager(s),and review the performance with the Subcommittee and Committee.
  1. Assist in compensation negotiations with Investment Managers, Custodians and other service providers. Assist the Subcommittee in the determination, understanding, negotiation and accountability of all Endowment investment costs.
  1. Conduct Investment Manager searches, make recommendations, provide “due diligence” or research on investment managers.
  1. Communicate matters of policy, manager research, and manager performance to the Subcommittee and Committee.
  1. Communicate matters of policy and investment direction to the Investment Managers when necessary.
  1. Review the Endowment investment history, historical capital markets performance and the contents of this investment policy statement with any newly appointed members of the Subcommittee or Committee.
  1. The Investment Consultant must operate without any undisclosed conflict of interest.

VII.Responsibilities – Custodian

The Custodian must assume the following responsibilities that pertain to:

  1. Safekeeping of Securities

Hold all Endowment assets in the appropriate accounts, and provide highly secure storage of physical stock certificates and bonds, such that there is essentially no risk of loss due to theft, fire, or accident. Electronic transfer records at the Depository Trust Company (“DTC”) are acceptable.

  1. Settlement of Trades

Arrange for timely and business-like settlement of all purchases and sales of individual securities made for the Endowment. Transactions shall be on a delivery versus payment basis unless provided for in writing by the Committee. Receive and document confirmation of mutual and pooled fund transactions.

  1. Collection of Income

Provide for receipt and prompt crediting of all dividend and interest payments received as a result of the Endowment’s portfolio holding or securities lending activities. Monitor income receipts to ensure that income is received when due and institute investigative process to track and correct late or insufficient payments, including reimbursement for any interest lost due to tardiness or shortfall.

  1. Cash Sweep

Sweep cash daily into an interest bearing account featuring a high degree of safety of principal and liquidity. Cash earnings (dividend and interest payment received) may, at the direction of the College, be transferred to the College’s general checking account.

  1. Reporting

Provide monthly reports showing individual asset holdings with sufficient descriptive detail to include units, unit price, cost market value, CUSIP number (where available), and any other information requested by the Committee. Principal cash transactions, including dividends and interest received, deposits and withdrawals, securities purchased, sold, and matured, and fee payments will also be listed.

  1. Transfer

At the direction of individuals specifically appointed by the Committee, transfer funds into and out of specified accounts.

VIII.Responsibilities - Investment Managers

Each Investment Manager will have full discretion to make all investment decisions for the assets placed under its jurisdiction and within the guidelines of their stated investment methodology.

The Investment Managers must assume the following responsibilities:

  1. Investment Managers are required to maintain prudent diversification and manage the risk of their portfolios.
  1. Discretionary investment management including decisions to buy, sell, or hold individual securities, and to alter asset allocation within the guidelines of their stated methodology.
  1. Report, on a timely basis, quarterly investment performance results.
  1. Communicate any major changes to economic outlook, investment strategy, or any other factors that affect implementation of investment process, or the investment objective progress of the Endowment’s investment management.
  1. Inform the Investment Consultant regarding any qualitative change to investment management organization: Examples include changes in portfolio management personnel, ownership structure, investment philosophy, etc.
  1. Meet with the Investment Consultant and/or Subcommittee or Committee as needed.
  1. As requested by the Subcommittee, vote proxies on behalf of the Endowment, and communicate such voting records to the Subcommittee.
  1. As requested by the Subcommittee, send a copy of its SEC Form ADV filing to the College’s Vice President for Business and Finance.
  1. The Investment Manager must operate without any undisclosed conflicts of interest.

IX.Responsibilities - College Administration

The College administration implements the policies written by the Board and the Committee and makes recommendations to the Investment Subcommittee and Committee. Specific responsibilities include:

  1. Direct new gifts made to the endowment to the Investment Consultant for investment, as applicable.
  1. Notifying the Investment Consultant, and Investment Managers as applicable, of endowment spending allowance needs.
  1. Ensuring that the investment policy, including asset allocation guidelines, is being implemented as written.
  1. Overseeing the Investment Consultant, Investment Managers, Custodian, and any other service providers.
  1. Reviewing with the Investment Subcommittee and Committee all donated Real Estate and Other Assetsto determine whether the gift should be accepted.
  1. Receive, review and retain the reports of the Investment Consultant, Custodian, Investment Managers and other external reports on the financial condition of the Endowment, including receipts, disbursements and investment performance.
  1. Negotiate compensation arrangements for all service providers.

X.General Investment Principles

  1. Investments shall be made solely in the interest of the purposes of Morningside College.
  1. The Endowment Fund will comply with applicable laws and regulations and apply the standards of UPMIFA in managing the Endowment.
  1. Investment of the Endowment Fund shall be so diversified as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.
  1. The Board of Directors may employ an Investment Consultant and one or more investment managers of varying styles and philosophies to attain the Endowment Fund’s objectives.
  1. Cash is to be employed productively at all times, by investment in short-term cash equivalents to provide safety, liquidity, and return. Endowment assets held in the form of short-term investments outside of the permanent portfolio (investments managed by the Investment Consultant and Investement Managers) shall not exceed $500,000. Amounts in excess of said amount shall be transferred to the permanent endowment.

6. The “non-core” (market appreciation) value of the Endowment Fund may be used as collateral in obtaining debt financing upon prior approval of the full Board of Directors.

XI.Investment Objective

The primary investment objective of the Endowment is to provide a real rate of return over inflation sufficient to support in perpetuity the mission of the College. It is particularly important to grow the assets in real terms to enable the College to maintain the purchasing power of the spending on programs and administration without eroding the real value of the principal corpus of the endowment.