Investment and Spending Policy

I. Background and Mission

The MiraCosta College Foundation (hereafter referred to as the “Foundation”) is an independent, 501(c)(3) nonprofit corporation created to support students by funding their pursuits toward a higher education and providing the resources to help guide them toward
success.

For over 40 years, the vision of the Foundation has supported the vision that no one is denied access to education because of financial need and that resources are available to enrich the college experience for all students. In service to this vision, the Foundation’s mission is to promote the interests and welfare of the college and to secure resources that will transform student lives.

II. Introduction

This policy is intended as a basic guide for safeguarding and managing the Foundation’s assets including the development of spending goals, investment strategies (including asset allocation) and investment performance review and reporting collectively comprise the “Portfolio”. The Portfolio’s assets will normally be held in one of three subordinate portfolios (or pools). These are (1) the “Reserve Portfolio” (2) Excess Reserve Portfolio (3) the “Endowment Portfolio” and (4) Title V Grant Endowment.

This investment Policy Statement sets forth the investment objectives, distribution policies, and investment guidelines that govern the activities of the Committee and any other parties to whom the Committee has delegated investment management responsibility for Portfolio assets.

The investment policies for the Foundation contained herein have been formulated consistent with the Foundation’s Mission, reflects its anticipated financial needs and its willingness to assume investment and financial risk, as reflected in the majority opinion of the Committee.

Policies contained in this statement are intended to provide guidelines, where necessary, for ensuring that the Portfolio’s investments are managed consistent with the short-term and long-term financial goals of the Foundation. At the same time, they are intended to provide for sufficient investment flexibility in the face of changes in capital market conditions and in the financial circumstances of the Institution.

III. Role of the Finance Committee and the Foundation Board

The Foundation Board (the “Board”) has a fiduciary responsibility to comply with the
restrictions imposed by the donors of endowment funds. The Board also has a legal
responsibility to ensure that the management of endowment funds is in compliance with the
Uniform Prudent Management of Institutional Funds Act (UPMIFA).

The Finance Committee of the Foundation Board (the “Committee”) acts in a fiduciary
capacity with respect to the Foundation and is accountable to the College and the Board for
overseeing the investment and safeguarding of all assets owned by or held in trust..
Foundation Management (“Management”) is defined as the Foundation’s Executive
Director who oversees endowment accounting and makes recommendations to the
Committee.

1. The Committee will review this Investment Policy Statement at least once per year.
   Changes to this Investment Policy Statement can be made only by affirmation of a
   majority of the Committee, and final Board approval. Written confirmation of the
   changes will be provided to all Committee members and to any other parties hired on
   behalf of the Foundation as soon thereafter as is practicable.
2. Standard of Fiduciary Care. The primary and constant standard for making
   investment and spending decisions for all Portfolio assets is the “Prudent Person
   Rule” which states that “the members of the governing board shall act with the care,
   skill, prudence, and diligence under the circumstances then prevailing a prudent
   person acting in a like capacity and familiar with these matters would use in the
   conduct of an enterprise of like character and with like aims to accomplish the
   purposes of the institution” in compliance with Uniform Prudent Management of
   Institutional Funds Act.

IV. Manager Selection

Investment management of the Portfolio (including its constituent pools) shall be recommended by the Committee for approval by the Board based on a selection process as established by the Committee. The Committee may elect to appoint a single manager for the Reserve Portfolio, Excess Reserve Portfolio, and the Endowment Portfolio or separate managers for each. The Committee may also elect to manage the Reserve Portfolio itself. In addition to evaluating a manager’s historical performance compared to appropriate
benchmarks, a manager’s ethical standards, financial viability, organizational structure, experience of key personnel, and investment philosophy will also be reviewed.

V. Investment Objectives

1. The Endowment Portfolio is to be invested with the objective of preserving the long-term, real purchasing power of assets while providing a relatively predictable and growing stream of annual distributions in support of the institution. The attainment of this broad objective will provide a balance between current spending needs of the Foundation and the need to preserve the purchasing power of the endowment for future generations.
2. The Reserve Portfolio. Assets apportioned to the Reserve Portfolio are intended for use “on demand” are to be invested with the objective of preservation of capital and short-term liquidity. Only high-quality short–term investment vehicles are
   appropriate for this portfolio.
3. The Excess Reserve Portfolio is to be comprised of funds that are above an approved threshold to adequately fund the Reserve Portfolio. Assets in the Excess Reserve Portfolio are intended to preserve capital, provide a relatively predictable stream on
   income, and achieve moderate growth of principal. Assets are to be used as a supplemental source of funds for the Reserve Portfolio.
4. The Title V Grant Endowment is to be comprised of Endowment Fund corpus (an amount equal to the endowment challenge grant or grants awarded under this part plus matching funds provided by the institution), Endowment Fund Income (an amount equal to the total value of the fund, including appreciation and retained interest and dividend, minus the endowment fund corpus). Each endowment challenge grant awarded must be matched by the Foundation, must be invested by the Foundation, and must have a duration of 20 years (Please reference spending rules in grant document PART 628 for additional spending rules).
   
   NOTE: Please refence the Investment and Spending Policy Flow Chart located within
   the appendix.

VI. Solicitation and Acceptance of Gifts Policy

1. A.    A separate policy has been adopted and approved by the Foundation to provide general information about the criteria and framework by which donations may be accepted or recommended to the Board for acceptance. This information should not be interpreted as legal advice, nor is the policy intended to override current IRS code and regulations. This policy includes:
   • Special gifts acceptance
   • Gifts of tangible property and equipment (gifts-in-kind)
   • Gifts of real property
   • Gifts of securities, limited partnerships and other tangible property
   • Gifts of life insurance
   • Charitable Remainder Trusts
   • Digital currency

VII. Spending Policy

1. Foundation spending shall be funded from these sources:
   
   • Current undesignated gifts (not designated as endowments),
   • An annual endowment management fee (presently 1.5%) assessed on total Endowment Portfolio assets), and
   • Partial distributions of net investment income (from interest or dividends) or net realized capital gains from the Endowment Portfolio
   • Short term deficiencies or excess of cash needs may be balanced by withdrawals from/deposits to the Reserve Portfolio. Cash accumulations from earnings and capital gains that exceed the approved spending budget for any year will be reinvested.
2. Purpose of Spending. The Foundation exists to support the educational needs of the
   College. Consistent with prudent financial stewardship, the Foundation will spend its
   income each year for the purposes designated and/or approved by its Board. This will
   include a portion (1.5% endowment management fee) designated for the foundation’s
   business operations, fundraising and other work of the Foundation and a percentage
   set by the Board (currently 3.5%) for charitable purposes. Thus, the current spending
   rate is 5%.
   
   Endowment Portfolio earnings in excess of the Board established spending rate will
   be reinvested in the Endowment Portfolio to protect the endowment’s purchasing
   power from one generation to the next.
   
   NOTE: Title V Grant Endowment must be held for 20 years. Please reference spending rules in grant document PART 628. Title V Grant Endowment funds will not be included in the aforementioned ‘Purpose of Spending’. 
3. Limitations on Spending -- General Policy. In general, current spending will not be
   funded by accessing the principal corpus of the Endowment Portfolio. The
   distribution of Endowment Portfolio assets will be permitted to the extent that such
   distributions do not exceed a level that would erode the Foundation’s real assets
   over time. The Committee will seek to reduce the variability of annual Foundation
   distributions by factoring past spending and Portfolio asset values into its current
   spending decisions. The Committee will review its spending assumptions annually
   for the purpose of deciding whether any changes therein necessitate amending the
   Foundation’s spending policy, its target asset allocation, or both.
   Establishing the Spending Rate. The Committee will review and recommend the
   annual spending rate to the Board within 60 days following the end of each
   calendar year. The Foundation presently seeks to maintain an annual spending
   rate of no more than 5.5% of the 3-year trailing average of the Endowment Portfolio
   (valued on December 31 of each year.) Any excess earnings will be re-invested
   into the Endowment Portfolio. An endowment management fee of 1.5% will be
   assessed first, then a maximum of 4% will be used for charitable purposes as
   designated by the donor or determined by the Board. (See Appendix 1 for related
   administrative procedures.)
   
   
4. Adjusting the Endowment Management Fee. The Committee has the option of
   adjusting the endowment management fee up to the Uniform Prudent Management
   of Institutional Funds Act mandated maximum of 2%. The Committee also has the
   option of reducing the fee as long as the resulting fee income to the Foundation is
   adequate to fully fund operational and employee costs. (See Appendix 1 for related
   administrative procedures.)
   
   
5. Maintaining an Operational Reserve. Recognizing that stability and continuity are
   important to good management and administration, the Management will seek to
   hold an operational reserve such that in down market years reductions in business
   operations and layoffs are unnecessary. In addition, Management will aim for a
   stable budget, and when necessary, plan for significant increases or cuts to the
   budget to meet extraordinary one-time costs.

VIII. Portfolio Investment Policies

1. Diversification – All Portfolios
   Diversification across and within asset classes is the primary means by which the
   Committee expects the Portfolio to avoid undue risk of large losses over long time
   periods. To protect the Portfolio against unfavorable outcomes within an asset class
   due to the assumption of large risks, the Committee will take reasonable precautions
   to avoid excessive investment concentrations. Specifically, the following guidelines
   will be in place:

1. 1. With the exception of fixed income investments explicitly guaranteed by the U.S. Government, no single investment security shall represent more than 5% of total Portfolio assets.
   2. With the exception of passively managed investment vehicles seeking to match the returns on a broadly diversified market index, no single investment pool or investment company (mutual fund) shall comprise more than 20% of total Portfolio
      assets.
   3. With respect to fixed income investments, for individual bonds, the minimum average credit quality of these investments shall be investment grade (Standard & Poor’s BBB or Moody’s Baa or higher).

        Other Investment Policies. Unless expressly authorized by the Committee, the
        Portfolio and its investment managers are prohibited from:

1. 1. Purchasing securities on margin or executing short sales.
   2. Pledging or hypothecating securities, except for loans of securities that are fully collateralized.
   3. Engaging investment managers who promise to engage insuch practices.

     B. Asset Allocation-General

1. 1. The Committee recognizes that the careful allocation of Portfolio assets among
      financial asset and sub asset categories with varying degrees of risk, return, and
      risk-return correlation will be the most significant determinant of long-term
      investment returns and achievement of Portfolio objectives for each of the
      Foundation’s Portfolios.
   2. The Committee expects that actual returns and return volatility may vary from
      expectations and return objectives across short periods of time. While the
      Committee wishes to retain flexibility with respect to making periodic changes to
      the Portfolio’s asset allocation, it expects to do so only in the event of material
      changes to the Foundation, to the assumptions underlying Foundation spending
      policies, and/or to the capital markets and asset classes in which the Portfolio
      invests.

     C. Asset Allocation Policy-Specific to the Endowment Portfolio
             and Excess Reserve Portfolio

1. 1. Foundation assets comprising the Endowment and Excess Reserve
      Portfolios will be managed as a balanced portfolio composed of two major
      components: an equity portion and a fixed income portion. The expected role
      of equity investments will be to maximize the long-term real growth of
      Endowment and Excess Reserve Portfolio assets, while the role of fixed
      income investments will be to generate current income, provide for more
      stable periodic returns, and provide some protection against a prolonged
      decline in the market value of the equity investments.
   2. Cash investments will, under normal circumstances, only be considered as
      temporary holdings in the Portfolio, and will be used for Foundation liquidity
      needs or to facilitate a planned program of dollar cost averaging into
      investments in either or both of the equity and fixed income asset classes.
   3. Exhibit A (below) presents the long-term strategic asset allocation
      guidelines, presently determined by the Committee to be the most
      appropriate for the Endowment, given the Foundation’s long-term objectives
      and short-term constraints.

       D. Asset Allocation Policy-Specific to the Reserve Portfolio

                 Assets are to be invested in cash or cash/equivalents or as outlined in Exhibit
                 B (below). Any fixed income investment duration should be aligned with the
                 potential need for funds; resulting is a duration target not to exceed 3 years.
                 All investments are required to exceed a minimum standard of investment-grade
                 (BBB or Baa)

        E. Asset Allocation Policy-Specific to the Excess Reserve Portfolio

                 Exhibit C (below) reflects the asset allocation recommended by the Committee
                 for the Excess Reserve Portfolio.

        F. Asset Allocation Policy-Specific to the Title V Grant Endowment Portfolio

                 Exhibit D (below) reflects the asset allocation recommended by the Committee for 
                 the Title V Grant Endowment within the stated parameters of the grant bylaws.

        G. Rebalancing

1. 1. It is expected that the Endowment Portfolio’s actual asset allocation will vary
      from its target asset allocation as a result of the varying periodic returns
      earned on its investments in different asset and sub asset classes. The
      Endowment and Excess Reserve Portfolio will be rebalanced to its target
      normal asset allocation under the following procedures:
   2. The investment manager will use incoming cash flow (contributions) or
      outgoing money movements (disbursements) of the Portfolio or realign the
      current weightings closer to the target weightings for the Portfolio.
   3. The investment manager will review the Portfolio quarterly to determine the
      deviation from target weightings. During each quarterly review, the following
      parameters will be applied:
      1. If any asset class (equity or fixed income) within the Portfolio is +/-5 percentage points from its target weighting, the Portfolio will be rebalanced.
      2. If any fund within the Portfolio has increased or decreased by greater than 20% of its target weighting, the fund will be rebalanced.
      3. The investment manager may provide a rebalancing recommendation at any time.
   4. Performance shall be measured on a total return, time-weighted basis and
      presented for the most recent quarter, year-to-date, and the trailing years,
      three years, and five years. Performance for periods greater than one year
      shall be expressed on an annualized basis. To facilitate performance
      comparisons, investment results should be expressed both gross and net of
      fees.
   5. The specific performance objective is to attain, within acceptable risk levels,
      an average annual long-term total return that meets or exceeds the sum of
      the Foundation’s spending rate plus inflation (as measured by the CPI,
      consumer price index) plus investment management and related fees. In
      cases where the Foundation is appointed trustee of a charitable trust, the
      investment objective is to achieve a return that satisfies the distribution rate
      while retaining as much corpus as possible.

        G. Reporting
                 Investment reports shall be provided by the investment manager(s) on a                                     (calendar) quarterly basis or more frequently if requested by the Committee.
                 Each investment manager is expected to be available to review portfolio structure,                     strategy, and investment performance annually with the Investment Committee.

Appendix

Investment and Spending Policy Flow Chart

Exhibit A: Asset Allocation Guidelines for the "Endowment Portfolio"

Exhibit B: Asset Allocation Guidelines for the "Reserve Portfolio"

Exhibit C: Asset Allocation Guidelines for the "Excess Reserve Portfolio"

Exhibit D

a) A grantee shall invest, for the duration of the grant period, the endowment fund established under this part in savings accounts or in low-risk securities in which a regulated insurance company may invest under the law of the State in which the institution is located. 

(b) When investing the endowment fund, the grantee shall exercise the judgment and care, under the circumstances, that a person of prudence, discretion and intelligence would exercise in the management of his or her own financial affairs. 

(c) An institution may invest its endowment fund in savings accounts permitted under paragraph (a) of this section such as— 

          (1) A federally insured bank savings account; 

          (2) A comparable interest-bearing account offered by a bank; or 

          (3) A money market fund. 

(d) An institution may invest its endowment fund in low-risk securities permitted under paragraph (a) of this section such as— 

          (1) Certificates of deposit; 
          (2) Mutual funds;
          (3) Stocks; or
          (4) Bonds.

(e) An institution may not invest its endowment fund in real estate.

Administrative Procedures for providing to the Committee the Information they Need to Establish the Spending Policy

Established by Management: 11/10/2016

1. Within 60 days following the end of the calendar year, Management will
   provide to the Finance Committee the following information:
   1. 1. Rate of returns on the Endowment Fund for each of the three previous
         calendar years
      2. Recommended spending rates based on the three-year trailing
         average value for the Endowment Fund and normal accounting
         procedures. The recommendations will include:
         1. Endowment management fee, not to exceed to 2% (currently
            1.5%)
         2. Recommended charitable purpose spending rate that is
            compliant with prudent management and industry best
            practices.
2. The process for allocating endowment earnings are as follows:
   1. In accordance with Board policy, the endowment management fee (currently set at 1.5%) is allocated first to the operational fund for the Foundation.
   2. Funds are secondly allocated for charitable purposes (currently set at 3.5%) as designated by the donor or for allocation by the Board.
   3. The calculation that is currently used to establish the Foundation maximum
      spending is as follows: 1.5% (endowment management fee + 4% (charitable purpose allocations) = 5.5% (maximum spending limit as established by policy)
3. When earnings are below the Board’s established spending limits:
   1. If the three-year average growth rate of the Endowment Portfolio were to decline, and 5.2% was determined to be the prudent maximum spending rate, the calculation to derive charitable spending would be: 5.2% (earnings) – 1.5% (endowment management fee) = 3.7% for charitable purpose allocations.
4. Adjusting the endowment management fee: In the occurrence when endowment
   portfolio earnings drop below 5.5%., the Finance Committee may consider reducing
   the 1.5% endowment management fee, so long as the funding provided is adequate
   to fully fund the Foundation’s business and operating costs, including essential and
   productive staff positions. If the management fee is to be reduced, the reduction
   should be proportional. Here is an example:
   1. The 1.5% endowment management fee expressed as a percentage of the 5.5 distribution is 27.27% (1.5%/5.5% = 27.27%) Therefore, if the earnings were to decline to 4.9% and the Committee agreed to proportionally reduce the management fee, the calculation would be as follows, (4.9% x 27.27%) / 100 = 1.34%. This would provide a 1.34% spending rate for charitable purposes.

**Approved by the MCCF Board on August 15, 2023