INVESTMENT POLICY STATEMENT
OF
THE CALDWELL FAMILY FOUNDATION
A New York Not-for-Profit Corporation Organized Under the New York Not-for-Profit Corporation Law (NY N-PCL) Classified as a Private Foundation Under Section 509(a) of the Internal Revenue Code
Employer Identification Number: 88-3021547
Registered Address: 330 Madison Avenue, Suite 2401 New York, New York 10017
Date of Incorporation: March 20, 2023 New York Department of State Filing No. 230320-001847
IRS Determination Letter: Section 501(c)(3) Tax-Exempt Status Confirmed July 14, 2023
Date of Adoption: To be adopted by the Board of Directors at the organizational meeting following receipt of the IRS determination letter
Prepared by:
Calderwood & Harkness LLP 375 Park Avenue, 42nd Floor New York, New York 10152 Matter No. 1034-00004
Sylvia Hartwell, Specialist Partner, Tax-Exempt Organizations & Private Foundations
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I. PURPOSE AND SCOPE
A. Purpose of the Investment Policy Statement
This Investment Policy Statement (the "IPS") sets forth the investment objectives, guidelines, and restrictions governing the management of the investment assets of The Caldwell Family Foundation (the "Foundation"). The IPS is intended to serve as the principal governing document for all investment-related decisions undertaken by the Foundation's Board of Directors (the "Board") and the Foundation's retained investment manager in connection with the prudent stewardship of the Foundation's endowment.
The purpose of this IPS is threefold. First, it provides a clear, structured framework for decision-making by the Board and the Foundation's investment manager, Havensbrook Wealth Advisors LLC ("Havensbrook"), ensuring that investment activity is conducted in accordance with the Foundation's charitable mission and financial objectives. Second, the IPS is designed to ensure full compliance with the Foundation's fiduciary obligations under applicable New York State law, including the New York Not-for-Profit Corporation Law (NY N-PCL) and the Prudent Management of Institutional Funds Act codified at New York Estates, Powers and Trusts Law Section 11-2.3(e) (the "NY PMIFA"), as well as applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), particularly Sections 4942 (minimum distribution requirements), 4943 (excess business holdings), and 4944 (jeopardizing investments). Third, this IPS establishes a spending policy that is designed to satisfy the five-percent (5%) minimum distribution requirement imposed on private foundations under Section 4942 of the Code, thereby ensuring that the Foundation fulfills its charitable purpose while preserving the long-term value of its endowment.
The Board recognizes that the Foundation operates in a complex regulatory environment in which investment decisions carry both financial and legal consequences. This IPS is intended to provide the Board and its advisors with a comprehensive reference for navigating these requirements, and to ensure that investment decisions are documented, transparent, and consistent with the Foundation's exempt purposes.
B. Scope
This IPS applies to all investment assets of the Foundation, whether held directly in individual security accounts, through commingled or pooled investment vehicles, in mutual funds or exchange-traded funds, or in any other form. The scope of this IPS encompasses all assets contributed to the Foundation and all investment returns, income, and appreciation generated therefrom.
As of the date of adoption of this IPS, the Foundation's investment assets consist of the initial contribution of Ten Million Dollars ($10,000,000) in cash, made jointly by Jonathan R. Caldwell and Eleanor V. Caldwell on April 1, 2023, with Five Million Dollars ($5,000,000) attributable to each spouse for federal gift tax reporting purposes. This IPS shall also govern the investment of any future contributions, bequests, or other transfers received by the Foundation, as well as all investment returns, income, and appreciation accruing to the Foundation's investment portfolio over time.
This IPS does not cover program-related investments ("PRIs") within the meaning of Section 4944(c) of the Code, which are investments made primarily for charitable purposes rather than for the production of income. PRIs are addressed separately under the Foundation's grant-making policy and are subject to distinct legal requirements and evaluation criteria. To the extent that the Foundation makes any PRIs in the future, such investments shall be documented and administered in accordance with the Foundation's grant-making policy and shall not be commingled with the investment assets governed by this IPS.
C. Review and Amendment
The Board of Directors shall review this IPS at least annually, and more frequently as circumstances warrant, to ensure that its provisions remain appropriate in light of the Foundation's financial condition, market conditions, changes in applicable law, and the Foundation's evolving charitable mission. The annual review shall take place no later than the Board's regularly scheduled meeting in the first quarter of each fiscal year.
Amendments to this IPS may be adopted at any time and shall require approval by a majority of the members of the Board of Directors at a duly noticed meeting at which a quorum is present, or by unanimous written consent of the Board in lieu of a meeting, in each case in accordance with the Foundation's bylaws.
As of the date of adoption of this IPS, the Board of Directors of the Foundation consists of the following six (6) members:
1. Jonathan R. Caldwell, President
2. Eleanor V. Caldwell, Vice President
3. Thomas R. Caldwell, Secretary
4. Katherine C. Hartfield, Treasurer
5. Olivia G. Caldwell, Director
6. Dr. Margaret P. Elsworth, Independent Director
The Board shall ensure that any amendments to this IPS are documented in writing and appended to or incorporated into this document, with the date of amendment and the names of the directors approving such amendment clearly recorded.
II. GOVERNANCE AND RESPONSIBILITIES
A. Board of Directors
Ultimate fiduciary responsibility for the Foundation's investment program rests with the Board of Directors. The Board's duties in connection with the investment program arise from both state law—principally the fiduciary standards set forth in the NY N-PCL and the NY PMIFA—and federal tax law, which imposes excise taxes and penalties on private foundations that engage in prohibited transactions or fail to meet minimum distribution requirements.
The Board's specific responsibilities with respect to the investment program include the following:
(a) Adopting, reviewing, and amending this Investment Policy Statement as necessary to reflect changes in the Foundation's financial circumstances, market conditions, or applicable law;
(b) Selecting, monitoring, and, when warranted, terminating the Foundation's investment manager, and negotiating and approving the terms of any investment management agreement;
(c) Approving the strategic asset allocation targets and permissible ranges set forth in this IPS, and any material changes thereto;
(d) Reviewing the performance of the Foundation's investment portfolio at least quarterly, including evaluation of returns relative to stated benchmarks, compliance with the guidelines and restrictions of this IPS, and the adequacy of liquidity to meet distribution and expense obligations;
(e) Ensuring the Foundation's compliance with the minimum distribution requirements of Section 4942 of the Code, the prohibition on excess business holdings under Section 4943, the prohibition on jeopardizing investments under Section 4944, and the self-dealing prohibitions under Section 4941;
(f) Approving all alternative or illiquid investments prior to execution, consistent with the guidelines set forth in Section V of this IPS; and
(g) Maintaining adequate records and documentation of all investment-related decisions, including the rationale for any deviations from IPS guidelines.
The Treasurer of the Foundation, Katherine C. Hartfield, shall serve as the primary liaison between the Board and the investment manager for purposes of routine reporting, information requests, and day-to-day communication. The Treasurer's role in this capacity is administrative and does not diminish the collective fiduciary responsibility of the full Board.
Consistent with the Foundation's self-dealing policy under Section 4941 of the Code and the Foundation's governing instruments, no compensation is paid to family-member directors for their service on the Board of Directors. Dr. Margaret P. Elsworth, as the sole independent (non-family) director, may receive reasonable compensation for her Board service, subject to Board approval and compliance with applicable law.
B. Investment Manager
The Foundation has retained Havensbrook Wealth Advisors LLC ("Havensbrook") as its investment manager, pursuant to an investment management agreement executed contemporaneously with the adoption of this IPS. The key contact at Havensbrook for Foundation matters is:
Diana R. Linden, CFP® Managing Director, Family Office Services Havensbrook Wealth Advisors LLC 900 Third Avenue, 18th Floor New York, New York 10022
Havensbrook's responsibilities in connection with the Foundation's investment program include the following:
(a) Day-to-day management of the Foundation's investment portfolio within the parameters, guidelines, and restrictions set forth in this IPS;
(b) Execution of securities transactions, including purchases, sales, and exchanges of portfolio securities, in a manner consistent with the Foundation's investment objectives and best execution standards;
(c) Implementation and ongoing management of the strategic asset allocation approved by the Board, including periodic rebalancing as described in Section V.B of this IPS;
(d) Preparation and delivery of quarterly performance reports to the Board, including portfolio holdings, market values, asset allocation relative to targets, investment returns relative to benchmarks, attribution analysis, and disclosure of any guideline breaches or deviations;
(e) Tax lot management and coordination with the Foundation's accountants, Strathmore Corporation & Greaves LLP (attention: Martin J. Prescott, CPA, 600 Third Avenue, 28th Floor, New York, New York 10016), to facilitate the accurate computation of realized gains and losses, net investment income, and related tax obligations;
(f) Prompt notification to the Treasurer and, where appropriate, to the full Board of any material deviation from the guidelines set forth in this IPS, including any breach of asset allocation ranges, diversification limits, or investment restrictions;
(g) Coordination with the Board and the Foundation's tax advisors to ensure that no investment transaction violates the self-dealing prohibitions of Section 4941, the excess business holdings limitations of Section 4943, or the jeopardizing investment standards of Section 4944 of the Code; and
(h) Annual certification to the Board that all investment activities during the preceding fiscal year were conducted in compliance with this IPS and applicable law.
Havensbrook shall exercise discretionary authority with respect to the management of the Foundation's investment portfolio, subject to the asset allocation ranges, diversification requirements, and investment restrictions established in this IPS. Havensbrook shall not deviate beyond the stated permissible ranges for any asset class without prior written approval from the Board or, in exigent circumstances, the Treasurer acting with the authorization of the Board. All discretionary authority granted to Havensbrook is subject to the prohibitions and restrictions set forth in Sections V and VI of this IPS, and Havensbrook acknowledges its obligation to comply with such provisions at all times.
Investment management fees payable to Havensbrook shall be reasonable and shall be fully disclosed in writing in the investment management agreement and in Havensbrook's periodic reporting to the Board. Such fees constitute permissible expenses of the Foundation and may count toward the Foundation's five-percent (5%) minimum distribution requirement as qualifying administrative expenses, to the extent permitted under Section 4942 of the Code and applicable Treasury Regulations.
C. Role of Accountants and Tax Advisors
The Foundation has engaged Strathmore Corporation & Greaves LLP as its accountants and tax advisors. The primary contact at Strathmore Corporation & Greaves is Martin J. Prescott, CPA, located at 600 Third Avenue, 28th Floor, New York, New York 10016.
Strathmore Corporation & Greaves LLP is responsible for the following functions in connection with the Foundation's investment program:
(a) Preparation of the Foundation's annual information return on Form 990-PF, including all schedules and attachments relating to investment income, capital gains, and qualifying distributions;
(b) Calculation of the Foundation's excise tax liability under Section 4940 of the Code, including the determination of net investment income and the applicable tax rate (whether the standard rate of 1.39% or, if applicable, the reduced rate);
(c) Monitoring the Foundation's compliance with the minimum distribution requirements of Section 4942, including computation of the distributable amount, tracking of qualifying distributions, and identification of any undistributed income that may be subject to excise tax;
(d) Coordination with Havensbrook on tracking distributable amounts, undistributed income, and the allocation of investment management fees between investment expenses and qualifying administrative expenses; and
(e) Preparation and filing of estimated tax payments with respect to the Foundation's excise tax obligations under Section 4940.
D. Role of Legal Counsel
Calderwood & Harkness LLP, through its Specialist Partner in Tax-Exempt Organizations and Private Foundations, Sylvia Hartwell, serves as the Foundation's legal counsel and is available for ongoing consultation on investment-related tax and compliance issues. Calderwood & Harkness LLP's role includes advising the Board and the investment manager on the application of the private foundation excise tax rules (Sections 4940 through 4945 of the Code) to specific investment transactions and strategies, reviewing the Foundation's compliance with New York State fiduciary standards under the NY N-PCL and NY PMIFA, and providing guidance on any novel or complex issues that arise in connection with the Foundation's investment program. All potential self-dealing questions and issues relating to excess business holdings or jeopardizing investments shall be referred to Calderwood & Harkness LLP for analysis prior to the execution of any transaction.
III. INVESTMENT OBJECTIVES
A. Primary Objective
The primary investment objective of the Foundation is to preserve the real (inflation-adjusted) purchasing power of the Foundation's endowment over the long term while generating sufficient returns to meet the annual five-percent (5%) minimum distribution requirement imposed on private foundations under Section 4942 of the Code. In addition, the investment portfolio must generate returns sufficient to cover the Foundation's administrative expenses, including investment management fees, accounting and legal costs, directors' and officers' insurance, and the excise tax on net investment income imposed under Section 4940 of the Code (currently at a rate of 1.39%, or the reduced rate of 1% if applicable).
The Foundation is intended to exist in perpetuity, and accordingly, the investment strategy must balance the near-term need to fund charitable distributions and operating expenses against the long-term imperative of maintaining the real value of the endowment so that the Foundation can continue to fulfill its charitable mission—support for the arts, education, and environmental conservation in the New York metropolitan area—for generations to come.
B. Return Objective
The Foundation targets a total return (net of investment management fees and other expenses) sufficient to fund the following annual obligations:
(a) Annual Qualifying Distributions. The Foundation must make annual qualifying distributions of at least five percent (5%) of the net fair market value of its non-charitable-use assets, as determined in accordance with Section 4942 of the Code. Based on the initial corpus of $10,000,000 in net investment assets, the Year 1 target qualifying distribution is $500,000. As the Foundation's assets grow or decline due to investment returns, additional contributions, or distributions, the minimum distribution amount will adjust proportionally.
(b) Reasonable Administrative Expenses. The Foundation incurs ongoing administrative expenses, including investment management fees payable to Havensbrook Wealth Advisors LLC, accounting and tax preparation fees payable to Strathmore Corporation & Greaves LLP, legal fees payable to Calderwood & Harkness LLP, directors' and officers' liability insurance premiums, and miscellaneous operating costs. These expenses are necessary for the effective operation and governance of the Foundation and must be funded from investment returns.
(c) Excise Tax on Net Investment Income. The Foundation is subject to an excise tax under Section 4940 of the Code on its net investment income, currently imposed at a rate of 1.39%. This excise tax liability must be funded from investment returns and represents an additional cost layered on top of the Foundation's distribution and administrative expense obligations.
(d) Preservation of Corpus in Real Terms. After funding distributions, expenses, and excise taxes, the investment portfolio should generate sufficient returns to maintain the inflation-adjusted value of the Foundation's endowment over time. The target total return, expressed in gross terms over a full market cycle (generally defined as a period of seven to ten years encompassing both rising and declining markets), is approximately eight to nine percent (8%–9%) per annum, which reflects the sum of the target spending rate (5%–6%), estimated administrative expenses and excise taxes (approximately 1%–1.5%), and an allowance for inflation (approximately 2%–3% based on long-term CPI trends). Stated differently, the return target may be expressed as CPI plus 5% plus expenses.
The Board recognizes that returns in any single year may deviate materially from this target, and that the long-term return objective is expected to be achieved only over full market cycles.
C. Risk Objective
The Foundation adopts a moderate risk tolerance, commensurate with its perpetual time horizon and the need for portfolio stability sufficient to meet annual distribution obligations without undue disruption. While the Foundation's indefinite existence supports a meaningful allocation to growth-oriented asset classes that may exhibit short-term volatility, the Board seeks to avoid excessive volatility that could impair the Foundation's ability to satisfy its minimum distribution requirement in any single year or that could cause permanent loss of capital.
Diversification across asset classes, geographies, and investment styles is the Foundation's primary tool for managing downside risk. The asset allocation targets and permissible ranges established in Section V of this IPS are designed to provide broad diversification while allowing the investment manager reasonable flexibility to respond to changing market conditions. The Board expects that the portfolio will experience periodic drawdowns consistent with the performance of a balanced, diversified portfolio, but that the magnitude and duration of such drawdowns will be moderated by the portfolio's fixed income, real asset, and cash allocations.
D. Liquidity Objective
The Foundation shall maintain sufficient liquidity at all times to meet its annual distribution obligations, operating expenses, and excise tax liabilities without being forced to liquidate illiquid or depreciated assets at disadvantageous prices. The Board recognizes that private foundations face a unique liquidity constraint: the five-percent minimum distribution requirement under Section 4942 creates a predictable, recurring cash need that must be met regardless of market conditions.
To address this requirement, the Foundation shall maintain a minimum liquidity reserve of approximately $600,000 to $750,000 in cash or cash equivalents (including money market funds, short-term Treasury obligations, and other instruments that can be converted to cash within five business days), representing at least one year of anticipated distributions and operating expenses. This liquidity reserve is intended to provide a buffer that allows the investment manager to fund distributions and expenses from liquid holdings even in periods of market stress, thereby preserving the Foundation's ability to hold illiquid or volatile positions through adverse market conditions.
E. Time Horizon
The Foundation is intended to exist in perpetuity. Accordingly, investment decisions shall be made with a long-term perspective, generally defined as a planning horizon of ten or more years for growth-oriented allocations (equities, real assets, and alternative investments). At the same time, the investment strategy must accommodate the Foundation's near-term distribution needs and expense obligations, which create an annual cash requirement that must be met regardless of market conditions. The investment manager shall balance these competing considerations by maintaining a diversified portfolio with both growth-oriented and income-generating components, and by maintaining the liquidity reserve described in Section III.D above.
IV. ASSET ALLOCATION GUIDELINES
A. Strategic Asset Allocation
The Board has established the following strategic asset allocation targets and permissible ranges, which are designed to achieve the Foundation's return, risk, and liquidity objectives as described in Section III of this IPS. These targets reflect the Foundation's moderate risk tolerance, its perpetual time horizon, and its need for a balance of growth, income, and liquidity.
The aggregate target equity allocation (U.S. large-cap, U.S. small/mid-cap, international developed, and emerging market equities) is fifty-five percent (55%), reflecting the Foundation's long-term growth orientation. The aggregate target fixed income allocation (U.S. investment-grade and global fixed income/TIPS) is twenty-five percent (25%), providing portfolio stability and income generation. The combined allocation to real assets, alternatives, and cash is twenty percent (20%), providing inflation protection, diversification benefits, and liquidity.
The Board acknowledges that the permissible ranges provide the investment manager with meaningful flexibility to adjust the portfolio's risk profile in response to changing market conditions, while ensuring that the overall portfolio structure remains consistent with the Foundation's investment objectives. Havensbrook may operate within the permissible ranges at its discretion, but any allocation that would cause an asset class to exceed its permissible range requires prior Board approval.
B. Rebalancing
The Foundation's investment portfolio shall be reviewed at least quarterly by Havensbrook in connection with the preparation of quarterly performance reports. At each quarterly review, Havensbrook shall assess whether any asset class has deviated beyond its permissible range as specified in the table above.
When any asset class exceeds its permissible range, Havensbrook shall rebalance the portfolio to bring the allocation back within the permissible range, and preferably toward the target allocation, within a reasonable period (generally not to exceed thirty calendar days, unless market conditions or transaction costs counsel a more gradual approach). Rebalancing shall be effected using a combination of the following methods, prioritized to minimize unnecessary transaction costs and tax consequences:
(a) Cash flow rebalancing. To the extent practicable, Havensbrook shall direct new contributions, investment income, and dividends to underweighted asset classes, and shall fund distributions and expense payments from overweighted asset classes.
(b) Portfolio transactions. When cash flow rebalancing is insufficient to correct allocation deviations, Havensbrook shall execute purchases and sales of portfolio securities to restore the target allocation.
Although the Foundation is exempt from federal income tax on its investment income (other than unrelated business taxable income), the Foundation is subject to the excise tax on net investment income under Section 4940 of the Code. Accordingly, the tax implications of rebalancing transactions—particularly the realization of capital gains—shall be considered by Havensbrook and discussed with Strathmore Corporation & Greaves LLP in connection with the Foundation's overall tax planning.
C. Diversification Requirements
The Foundation's investment portfolio shall be diversified across individual securities, issuers, sectors, and geographies to mitigate concentration risk. The following diversification requirements shall apply:
(a) Individual Equity Securities. No single equity security shall exceed five percent (5%) of the total portfolio value at the time of purchase. If an individual equity position appreciates beyond five percent (5%) of total portfolio value through market action (i.e., without additional purchases), the position shall be monitored by Havensbrook and reduced at the next scheduled rebalancing, taking into account transaction costs, tax implications, and market conditions.
(b) Fixed-Income Issuers. No single fixed-income issuer, other than the United States government and its agencies, shall represent more than five percent (5%) of the total portfolio value. Obligations of the United States government and its agencies are exempt from this limitation.
(c) Sector Concentration. Within the equity allocation, no single industry sector (as defined by the Global Industry Classification Standard or a comparable classification system) shall exceed twenty-five percent (25%) of the total equity allocation.
(d) Geographic Diversification. The combined international allocation (international developed equities plus emerging market equities) shall constitute at least ten percent (10%) of the total portfolio at all times, ensuring that the Foundation benefits from geographic diversification and exposure to global economic growth.
These diversification requirements are intended to complement the Foundation's asset allocation targets and to provide an additional layer of risk management at the individual security and issuer level.
V. INVESTMENT GUIDELINES AND RESTRICTIONS
A. Permitted Investments
Subject to the restrictions set forth in Section V.B below and the asset allocation guidelines established in Section IV, the following categories of investments are permitted for the Foundation's portfolio:
(a) Publicly traded equity securities, including common stock, preferred stock, and American Depositary Receipts (ADRs), listed on a recognized securities exchange or traded in established over-the-counter markets;
(b) Investment-grade corporate and municipal bonds, defined as obligations rated BBB- (Standard & Poor's) or Baa3 (Moody's) or higher by at least one nationally recognized statistical rating organization at the time of purchase;
(c) Obligations of the United States Treasury, including Treasury bills, notes, and bonds, and obligations issued or guaranteed by agencies and instrumentalities of the United States government;
(d) Money market funds registered under the Investment Company Act of 1940 and certificates of deposit issued by FDIC-insured depository institutions;
(e) Registered mutual funds and exchange-traded funds (ETFs) that invest primarily in the asset classes described in the strategic asset allocation table in Section IV.A;
(f) Publicly traded real estate investment trusts (REITs) listed on a recognized securities exchange;
(g) Treasury Inflation-Protected Securities (TIPS) issued by the United States Treasury; and
(h) Alternative investment funds, including hedge funds and private equity funds, subject to prior Board approval for each specific investment and limited to the permissible allocation range of zero to ten percent (0%–10%) of total portfolio value.
B. Prohibited Investments and Restrictions
1. Jeopardizing Investments — IRC § 4944 Compliance
Section 4944 of the Code imposes a ten-percent (10%) initial excise tax on a private foundation that makes an investment that jeopardizes the carrying out of any of its exempt purposes, and an additional five-percent (5%) tax on any foundation manager who participated in such investment knowing that it constituted a jeopardizing investment. The Foundation is committed to avoiding any investment that could be characterized as jeopardizing within the meaning of Section 4944 and the applicable Treasury Regulations.
The Board and the investment manager shall exercise ordinary business care and prudence, under the facts and circumstances prevailing at the time of the investment decision, in evaluating whether an investment jeopardizes the Foundation's exempt purposes. Consistent with Treasury Regulation Section 53.4944-1(a)(2), each investment shall be evaluated in the context of the Foundation's overall portfolio; a single speculative or high-risk investment is not per se a jeopardizing investment if it is prudent when considered as part of the Foundation's diversified portfolio.
Notwithstanding the foregoing, the following types of investments are deemed presumptively imprudent and shall not be made absent compelling justification and prior approval by a supermajority of the Board (four of six directors):
(a) Commodity futures and options purchased on margin;
(b) Short selling of securities;
(c) Direct investments in operating businesses (other than through publicly traded securities or diversified pooled vehicles);
(d) Leveraged positions, including investments financed with borrowed funds or margin accounts; and
(e) Concentrated positions in a single security or sector that exceed the diversification guidelines set forth in Section IV.C of this IPS.
The Board shall document the investment rationale for any alternative, illiquid, or otherwise unusual investment in its meeting minutes, including the Board's analysis of whether the investment constitutes a jeopardizing investment under Section 4944. Such documentation shall be maintained as a permanent record of the Foundation.
2. Excess Business Holdings — IRC § 4943 Compliance
Section 4943 of the Code imposes excise taxes on private foundations that hold, together with all disqualified persons, interests in business enterprises that exceed specified thresholds. In general, the combined holdings of the Foundation and all disqualified persons (as defined in Section 4946 of the Code) in any business enterprise may not exceed twenty percent (20%) of the voting stock of such enterprise, reduced by the percentage of voting stock held by all disqualified persons. A de minimis exception permits the Foundation itself to hold up to two percent (2%) of the voting stock of a business enterprise without regard to the holdings of disqualified persons.
The Foundation shall not acquire or hold any interest in a business enterprise that would cause the combined holdings of the Foundation and all disqualified persons to exceed the permitted thresholds under Section 4943. To ensure compliance with this restriction, the following procedures shall be observed:
(a) Havensbrook Wealth Advisors LLC shall maintain and periodically update a list of all business enterprises in which disqualified persons (as identified in Appendix B to this IPS) are known to hold interests, and shall not purchase any securities of such enterprises without prior clearance from the Treasurer and, where appropriate, Calderwood & Harkness LLP;
(b) Strathmore Corporation & Greaves LLP shall coordinate with Havensbrook and the Board to identify all disqualified person holdings on an annual basis, in connection with the preparation of the Foundation's Form 990-PF; and
(c) In the event that the Foundation inadvertently acquires a holding that would result in excess business holdings (e.g., through a merger, stock split, or corporate reorganization), the Foundation shall dispose of the excess holdings within the time period prescribed by Section 4943(c)(6) of the Code (generally five years from the date of acquisition, subject to any extensions granted by the IRS).
3. Self-Dealing Restrictions — IRC § 4941 Compliance
Section 4941 of the Code imposes excise taxes on acts of self-dealing between a private foundation and its disqualified persons. The Foundation is committed to the strict avoidance of any transaction that could constitute an act of self-dealing within the meaning of Section 4941. The following investment-related restrictions are imposed:
(a) No investment transaction shall be made with, or for the economic benefit of, any disqualified person, as defined in Section 4946 of the Code and identified in Appendix B to this IPS;
(b) No Foundation assets shall be invested in securities or other interests of entities controlled by Jonathan R. Caldwell, Eleanor V. Caldwell, their children, or any other disqualified person, including but not limited to Caldwell Ridgeline Capital LLC (and all funds or investment vehicles managed or sponsored thereby), Stonecrest Realty Holdings LLC, and Meridian Crest Partners LLC;
(c) No loans or extensions of credit shall be made from the Foundation to any disqualified person, and no Foundation assets shall be pledged or used as security for any obligation of a disqualified person; and
(d) All potential self-dealing questions, including any transaction in which a disqualified person may have a direct or indirect interest, shall be referred to Calderwood & Harkness LLP (Sylvia Hartwell) for analysis and written guidance prior to the execution of the transaction.
The Board recognizes that acts of self-dealing under Section 4941 are subject to strict liability and that the Foundation may not avoid the excise tax merely by demonstrating that the transaction was fair to the Foundation or at arm's length. Accordingly, the Foundation's policy is to avoid even the appearance of self-dealing in all investment transactions.
4. Other Restrictions
In addition to the foregoing restrictions, the Foundation's investment portfolio shall be subject to the following additional limitations:
(a) No Leverage. The Foundation shall not use leverage (margin borrowing) against Foundation assets. No Foundation securities shall be held in a margin account, and no investment shall be financed with borrowed funds.
(b) No Direct Real Property Ownership. The Foundation shall not acquire or hold direct ownership interests in real property. Exposure to real estate as an asset class shall be obtained exclusively through publicly traded real estate investment trusts (REITs) or diversified real estate mutual funds and ETFs.
(c) No Tax-Exempt Bonds Producing UBTI. The Foundation shall not acquire tax-exempt bonds or other obligations if the acquisition would produce unrelated business taxable income (UBTI) under Sections 511 through 514 of the Code, including obligations that constitute "acquisition indebtedness" within the meaning of Section 514.
(d) Environmental, Social, and Governance (ESG) Considerations. The Board encourages Havensbrook to consider environmental, social, and governance factors in the investment selection process, consistent with the Foundation's charitable mission of support for the arts, education, and environmental conservation. However, ESG considerations shall be secondary to the Foundation's fiduciary return and risk objectives, and Havensbrook shall not sacrifice expected returns or assume inappropriate risk levels for the purpose of pursuing ESG objectives. The integration of ESG factors is encouraged as a complement to, and not a substitute for, rigorous financial analysis.
VI. SPENDING POLICY AND MINIMUM DISTRIBUTION COMPLIANCE
A. IRC § 4942 Minimum Distribution Requirement
As a private foundation, the Foundation is required to distribute annually for charitable purposes an amount equal to at least five percent (5%) of the average fair market value of its net investment assets (i.e., non-charitable-use assets) determined on a monthly basis for the preceding taxable year. The Foundation's taxable year is the calendar year.
For the Foundation's first year of operations, the minimum distribution calculation is based on the net fair market value of the Foundation's investment assets. Based on an initial corpus of $10,000,000, the Year 1 minimum qualifying distribution is calculated as follows:
$10,000,000 × 5% = $500,000 minimum qualifying distribution
As the Foundation's assets grow through investment returns and potential additional contributions, or decline due to distributions, expenses, or investment losses, the minimum distribution amount will adjust proportionally in subsequent years. The Board and Strathmore Corporation & Greaves LLP shall monitor the Foundation's distributable amount throughout each taxable year to ensure that the Foundation satisfies the minimum distribution requirement on a timely basis and avoids the imposition of excise taxes on undistributed income under Section 4942(a) of the Code.
B. Definition of Qualifying Distributions
Qualifying distributions for purposes of Section 4942 of the Code include the following:
(a) Grants to public charities. Grants made to organizations described in Section 509(a)(1), 509(a)(2), or 509(a)(3) of the Code constitute qualifying distributions.
(b) Grants to other private foundations or non-public charities with expenditure responsibility. The Foundation may make grants to organizations that are not public charities, provided that the Foundation exercises expenditure responsibility as required by Section 4945(h) of the Code, including obtaining written commitments from the grantee, monitoring the use of grant funds, and filing expenditure responsibility reports on the Foundation's Form 990-PF.
(c) Reasonable and necessary administrative expenses. Administrative expenses that are attributable to the Foundation's charitable activities—as distinguished from expenses attributable to investment management—constitute qualifying distributions. Investment management fees paid to Havensbrook Wealth Advisors LLC are partially allocable as qualifying administrative expenses; Strathmore Corporation & Greaves LLP shall determine the allocable portion annually based on the time and effort devoted to activities related to the Foundation's charitable mission versus investment management.
(d) Set-asides approved by the IRS. The Foundation may count as qualifying distributions amounts set aside for specific projects, provided that the set-aside is approved by the Internal Revenue Service in accordance with Section 4942(g)(2) of the Code and the applicable Treasury Regulations.
C. Spending Rate and Distribution Timing
The Board has established a target annual spending rate of five percent to six percent (5.0%–6.0%) of the Foundation's net investment assets. This target range is designed to meet the five-percent floor imposed by Section 4942 while providing a modest buffer above the minimum to account for fluctuations in asset values and to ensure timely compliance. The Board recognizes that the Foundation may, in certain years, choose to distribute in excess of the minimum requirement in order to fund specific charitable initiatives or to build a record of distributions that could serve as a cushion in future years.
Distributions shall be made throughout the Foundation's fiscal year on a regular basis. The Foundation shall not defer all charitable distributions to the final quarter or final month of the fiscal year, as such a practice would increase the risk of inadvertent noncompliance and would be inconsistent with the Foundation's charitable mission. The Board shall approve an annual grant budget at the beginning of each fiscal year, informed by the prior year's net investment asset valuation and the Foundation's programmatic priorities.
Undistributed income carried forward from any taxable year is subject to excise tax under Section 4942(a) of the Code. The Board and Strathmore Corporation & Greaves LLP shall monitor the Foundation's distribution activity throughout the year to ensure that the Foundation's qualifying distributions meet or exceed the distributable amount for each taxable year. In the event that the Foundation is at risk of having undistributed income at the close of a taxable year, the Board shall take prompt action to authorize additional qualifying distributions.
D. Coordination with Investment Objectives
The Foundation's spending policy and investment strategy are designed to be mutually reinforcing. The investment manager shall maintain sufficient liquid assets at all times to fund anticipated distributions and operating expenses without the need for forced sales of illiquid or depreciated securities. The liquidity reserve described in Section III.D of this IPS is sized to provide a cushion of at least one year of anticipated distributions and expenses.
The Foundation adopts a total return approach to investment management and spending. Under this approach, the spending policy is not limited to investment income (interest, dividends, and realized gains) but draws on the total return of the portfolio, including unrealized appreciation to the extent that appreciation is realized through portfolio transactions. This total return approach is consistent with the NY PMIFA and with prudent practice for private foundations, and allows the Foundation to construct a diversified portfolio that includes growth-oriented investments that may generate returns primarily through capital appreciation rather than current income.
In years when investment returns are below the target spending rate, distributions shall still be made from corpus to the extent necessary to meet the five-percent minimum distribution requirement under Section 4942 of the Code. The investment manager shall plan for this contingency by maintaining adequate liquidity and by constructing the portfolio to withstand periodic drawdowns without jeopardizing the Foundation's long-term financial health. The Board recognizes that spending from corpus in a down market will temporarily reduce the Foundation's asset base and future distributable amount, and shall take this dynamic into account in setting the annual grant budget.
VII. EXCISE TAX CONSIDERATIONS — IRC § 4940
A. Tax on Net Investment Income
The Foundation is subject to an excise tax on its net investment income under Section 4940 of the Code. As amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2019, the excise tax is imposed at a flat rate of 1.39% of net investment income. The prior two-tier rate structure (under which certain foundations could qualify for a reduced rate of 1% by meeting specified distribution thresholds) has been replaced by the single flat rate for taxable years beginning after December 20, 2019.
Net investment income, for purposes of Section 4940, includes interest, dividends, rents, royalties, and net capital gains (the excess of capital gains over capital losses from the sale or disposition of property), less expenses that are allocable to the production of investment income, including a reasonable portion of investment management fees, custodial fees, and accounting fees related to investment activities.
Havensbrook Wealth Advisors LLC shall provide quarterly estimates of the Foundation's net investment income to Strathmore Corporation & Greaves LLP for purposes of calculating and remitting estimated excise tax payments. Estimated payments of the excise tax are required to be made on the same schedule as estimated income tax payments by corporations (generally four installments per year), and failure to make timely estimated payments may result in the imposition of penalty and interest. The Foundation's investment strategy and return targets account for the excise tax as an additional cost that reduces the net return available for distributions, expenses, and corpus preservation.
The Board shall review the Foundation's excise tax liability annually in connection with the review of the Foundation's Form 990-PF and shall consult with Strathmore Corporation & Greaves LLP and Calderwood & Harkness LLP regarding any legislative or regulatory changes affecting the excise tax rate or computation.
VIII. PERFORMANCE MONITORING AND REPORTING
A. Benchmarks
The performance of the Foundation's investment portfolio shall be measured against the following benchmarks, which have been selected to correspond to the strategic asset allocation targets established in Section IV of this IPS.
Overall Portfolio Benchmark. The overall portfolio benchmark is a blended composite benchmark reflecting the Foundation's target asset allocation, weighted as follows:
• 60% MSCI ACWI Index — representing the combined equity allocation (U.S. large-cap, U.S. small/mid-cap, international developed, and emerging market equities)
• 25% Bloomberg U.S. Aggregate Bond Index — representing the combined fixed income allocation (U.S. investment-grade and global fixed income/TIPS)
• 10% FTSE NAREIT All Equity REITs Index — representing the real assets allocation
• 5% 3-Month U.S. Treasury Bill — representing the cash and cash equivalents allocation
Individual Asset Class Benchmarks. Performance within each asset class shall be measured against the following benchmarks:
Performance shall be evaluated on a trailing one-year, three-year, and five-year basis, as data becomes available. All performance figures shall be reported net of investment management fees and expenses. The Board recognizes that meaningful performance evaluation requires a sufficient track record and that performance over periods shorter than three years should be interpreted with caution.
B. Reporting Requirements
Havensbrook Wealth Advisors LLC shall provide the following reports to the Board of Directors and the Treasurer:
Monthly Reports. Within fifteen (15) business days following the end of each calendar month, Havensbrook shall deliver a portfolio summary that includes: a listing of all portfolio holdings and their market values; the current asset allocation compared to target allocations and permissible ranges; and a summary of all transactions executed during the month.
Quarterly Reports. Within thirty (30) calendar days following the end of each calendar quarter, Havensbrook shall deliver a comprehensive performance report that includes: portfolio returns for the quarter and year-to-date, compared to the blended benchmark and individual asset class benchmarks; performance attribution analysis identifying the sources of outperformance or underperformance; a statement of compliance with all IPS guidelines, including asset allocation ranges, diversification requirements, and investment restrictions; disclosure of any guideline breaches that occurred during the quarter and a description of the remediation actions taken; a summary of realized and unrealized gains and losses; and an estimate of net investment income for excise tax purposes.
Annual Reports. Within sixty (60) calendar days following the end of each calendar year, Havensbrook shall deliver a year-end report that includes: a comprehensive summary of portfolio performance for the full year; a detailed accounting of realized and unrealized gains and losses by tax lot; a summary of investment income (interest, dividends, and other income) by source; full disclosure of all fees charged by Havensbrook during the year; a statement of the portfolio's positioning and outlook for the coming year; and any recommendations for changes to the asset allocation or investment guidelines.
Board investment review meetings shall be held at least quarterly, at which Diana R. Linden or her designee from Havensbrook shall be in attendance, either in person or via teleconference, to present the quarterly performance report, respond to Board questions, and discuss market outlook and portfolio positioning. The Treasurer shall coordinate the scheduling of these meetings and shall circulate the quarterly performance report to all Board members at least five (5) business days in advance of each meeting.
C. Investment Manager Evaluation
Havensbrook's performance shall be evaluated against the blended benchmark and individual asset class benchmarks over rolling three-year periods, which the Board considers to be the minimum period necessary for a meaningful evaluation of investment management skill. The Board recognizes that short-term deviations from benchmark performance may result from range factors, including market conditions, investment style, and the timing of cash flows, and that such deviations do not necessarily indicate inadequate management.
However, persistent underperformance—defined as a shortfall of more than one hundred fifty basis points (150 bps) below the blended benchmark on a rolling three-year basis, measured net of fees—shall trigger a formal review by the Board. Such review may include a request for a detailed explanation of the causes of underperformance, a presentation by Havensbrook of corrective measures, and, if the Board is not satisfied with the explanation or proposed remediation, the solicitation of proposals from alternative investment managers.
In addition to quantitative performance evaluation, the Board shall consider the following qualitative factors in its ongoing assessment of Havensbrook: responsiveness to Board inquiries and requests; quality, timeliness, and clarity of reporting; tax efficiency of portfolio management; adherence to the guidelines and restrictions set forth in this IPS; proactive communication regarding market developments, portfolio risks, and compliance issues; and the stability and continuity of the Havensbrook team serving the Foundation.
IX. CONFLICT OF INTEREST AND ETHICAL STANDARDS
A. Disqualified Persons
For purposes of this IPS and the Foundation's compliance with the private foundation excise tax rules, disqualified persons are defined as provided in Section 4946 of the Code and include the following individuals and entities:
(a) All substantial contributors to the Foundation, including Jonathan R. Caldwell and Eleanor V. Caldwell;
(b) All foundation managers (officers, directors, and trustees), including Jonathan R. Caldwell, Eleanor V. Caldwell, Thomas R. Caldwell, Katherine C. Hartfield, Olivia G. Caldwell, and Dr. Margaret P. Elsworth;
(c) All members of the families (within the meaning of Section 4946(d)) of the individuals identified in clauses (a) and (b) above, including Dr. Sarah P. Caldwell, Dr. Andrew W. Hartfield, and their respective family members;