JAMES MADISON UNIVERSITY FOUNDATION

POLICIES AND PROCEDURES

 

EXPENDITURE OF ENDOWMENT INCOME

POLICY # D 201

DATE: APRIL 25, 1998

APPROVED: April 17, 1999; Revised Mar. 3, 2003

POLICY:

IT IS THE POLICY OF JAMES MADISON UNIVERSITY FOUNDATION TO PRESERVE PURCHASING POWER OF ENDOWMENT PRINCIPAL, TO PROTECT PRINCIPAL AGAINST EROSION, AND TO PROMOTE STABILITY AND PREDICTABILITY OF ANNUAL DISTRIBUTION OF "EXPENDABLE INCOME".

Procedure: The amount of "expendable income" distributed for a given fiscal year is determined by multiplying the higher of the two values obtained from the following calculations by the percentages stated below:

1. First, calculate the average market value of each endowment account for the twelve quarters ended *December 31.
2. Second, calculate the average cost value of each endowment account for the four quarters ended *December 31.

(*The ending December quarter is the one preceding the fiscal year that will receive the expendable income distribution.)

The higher value is multiplied by:

1. 4.00% to determine "expendable income" available for use according to the endowment's purpose.
2. 1.00% to determine "expendable income" available for management and operation expenses.

 

Expendable income is taken first from endowment net earnings of the current year, second from net earning of prior years, and if necessary from unrestricted funds. Endowment principal is not available for expenditures. Unrestricted funds are replenished from future endowment net earnings.

 

The principal of each endowment is accounted separately from its earnings. However, principal and earnings are combined to determine market value. For endowment agreements signed after December 31, 2003, endowment principal must be $25,000 or more to receive and distribute net earnings.  [Before January 1, 2004, the minimum balance to participate in the investment portfolio was $10,000; before July 1, 1992, it was $5,000; before July 1, 1987, it was $2,000.]

 

If a substantial decline in investment return occurs, this spending policy will be reviewed with consideration given to reduce distributions.

 

An Expendable Income Letter is prepared annually and sent in February to the administrator designated to use the funds. Distribution is made in July, the first month of the fiscal year. Expendable income must be used according to the endowment's purpose.