University of Toledo Foundation ENDOWMENT SPENDING POLICY Board of Trustees Approval – December 17, 2009

UTF Endowment Spending Policy Why? Why? To address Ohio’s adoption of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). To address Ohio’s adoption of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). To determine a set of standards and spending rules for UTF endowment funds. To determine a set of standards and spending rules for UTF endowment funds.

Ohio UPMIFA Requires institutions to act in good faith, with the care that an ordinary prudent person would exercise under similar circumstances. Requires institutions to act in good faith, with the care that an ordinary prudent person would exercise under similar circumstances. Factors to consider for management: Factors to consider for management: 1. Duration and preservation 2. Purpose of institution 3. Economic conditions 4. Inflation and deflation 5. Investment return 6. Investment policy 7. Other resources of the institution

Donor IntentTakes Precedence Donor intent specifically expressed in a fund agreement takes precedence over UPMIFA and UTF endowment spending policies. Donor intent specifically expressed in a fund agreement takes precedence over UPMIFA and UTF endowment spending policies.

Endowment Components – Basic Example Permanently Restricted (Original gifts) Permanently Restricted (Original gifts) Quasi – Temporarily Restricted (Net of accumulated earnings and spending) Quasi – Temporarily Restricted (Net of accumulated earnings and spending) Spendable Account (Net available for spending in current year) Spendable Account (Net available for spending in current year) Increase Decrease Increase Decrease Fund TypeIncreasesDecreases Permanently restrictedNew gifts Quasi – temporarily restrictedInvestment Gains Spendable Roll-back Investment Losses Allocation to spendable for current year budget Spendable accountAllocation to spendable for current year budget Expenses (Spending) Spendable Roll-back

Underwater Endowments Endowments are considered “underwater” when the total fund value is below the original gift value of the fund. Endowments are considered “underwater” when the total fund value is below the original gift value of the fund. Example: Example:

Original Gift Value (OGV) Limit Spending will cease when the fund is under- water. Spending will cease when the fund is under- water. UTF will review funds annually. If fund is underwater, no spending will be permitted for next fiscal year. UTF will review funds annually. If fund is underwater, no spending will be permitted for next fiscal year. If underwater, the spendable balance will be rolled-back (re-invested in the pooled investments) to the Quasi balance to accelerate recovery of the fund. If underwater, the spendable balance will be rolled-back (re-invested in the pooled investments) to the Quasi balance to accelerate recovery of the fund.

Exceptions to OGV Limit – Continue to spend while underwater 1. Guaranteed renewable (multi-year) scholarships and awards. 2. Endowed chair and professorship funds under contractual agreements. (please communicate to the Foundation any time UTF funds are included in a contractual agreement) 3. Endowed chair and professorship funds restricted specifically for salary and benefits of a base-budgeted position. (not that common) 4. Donor authorization in fund agreement or other written documentation.

Exceptions – Stop-Loss Threshold Stop-loss threshold – the limit a fund value will be allowed to go below original gift value before spending ceases. Stop-loss threshold – the limit a fund value will be allowed to go below original gift value before spending ceases. UTF has established a stop-loss threshold of 80% of OGV for the exception funds. UTF has established a stop-loss threshold of 80% of OGV for the exception funds. The stop-loss provides a balance between supporting our commitments and prudent management of funds. The stop-loss provides a balance between supporting our commitments and prudent management of funds.

Stop-Loss Example Year 1 – Original Gift $1,000,000 Year 1 – Original Gift $1,000,000 Year 2 – FMV of Fund $900,000 Year 2 – FMV of Fund $900,000 (Spending available for year 2) Year 3 - FMV of Fund $770,000 Year 3 - FMV of Fund $770,000 (No spending available for year 3) (No spending available for year 3) Year 4 – FMV of Fund $790,000 Year 4 – FMV of Fund $790,000 (No spending available for year 4) Year 5 – FMV of Fund $810,000 Year 5 – FMV of Fund $810,000 (Spending available up to $10,000) NOTE: STOP-LOSS = $800,000

Spending From New Endowments Spending will commence on a newly established endowment after at least a 12-month waiting period. Spending will commence on a newly established endowment after at least a 12-month waiting period. Spending will commence during the first Fall or Spring semester after the 12-month period. Spending will commence during the first Fall or Spring semester after the 12-month period. Why? Why? Immediate spending puts the fund in an underwater position. Immediate spending puts the fund in an underwater position. Endowments are set-up to spend from earnings; need 12-month period to accumulate earnings. Endowments are set-up to spend from earnings; need 12-month period to accumulate earnings.

Spendable Balance Carry-forward If fund is not underwater, you can carry-over your spendable balance to next year. If fund is not underwater, you can carry-over your spendable balance to next year. Spendable Balance Justification Form needs to be completed to request the carry-over. Spendable Balance Justification Form needs to be completed to request the carry-over. Form is located on UTF website under frequently used forms. Form is located on UTF website under frequently used forms. Why? Why? Spendable balance is supposed be used for current year. Spendable balance is supposed be used for current year. Spendable balance is not invested in investment pool and therefore, not earning any income to maximize fund values. Spendable balance is not invested in investment pool and therefore, not earning any income to maximize fund values.

UTF – Other Matters Fund Raising and Accounting Software Conversion Fund Raising and Accounting Software Conversion Planned go-live date of 7/1/10. Planned go-live date of 7/1/10. Training sessions expected to occur in June. Training sessions expected to occur in June. Fund number change only slightly. Number will begin with a 1 (endowed) or 2 (non-endowed) followed by the current number’s last six digits. Fund number change only slightly. Number will begin with a 1 (endowed) or 2 (non-endowed) followed by the current number’s last six digits. On-demand reporting expected to be available. On-demand reporting expected to be available. Disbursement policy – slight additions Disbursement policy – slight additions Draft policies in process Draft policies in process Gifts In-Kind Gifts In-Kind Gifts, Grants, Contracts Gifts, Grants, Contracts

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