1. RRFC FREQUENTLY ASKED QUESTIONS
FEBRUARY 2008

2. Investments
How are the benchmarks for the Foundation’s investment returns determined and how often are they reviewed? 
The benchmark for each of the Foundation’s funds is a weighted average of the return of various indices that represent the asset classes in which the fund is invested.
Each fund’s benchmark is reviewed on an ongoing basis by the Investment Advisory Committee.

3. Annual Programs Fund Benchmark Composition

4. Investments
How has the Foundation responded to investment returns below the benchmark? 
Increased its allocation to index funds for asset classes that have had trouble beating their respective benchmarks, such as U.S. equities.
Diversified its portfolio to reduce risk and add value over the benchmark.
Identified investment manager selection as the top priority for TRF’s investment consultant.

5. Investments
How much exposure does TRF have to the sub-prime market and what has its impact been? 
At 30 June 2007, $11 million or 1.5% of the Foundation’s total investments
Through December 2007, unrealized losses totaling $6 million
The Foundation’s real estate investments do not have exposure to the sub-prime market.

6. How is the Permanent Fund Spending Rate Determined?
Expected Return
Allocation of Return
Asset Growth Rate (8.6%)
Real
Asset Growth (1.1%)
Spending Rate (5.0%)
Inflation (2.5%)

7. PF Historical Spending Rates
Prior to , the spending policy was: "Income, defined as dividends and interest, may be withdrawn at fiscal year-end by direction of the donor and/or the Foundation officer. Realized and unrealized capital gains shall not be available for current use, but reinvested in order to preserve the purchasing power of the fund.“
Only spending in was for pre-committed educational awards due to losses in financial markets and potential to invade principal.
The spending rate is applied to the 12-quarter moving average of the Fund's market value.
(4) Other expenses includes investment fees, program operations, fund development, and general administration.

8. PF Earnings Available for Spending (US$ Millions)

9. TRF Financial Governance
Who are TRF’s external auditors? What are the criteria for choice and how long is their engagement?
TRF’s external auditors are Deloitte & Touche LLP
Not-for-profit expertise and capability
External auditors are appointed annually based upon a three year agreement in principle
TRF’s external auditors are Deloitte & Touche LLP.
The criteria for selection is based upon not-for-profit expertise and capability to provide the resources to fully audit The Rotary Foundation and Rotary International.
Deloitte & Touche’s performance is evaluated annually. There is a three year agreement in principle with Deloitte & Touche to offer continuity of expectation. However, the external auditors are appointed annually.

10. TRF Financial Governance
Does the TRF Board have an audit committee?
Currently handled by the TRF Finance Committee
TRF Finance (Audit) Committee
To meet in April 2008 to discuss independent Audit Committee requirements
To meet in June 2008 with the RI Audit Committee to discuss joint committee options
The TRF Board’s audit committee accountabilities are currently handled by the TRF Finance Committee. At their January 2008 meeting, the Trustees took the following action.
Item 17. Proposal for a Stand-Alone Audit Committee
DECISION: The Trustees
receive the general secretary’s report regarding a recommended structure for a stand-alone TRF audit committee;
authorize the TRF Finance (Audit) Committee to meet for an additional day during its April 2008 meeting to receive an orientation on typical roles and responsibilities of audit committees and to further discuss potential TRF audit committee responsibilities and structure;
request the RI Board of Directors to authorize a joint meeting of the TRF Finance (Audit) Committee and RI Audit Committee in advance of the June 2008 meetings of the RI Board and TRF Trustees;
authorize a budget variance of US$13,000 for the members of the TRF Finance Committee to meet jointly with the RI Audit Committee in advance of the June 2008 Board and Trustees’ meetings;
request the general secretary to report to the Trustees on this matter at their June 2008 meeting.

11. Revenues and Spending
Please define the “Other” categories, e.g., the US$ 13.7 million.
The composition of “Other” is the Donor Advised Funds (also known as DAF)
It is a new category of revenue and expense with increasing financial significance
The composition of “Other” is the Donor Advised Funds (also known as DAF). It is a new category of revenue and expense that has been isolated into a separate category within the 2007 TRF financial statements due to its increasing financial significance.
The Rotary Foundation Donor Advised Fund (DAF) is a separate fund held by The Rotary Foundation. Contributions to the DAF are irrevocable, and are immediately tax-deductible to the fullest extent provided by U.S. law. The DAF is structured for a U.S. audience.
The DAF is a charitable vehicle that offers individuals and Rotary-affiliated groups the flexibility to make grant recommendations to Foundation programs and U.S. public charities that are IRS-approved and in good standing. Contributions and grant recommendations are subject to review and approval of The Rotary Foundation.
The Rotary Foundation’s programs benefit from an annual distribution to the Annual Programs Fund each year and account holders routinely make grant recommendations to the Foundation’s other funds and programs (e.g. Permanent Fund, PolioPlus, approved Matching Grants, Ambassadorial Scholarships). “Individual” DAF accounts will eventually create a lasting legacy with the Foundation’s Permanent Fund.
Since its introduction in 2002, the DAF has received $14.8 million in contributions and made $11.3 million in grants to benefit Foundation programs and other approved charities. As of 31 December 2007, there were 107 DAF accounts with a fair market value of $6.1 million.

12. Purpose of the Foundation’s operating reserve:
Please clarify the reasons as to why the TRF Operating Reserve was created and the logic for establishing the reserve amount.
Purpose of the Foundation’s operating reserve:
To provide adequate funds to support the Foundation’s operating expenses in the event that investment income is inadequate
Investment income funds operating expenses
100% of contributions funds program awards
Three year earnings cycle
The following addresses the Trustees’ reasons for establishing an Operating Reserve:
Operating Reserve
The Foundation’s operating reserve is the earned income balance of the Annual Programs Fund adjusted for any unspent reserve allocations. The primary purpose of the Foundation’s operating reserve policy is to:
provide adequate funds to support the Foundation’s operating expenses in the event that investment income is inadequate;
provide funds to cover a decline in the value of Rotarians’ contributions due to adverse market conditions;
define parameters, which will determine when surplus funds must be used to support programs or when operating spending should be constrained.
ensure an adequate level of reserves, which will enable the Annual Fund to earn an attractive long-term rate of return by permitting a reasonable percentage of the assets to be invested in the equity markets.
provide for a stable investment policy for the Foundation’s assets.
The Foundations operating reserve policy is the following:
The Foundation shall maintain an operating reserve equal to the sum of (1) budgeted operating expenses for the current year, (2) forecasted operating expenses for the next two fiscal years, and (3) 50% of the budgeted Annual Programs Fund awards for the current year. Operating expenses are defined to include fund development, administrative expenses, and program operations expenses (excluding PolioPlus expenses). The reserve will be allowed to grow to 1.5 times the targeted reserve level. The Trustees will allocate funds in excess of 1.5 times the targeted reserve level at their discretion. The Trustees must take action to re-establish the reserve or reduce expenses if the level of the reserve falls below 50 percent of the targeted reserve level. All fund development and administrative expenses will be paid from the operating reserve. If, at the end of the fiscal year, the operating reserve ratio is above 50 percent, then program operations expenses (excluding PolioPlus expenses) will be paid from the operating reserve, provided that the ratio will not fall below 50 percent.