B. Management of of Endowed Funds
   January 1989

Development Policy and Administration Manual 
Chapter VI. Endowment Funds
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                        MANAGEMENT OF ENDOWED FUNDS


Minimum Endowment Amounts

In determining minimum acceptable levels for endowment funds,
campuses should keep in mind whether projected annual endowment
income, both now and in the future, would be sufficient to
fulfill the donor's intended purpose.  

Because of the cost of fund administration in relation to projec-
ted annual endowment income, the Office of the President uses a
guideline of $10,000 as a minimum to establish a new endowment. 
An account will be established for a smaller fund only under
exceptional circumstances.  A gift of less than $10,000 might be
combined with other already existing funds or with other gifts
for the same purpose to establish a fund to generate endowment
income, provided the donor does not require that the identity of
the gift be preserved as a separate fund.  If the size of the
corpus makes this practical, and the donor has not specified a
true endowment, funds may be held at the campus where they will
earn STIP interest (see Section III: F.2, Investment Pools for
Gift Funds), and then transferred to the Corporate Accounting
Office when the combined corpus and interest exceed $10,000.

The Regents have established $250,000 as the minimum necessary to
endow a chair; some campuses have established higher minima (see
Section VI: D.1, Policy on Endowed Chairs).  


Endowment Earnings

Each year in March or April the Corporate Accounting Office
prepares estimates of the income to be earned by each endowment
fund during the following fiscal year (normally available for
expenditure two fiscal years hence).  These estimates are then
forwarded through the Budget Office, Office of the President, to
the campus budget offices for use in preparing campus operating
budgets and to the campus accounting offices for information. 
The actual transfer of endowment income to the campuses is made
by the Corporate Accounting Office in August or September of the
year in which the income is available for use.

Endowment income amounts exceeding an average monthly balance of
$1,000 will earn income in the Short Term Investment Pool (STIP)
while awaiting expenditure. 


ENDOWED FUNDS


Accumulations of Income

In accepting endowment funds, the University is legally bound to
keep the principal intact and to comply with the donor's restric-
tions governing the use of income.  An implied requirement of
this legal principle is that the University must actually put
endowment income to use; income may not be allowed to accumulate
for an unreasonable period of time.  To ensure compliance, it is
University policy that endowment income accounts should accumu-
late no more than the equivalent of five years' income.  The same
policy extends to funds functioning as endowments.


Additions of Income to Principal

Since the University is required to use endowment income rather
than to allow it to accumulate, unless a donor has approved the
addition of income to principal, accumulated income from endowed
funds is not added back to the principal of the funds.  However,
General Counsel has advised that addition of income to principal
in limited circumstances is within The Regents' discretion. 
Requests for additions of income to principal should be submitted
to Development Policy and Administration in the form of a draft
Regents' item (see Section IV: B.1 and Section IV: B.2).  The
item should be coupled with an expenditure proposal for use on a
current basis of future income from the augmented principal.  

Occasionally, the donor's terms will prescribe that a portion of
an endowed fund's income is to be regularly returned to prin-
cipal. Such additions of income to principal do not require
Regents' approval when necessary to fulfill the donor's terms and
may be automatically effected as an accounting transaction.

Donor's terms will also sometimes provide the discretionary power
to add income to principal.  When the donor's terms specifically
grant this discretionary power to someone other than The Regents
(e.g., a chancellor), the addition may be requested by letter to
the Director, Corporate Accounting, with a copy to the Director,
Development Policy and Administration.

See section VI.D, Policy on Endowed Chairs, regarding additions
of income to principal of endowed chair funds.