New contributions to endowment funds are invested quarterly into the endowment investment pool. Interest, dividends, realized capital gains/losses, unrealized gains/losses and other investment income are allocated monthly to the endowment funds based on the number of shares the fund owns in the endowment pool at the beginning of the month. A portion of this revenue is distributed annually to a corresponding expendable fund to be used for the endowment’s stated purpose.

The SIU Foundation’s Board of Directors has adopted a hybrid approach in determining the spending distribution. This approach takes into consideration the duration and preservation of the endowments, purpose of the endowment funds, general economic conditions, the possible effect of inflation or deflation, expected total return from income and the appreciation of the investments, other resources of the institution, and the investment policy.

The spending calculation is presented to the Foundation’s Executive Committee annually for approval. Once approved, the spending distribution is allocated based on the number of shares the endowment fund has in the pool as of December 31st. The allocated spending is then distributed annually to the corresponding expendable fund on July 1st.

To keep within the spirit of the Uniform Prudence Management of Institutional Funds Act (UPMIFA) but guard against a major depletion of the endowment fund, the Foundation’s Board approved the allocation and a distribution for spending as long as the market value of the endowment fund is 80% or more of its principle. Endowment funds that do not meet this minimum are considered at risk of depletion and will accumulate the investment earnings until reaching the 80% level.

The Foundation charges an annual 1.5% investment fee on the endowment funds based on the fund’s December 31st market value. The fee is also allocated on December 31st, and distributed to the Foundation’s General Fund on July 1st.

Spending Distribution Calculation

The spending distribution calculation is the sum of a) the previous year’s spending increased by the higher education inflation rate (HEPI) and weighted at eighty percent added to b) a three year average of the endowment pool’s ending balance as of December 31st multiplied by a fixed spending rate which considers the long-term investment performance estimate of the pool less HEPI and weighted at twenty percent reduced by c) the 1.5% investment fee, resulting in a net distribution rate.

Example:

The spending calculation for the funds allocated on December 31, 2010 and distributed to the corresponding fund on July 1, 2011 was based on the FY11 distribution of $4,584,557.95, HEPI of 0.9% as of December 31, 2010, a three-year moving average of $77,517,885.87, and a fixed spending rate of 7% (long-term investment rate of 7.9% - HEPI of 0.9%) less the 1.5% investment fee.

or

a) [(4,584,557.95*1.009)*.8 (weighting)] + b) [(77,517,885.87*.07)*.2 (weighting)] = 4,785,905.58 or 5.212% (distribution pool market value as of December 31, 2010) less c) 1.5% investment fee, for a net distribution of 3.712%.