Non-expendable accounts to be invested as an endowment in perpetuity qualify for participation in the Endowment Pool. Other accounts (quasi-endowed, term-endowed, agency) may qualify for participation based on investment objective or purpose, and will be considered on an individual basis by the KSU Foundation Asset Management Committee.
Securities, real estate or other assets contributed to a non-expendable account do not participate in the Endowment Pool until after such assets are converted to cash and invested in the Pool.
A minimum of $25,000 must be available for investment before a qualified non-expendable account may participate in the Endowment Pool. Cash in qualified accounts is invested at the beginning of the quarter after receipt. Participating accounts are issued shares based on a unit value determined by the current market value of the Endowment Pool holdings at the end of the most recent quarter.
Funds with contribution amounts of $10,000 or more, but less than $25,000, will be invested in short-term investments until the contribution received amount equals or exceeds $25,000. All earnings from the short-term investments will be reinvested quarterly as non-contributed principal. Once contributions reach or exceed $25,000, the short-term investments will be converted to cash and made available for investment in the Endowment Pool at the beginning of the next quarter.
The Distribution Policy governs the allocation of investment return for non-expendable participants (endowed accounts). Income distributions are made to the participating accounts at the end of each quarter.
The Board of Directors approved an inflation adjusted distribution policy during fiscal year 2005 based on recommendations from a Distribution Task Force. The task force examined various formulas and their impact on meeting the dual endowment goals of maintaining intergenerational equity and providing stable revenue flows to university department budgets.
Attaining intergenerational equity requires the balancing of current and future distributions such that sufficient endowment assets remain in the future to produce distributions that have at least matched inflation increases to maintain the purchasing power for the university programs they support.
Distributions will be calculated by adjusting the distribution amount annually for inflation. Fiscal year 2006 was determined as the base year; thereafter, the distribution will be adjusted annually by the rate of inflation. To avoid potential unconscionable under-distributions or unsustainable over-distributions relative to the endowment pool market value, annual maximum and minimum total distributions to purpose are included in the formula. The maximum distributions to purpose are 5 percent of market value and the minimum distributions are 3 percent, both of which are calculated annually using the market value at the beginning of the fiscal year.
Endowment pool accounts with a market value less than the donor's liquidated contributed value may receive expendable distributions from the endowment pool only to the extent of their proportionate share of the endowment pool's current income, defined as dividends, interest, and rents, and calculated using a four-quarter rolling average. All endowment pool participating accounts will be reviewed each quarter to determine if their respective market values are in excess of the donor's aggregate liquidated contributed value.
For those participating accounts with a market value in excess of the donor's liquidated contributed value, the Inflation Adjusted Distribution Policy applies; the distributions, expressed as a percent of market value, for fiscal year 2012 are as follows:
1. 5.0% of the fund market value as of the beginning of the fiscal year, converted to a per share distribution amount, will be distributed on a quarterly basis to the expendable balance of the participating accounts and will be made available for expenditure in accordance with their respective memos of understanding.
2. 0.24% of the fund market value as of the beginning of the fiscal year, converted to a per share distribution amount, will be distributed on a quarterly basis to the Dean's excellence account for the participating account's designated constituent unit.
3. A percentage of the fund market value as of the beginning of the fiscal year, converted to a per share distribution amount, will be distributed on a quarterly basis to the KSU Foundation as a management fee to support Foundation operations. The Board of Directors in the annual budget process determines the actual percentage each year. The amount is 1.45% for fiscal year 2012.
4. Total return on the Endowment Pool in excess of the total distributions will be returned to the account as an addition to principal to provide growth.
For those participating accounts with a market value less than the donor's liquidated contributed value, current income, defined as dividends, interest, and rents, will be distributed for expenditure based on the following prioritization:
1. The Foundation management fee will be distributed to the Foundation to the extent there is sufficient current income to do so.
2. To the extent current income remains available, a distribution will be made to the expendable balance of the participating account, up to that amount that would have been distributed had the account fallen into the "market value in excess of the donor's liquidated contributed value" category.
3. To the extent current income remains available, a distribution to the Dean's excellence account will be made, up to that amount that would have been distributed had the account fallen into the "market value in excess of the donor's liquidated contributed value" category.
4. Remaining current income, if any, will be returned to the account as an addition to principal.
Donors now have the option of contributing to an underwater account to restore the account to the contributed value. This would remove the account from underwater status so that distributions could be made.
Quasi-endowed accounts are invested in the same manner as permanently endowed accounts and share the same endowment pool operating costs. They differ from permanently endowed accounts in that quasi-endowment distributions may utilize the donor's gift and earnings/investment growth to make the distribution to purpose and the distribution rate is specific to the memo of understanding.
A donor to a quasi-endowment account may choose from three distribution options:
1) Fixed dollar option pays distributions in multiples of $500; or
2) Fixed percentage option pays distributions of 4, 5, 6 or 8 percent of market value annually; or
3) Situational option pays distributions of 50 or 100 percent of tuition and fees for the number of hours taken by an average full-time student.
Quasi-endowed accounts are to be established at a financial amount expected to last for 10 years or more.