Accounting Services Section (ACT)
POLICY 17
Effective Date: 01/01/1999
Last Modified Date: 6/21/1999
General
University special fund, institutional trust fund, and endowment fund accounts that meet the requirements set forth herein may earn interest on their fund balances by being invested in either the UNC-Chapel Hill Temporary Pool or the State Treasurer Short-Term Investment Fund (STIF). Both funds invest in short- to intermediate-term bonds and distribute income on a quarterly basis.
The University operates a Money Market System that provides a mechanism for recording Temporary Pool and STIF purchase and sale transactions, and for distributing investment earnings and reporting this information to the individual participants.
The policies and procedures that follow discuss which accounts may receive an income distribution and what steps must be taken to invest an account.
UNC-Chapel Hill Temporary Pool
Temporary Investment Objectives
The UNC-Chapel Hill Temporary Pool is a fixed income portfolio managed by the UNC-Chapel Hill Investment Office and Wachovia Bank & Trust. It operates in conjunction with the Nations Bank disbursing account for all special funds, institutional funds, and endowment funds. The Pool invests primarily in high quality notes and bonds with maturities ranging from overnight to ten years. The average maturity of the Pool typically ranges from three to five years. The investment objectives of the Temporary Pool are as follows:
- To generate current income without loss of capital.
- To provide for the daily liquidity needs of the Pool's participants.
- To earn a rate of return that at least equals that realized from the investment of State Funds generally.
The Temporary Pool is in many ways the University's internal bank. As a result, the interest rate risk associated with the Pool's assets and liabilities must be properly managed. Money placed in the Pool may be thought of as demand and time deposits which are carried as liabilities at book value. Because these individual deposits are subject to withdrawal on short notice, the University must strive to ensure that the value of the Temporary Pool's assets are always sufficient to cover its liabilities. However, the University also realizes that there is a substantial amount of money that will either not be needed until some time in the future or that is residual cash which may never leave the fund. Since this cash always remains, it can be invested safely in intermediate or long-term fixed income securities to earn increased interest when the slope of the yield curve is positive.
Temporary Pool Authorized Investments
Authorized investments for the UNC-Chapel Hill Temporary Pool include those listed in GS 147-69.1 and GS 146-69.2.
Types of Accounts That May Be Invested in the Temporary Pool
Special Funds (GS 116-36.2). Moneys received from or for the operation by an institution of its program of intercollegiate athletics and moneys held by an institution as fiscal agent for individual students, faculty, staff members and organizations (i.e., agency funds). University affiliated foundations have separate investment agreements with the University for funds on deposit as special funds.
Designated Institutional Trust Funds (GS 116-36.1). Pursuant to GS 116-36.1 (g) (7), moneys received by an institution in respect to fees and other payments for services rendered by medical, dental or other health care professionals under an organized practice plan approved by the institution or under a contractual agreement between the institution and a hospital or other health care provider.
Designated Endowment Funds (Income & Principal) (GS 116-36). Endowment funds result from donations where the principal is to remain intact and is to be invested to produce income which may be expended or reinvested.
Debt Retirement Funds. Funds subject to debt instruments containing special provisions with respect to the deposit of receipts pledged to secure such debt.
Accounts That May Receive an Income Distribution
Income Distribution Policy. In order to receive a distribution of income, an authorized departmental representative must do the following:
- Submit a written request to participate in the distribution of income to the Director of Accounting in charge of Special Funds Accounting. The request should specify the investable fund balance and the FRS account number.
Written requests should also be submitted to the the Director of Accounting to increase or decrease the amount of moneys participating in the Temporary Pool.
- Have an investable fund balance of $1,000 or more.
- For funds that are not replenished by a regular source of receipts, the investable fund balance is defined herein to mean the total fund balance less three months' estimated net expenditures.
- For funds that are replenished by a regular source of receipts, the investable fund balance is defined herein to mean the average projected fund balance over the ensuing three months.
- If at the end of any month the uninvested fund balance falls below zero, i.e., the account overdraws, all or a portion of the invested fund balance may be liquidated by Accounting Services to cover the deficit.
Distribution Amount. Qualifying accounts may purchase and sell shares in the Temporary Pool on a daily basis at a fixed value of $1/share. However, in most instances, account purchases and sells will occur only at the beginning of the month. The income distribution is determined each quarter by multiplying the distribution rate by the average daily invested fund balance.
Statements from the UNC-Chapel Hill Money Market System are sent to each participating account or group of accounts (subsidiaries) on a quarterly basis. The statements show the transactions that have taken place during the quarter, the amount of income distributed to the account, and the account number and name to which the income has been posted.
Distribution Dates. The investment year runs from June 1 though May 31. Income distributions are made on a quarterly basis during the months of June, September, December, and March, for the quarters ended May, August, November, and February, respectively.
Distribution Rates. There are two Temporary Pool distribution rates. The rate earned by an account is dependent upon its account classification (institutional trust funds, special funds, etc.) and investable fund balance. Both rates are set by the University Treasurer.
Institutional Trust Funds Accounts, Special Fund Accounts with Balances Equal to or Greater than $1 Million, and Endowment Fund Accounts. Accounts that are classified as institutional trust funds (GS 116-36.1)(g)(7) or as special funds, endowment funds, and debt retirement funds that have an investable fund balance of $1 million or more will earn a rate that over time equals or exceeds that realized from the investment of State funds generally.
The following factors shall be taken into consideration by the University Treasurer for Finance when determining the distribution rate to accounts falling into this category:
- The realized income and gains and losses earned on the Temporary Pool portfolio, less investment management expenses and certain operating expenses.
- The level of income required by the Chancellor to meet ongoing commitments from unrestricted sources.
- The rate paid out by the State Treasurer Short-Term Institutional Fund.
- The current level of interest rates.
- Last user's distribution rate and the current year's targeted rate (the targeted rate is the rate expected to be earned by the Temporary Pool as of the beginning of the fiscal year.)
- The level of unrealized portfolio gains and losses and the portfolio's expected future rate of return.
- The level of funds set aside in any earnings reserve and stabilization funds in past years.
Special Fund Accounts with Balances Less than $1 Million. Special fund and endowment fund accounts with balances less than $1 million shall earn a rate that over time equals the yield on three-month U.S. Treasury Bills plus 0.25%. However, this rate may be changed from time to time by the Associate Vice Chancellor for Finance and Administration or his designee in order to provide the Chancellor with sufficient income to meet ongoing commitments from unrestricted sources.
State Treasurer Short-term Investment Fund (STIF)
Short-Term Investment Fund Investment Objectives
The Short-Term Investment Fund is a fixed income fund managed by the State Treasurer. Investments in the fund are made pursuant to GS 147-69.1, and range in maturity from overnight up to seven years, with an average maturity of approximately 2.5 years.
STIF Authorized Investments
Investments authorized for Trust funds deposited with the State Treasurer pursuant to GS 116-36.1 are listed in GS 147-69.2.
Types of Accounts That May Be Invested in the STIF
Institutional trust funds are defined in GS 116-36.1 and include sponsored research funds and trust funds. All institutional trust funds, except for those contained in subsection (g)(7) of the statute (see ACT Policy 11, Kinds of Funds), must be deposited with the State Treasurer, who shall hold them in trust in separate accounts in the name of the University. Those trust funds defined in (g)(7) may be deposited and invested with an official depository other than the State Treasurer. Trust funds or the investment income therefrom shall not take the place of State appropriations, and shall be used to supplement State appropriations, to improve and increase the University's areas of service.
Accounts That May Receive an Income Distribution
Income Distribution Policy. In order to receive a distribution of income an authorized departmental representative must do the following:
- Submit a written request to participate in the distribution of income to the Director of Accounting in charge of Special Funds Accounting. The request should specify the investable fund balance and the FRS account number.
Written requests should also be submitted to the Director of Accounting any time to increase or decrease the amount of monies participating in the State Treasurer Short-term Investment Fund.
- Funds receiving allocations from the Special Projects account are not eligible to receive a distribution of income.
- Institutional auxiliary trust funds will be considered as a group due to inventory and working capital requirements.
- Have an investable fund balance of $1,000 or more.
- For funds that are not replenished by a regular source of receipts, the investable fund balance is defined herein to mean the total fund balance less three months' estimated net expenditures.
- For funds that are replenished by a regular source of receipts, the investable fund balance is defined herein to mean the average projected fund balance over the ensuing three months.
- If at the end of any month the uninvested fund balance falls below zero, i.e., the account overdraws, all or a portion of the invested fund balance may be liquidated by Accounting Services to cover the deficit.
Distribution Amount. Qualifying accounts may purchase and sell shares in the STIF on a daily basis at a fixed value of $1/share. However, in most instances account purchases and sells will occur only at the beginning of the month. The income distribution is determined each quarter by multiplying the distribution rate by the average daily invested fund balance.
Statements from the UNC-Chapel Hill Money Market System are sent to each participating account or group of accounts (subsidiaries) on a quarterly basis. The statements show the transactions that have taken place during the quarter, the amount of income distributed to the account, and the account number and name to which the income has been posted.
Distribution Dates. The investment year runs from June 1 through May 31. Income distributions are made on a quarterly basis during the months of June, September, December, and March, for the quarters ended May, August, November, and February, respectively.
Distribution Rate. The distribution rate to eligible accounts invested in the STIF is generally the quarterly compounded rate of return earned by the State Treasurer of the Fund, as reported in the Department of State Treasurer Short-Term Investment Fund Income Statement received monthly by the UNC–Chapel Hill Investment Office. However, the rate may be changed from time to time by the Associate Vice Chancellor for Finance and Administration in order to provide the Chancellor with sufficient income to meet ongoing commitments from unrestricted sources.
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