January 19, 1999 number 1853
THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL
Office of the Vice Chancellor for Finance and Administration	The University of North Carolina at Chapel Hill CB# 1000, 300 South Building Chapel Hill, NC  27599-1000 (919) 962-3798  FAX: (919) 962-0647

TO:	Representatives of the Affiliated Foundations of the University of North Carolina at Chapel Hill  Deans, Directors and Department Chairs of the University of North Carolina at Chapel Hill
FROM:	James R. Ramsey, Vice Chancellor for Finance & Administration  Mark W. Yusko, Chief Investment Fund Distribution
RE:	Bonus Payout for Investment Fund Distribution

 

At the recent meeting of the Investment, Endowment and Foundation Boards in November, we proposed that the Investment Fund make a "bonus payout" for the fiscal 1998 distribution to bring the distribution rate closer to the 5% target. We also recommended that the Endowment and Foundation Boards authorize the spending of this distribution if the Investment Fund approved the bonus payout.

The original payout approved by the Board for June 30 was based on a monthly accrual of a fixed dollars per unit that represented a 3% increase over the accrual rate for fiscal 1997. This distribution method guarantees that the current year's base distribution will always be higher than the previous year's distribution regardless of the market environment. The use of a fixed rate rule provides unitholders with a greater degree of certainty with respect to annual spending and eliminates the potential of an actual decrease in distribution that can occur under a percentage of market value rule process.

In the recent past, this base distribution has been augmented by a "bonus" payout that was made possible by the very strong investment performance of the fund. These bonus distributions have been necessary to keep the distribution rate between the targeted 4% and 7% of the trailing twelve-month average market value of the fund. However for fiscal 1998, there was no provision made for a bonus payout.

Upon further review of the final performance figures, we determined that, while the distribution was within the guidelines of the policy, it was appropriate to recommend to the Board that a retroactive bonus payout be approved for the fiscal 1998 distribution.

We are pleased to report that the Boards approved our recommendations and we have been authorized to make a special distribution of $37.04 per unit. This payout will take the total distribution for fiscal 1998 to $260 per unit (4.8%) and will serve as the base rate for determination of the distribution for fiscal 1999. The Boards have further requested that we develop and bring back to them, a recommendation for future distributions to be based on a simple dollars per unit format.

We are excited about the proposed simplification of the Distribution Policy as the use of a single distribution figure will simplify the process for all recipients of the spending resources as well as the accounting for the distribution due to the elimination of the base and bonus payouts. We believe that you will find such a process much easier to understand, communicate and integrate into your budget process. Regardless of the process, the Investment Fund will still accrue the distribution on a monthly basis based on the approved dollars per unit value and will distribute the funds at the end of the period. It is important to note that there will be no changes to the availability of funds for spending at the unitholder level. The only material change anticipated will be the elimination of the bonus distribution and a more simplified policy made possible by the conversion to the dollars per unit format.

Please let us know if you have any questions or if you need any additional information and please don't hesitate to contact us directly if we can be of service.
 
 
 

cc:	Chancellor Michael Hooker
	Mr. Richard Stevens
	Mr. Max Chapman
	Ms. Susan Ehringhaus