1. Gifts & Endowments ABA Presentation April 21, 2004

2. Question: Which items has the University NOT received as gifts? A. Teeth B. Gas station C. Stud horse D. Napoleon’s hair

3. Answer It’s a trick. We have received them all.

4. What is a gift? A gift is a voluntary transfer of cash, securities or property from a donor to the University. The University makes no commitment of resources or services in return for these gifts, other than a promise to use the gift as the donor wishes.

5. Types of gifts Unrestricted gifts: gifts where the donor has placed no restrictions. The University can use the gifts for current operations. Example – Annual Giving to a School/Center

6. Types of Gifts Restricted Gifts: a gift where the donor has placed limitations or conditions on how or when the gift can be used. Examples Operating – provide short term support for a lecture series Capital – construct a building, renovate a classroom Endowment – establish a professorship, provide scholarship

7. Gift Receipts

8. What is not a gift? Funds given in exchange for goods or services rendered is not a gift. Examples: Tuition Tickets to an Annenberg Center production

9. Grants are not gifts Grants qualify as payment for services rendered.

10. What is a grant? A grant needs to meet just one of the following criteria: The project commits the University to a specific line of scholarly inquiry, typically documented by a statement of work. A specific commitment is made regarding the level of personnel effort, deliverables, or milestones.

11. What is a grant? Project activities are budgeted, and the award includes conditions for specific formal fiscal reports and/or invoicing. The project requires that unexpended funds be returned to the funding source at the end of the project period. The agreement provides for the disposition of either tangible or intangible property which may result from the project.

12. Grants When in doubt, call: Office of Research Services 215.898.7293 or Investment Services 215.898.9644

13. What is an Endowment? An Endowment is a “permanent fund of property or money bestowed upon an institution or a person, the income of which is used to serve the specific purpose for which the gift was intended.” -Dictionary of Business Terms

14. True Endowment A gift where the donor has stipulated that the principal will remain intact forever, in perpetuity. The donor wishes only the income to be spent to provide support for a specific program. Permanently Restricted Fund

15. Term Endowment A gift where the donor has designated the gift as an endowment, but has given the University the right to invade principal upon the passage of time or the occurrence of an event. Sometimes known as a wasting endowment. Temporarily Restricted Fund

16. Funds Functioning as Endowment Refers to gifts or sums of money that the Trustees of the University, rather than the donors, have determined will be invested as an endowment. Unrestricted Fund

17. Investment of Endowments The endowment is invested in Associated Investment Fund (AIF), which is a pooled investment vehicle much like a mutual fund. The University’s AIF investments are managed by the Office of Investments.

18. AIF as of June 30, 2003 AIF is invested in: Domestic and international equities Fixed income & high yield securities Real estate Other investments

19. AIF Performance & Income Distribution AIF performance is computed and reported on a total return basis. This includes both appreciation and income earned. Income and gains are distributed monthly. One month lag to general ledger. Example: July’s income is posted in August.

20. What is Spending Rule? Spending rule provides guaranteed income available for spending during the fiscal year. Current spending rule formula is: 4.7% of AIF’s market value. (Actual rate set by the Budget Office annually)

21. Goals of the Endowment Purpose of investment is to preserve and grow the endowment’s principal. Hedge against inflation. To generate income to provide financial support today and in the future.

22. University Endowment as of June 30, 2003 $3.547 Billion at June 30, 2003. Endowment income provides for 3.7% of the University’s operating budget.

23. Budgeting Endowment Income During the normal budget preparation cycle, the Budget Office will load the estimated endowment income into the Pillar files. However, if a new gift is received between budget periods, income estimates will need to be increased for the additional income generated by the investment of the new gift.

24. Important Items to Remember Review the fund’s trust sheet. Monitor expenditures on a regular basis. Ensure expenses are appropriate. Follow University policies and procedures.

25. Most Important Item to Remember The University has a fiduciary responsibility to ensure that the donor’s wishes are met.

26. Endowment & Gift Training For more information on gifts & endowments: Financial Training is offering “Endowment & Gift Training” Check out the web site www.finance.upenn.edu/ftd

27. Financing Training The training materials are online @ www.finance.upenn.edu/ftd look under documentation

28. Investment Services Contact us @: Email: Trustadm@pobox.upenn.eduTrustadm@pobox.upenn.edu Web: www.finance.upenn.edu/treasurer/investmentswww.finance.upenn.edu/treasurer/investments Phone: 215.898.9644

29. Special thanks to Brent Parker For all his hard work that went into the financial training materials, which we shamelessly “borrowed” when creating this presentation.