In the event of a financial downturn, FEEF has the staying power to serve Fairhope schools.
In December of 2001, FEEF was awarded a Kresge Challenge Grant. When the endowment fund reached $750,000, the Kresge Foundation awarded FEEF an additional $250,000, bringing the total endowment to $1,000,000. Interest from the fund is used for FEEF general operating expenses. The Kresge Challenge Grant was administered through the Community Foundation of South Alabama who continues to manage the endowment today.
Policy on the Use and Classification of Endowment Funds
Policy: The purpose of the Endowment Fund for the Fairhope Educational Enrichment Foundation is to support the mission and to provide funds for the sustained growth of the Foundation.
Description of the Endowment: Contributions received for the Endowment Fund will be deposited in the account designated. The principal is to be held in perpetuity. Any interest, which accumulates, may be used as needed. Income from the Endowment Fund may be designated by the donor or can be left unrestricted.
Disbursement of Interest from Endowment Fund: Unrestricted income can be used for any purpose as approved by a majority of a quorum of the FEEF Board of Directors. Restricted income can be used for restricted purposes designated by the donor as approved by a majority vote of a quorum of the FEEF Board of Directors.
Naming an Endowment: A named endowment fund can be established and named by the donor with a contribution of $50,000 or more.
Restrictions Placed on an Endowment: FEEF will accept a restricted donation for an Endowment Fund if the restrictions are approved by a majority vote of a quorum of the FEEF Board of Directors.
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Investment Policy
1. Context of Policy
Nature of the Fairhope Educational Enrichment Foundation
The Foundation is a perpetual charitable organization which expects to have no regular funding resources beyond its initial assets and the investment returns thereon, except to the extent it receives additional contributions from fund raising, grants, individual and corporate donations.
Total Return Spending Policy
The Board expects to fund the Foundation’s grants and operating expense from the total investment return generated by its investments, pursuant to this policy. The growth of the endowment funds is crucial for the sustainability of the Foundation. The distribution formula is designed to accomplish regular distributions while positioning the endowment for growth.
The principal of the Endowment Fund shall not be expended. For the purposes of the Endowment Fund, principal (“Principal”) is defined as the aggregate fair market value of assets on the date contributed to the Endowment Fund. Principal is not intended to include (a) appreciation in the aggregate value of capital assets, or (b) income such as interest and dividends produced by such assets. Principal may be increased from time to time as provided in Section A.3. below.
Any portion of the annual distributable funds not distributed in any given year will be retained in the Endowment Fund for expenditure in future years.
For endowment funds with a 20 quarter balance history, distributions should be made based upon the fiscal year ending date of the Endowment fund.
Provided that non-principal amounts, equal to or exceeding 5% of the average value of the Endowment Fund for the previous 20 quarters, are available for expenditure, the distribution from the Endowment Fund shall be an amount that is equal to 5% of the average value of the Endowment fund over the previous 20 quarters,
Provided that non-principal amounts, less than 5% of the average value of the Endowment Fund for the previous 20 quarters, are available for expenditure, the distribution from the Endowment Fund shall be equal to the non-principal amount that is less than 5% of the average value of the Endowment Fund over the previous 20 quarters,
If no non-principal amounts are available for expenditure, no distribution shall be made from the Endowment Fund.
For endowment funds without a 20 quarter balance history, up to two (2) annual distributions shall be allowed. The primary distribution should coincide with the fiscal year ending date of the Endowment Fund, and the other should occur six (6) months after the primary distribution.
Only non-principal amounts are available for distribution from the endowment fund. Each biannual (twice per year) distribution shall not exceed 2.5% of the previous quarter ending balance of the endowment fund.
If a single annual distribution is chosen it shall not exceed 5% of the previous quarter ending balance of the endowment fund.
If no non-principal amount is available for expenditure, no distribution shall be made from the Endowment Fund.
Upon recommendation of the Economic Advisory Committee and approval of the Board of Directors, taking inflation into account, a portion of capital appreciation or accumulated earnings may be reclassified, adding such funds to the permanent principal of The Endowment Fund, provided that such funds are not designated and not required to meet spending rules as set forth in A.1.a., A.1.b., A.2.a. or A.2.b.
Committee’s Tolerance for Volatility
Volatility of Investment Performance
A negative total investment return is acceptable for periods lasting up to two years. The Board believes that this limitation will be sufficiently aggressive to realize an above average return, but will also incorporate a level of stability which avoids short term operating problems.
Volatility of Grant Making Capacity
To the extent the Foundation expects to fund at least some multi-year grants, in annual increments, the Board considers that the annual volatility of the total value of the Foundation’s investment assets is important, but not controlling, in view of the need for the Foundation to use a significant amount of higher volatility growth assets, in order to both fund spending targets and also preserve purchasing power.
Administrative Fees
Unless otherwise agreed, 5% of any designated donation of $50,000 or more outside of fundraising efforts will go toward the cost of administering those programs, including but not limited to communications, program operations, and program staffing.
For endowments, unless otherwise agreed, 5% of any disbursement will go toward the cost of administering the disbursement
2. Asset Allocations and Portfolios
Endowment Portfolio
It is the intention of the Board to have a conservative to moderate portfolio of stocks, bonds and cash. Initially the asset allocation will have a bias towards fixed income investments and transition towards an asset allocation of money management consistent with modern Portfolio Theory that is also consistent with the Board’s risk tolerance.
Asset Classes to be Used
The following six asset classes will be used in the Foundation’s portfolios:
Domestic, Small Capitalization Common Stocks
Domestic, Large Capitalization Common Stocks
International Large Capitalization Common Stocks
Domestic Corporate Bonds
U.S. Government Securities and Bank Certificates of Deposits
Cash Equivalents
Asset Allocation
The committee with the help of its advisors will present to the board their recommendations for an appropriate asset allocation using the asset classes set forth in this policy.
Allowable Ranges Around Target Allocations
At any point in time when an investment manager wishes to present what it considers compelling evidence for tactical, short term allocation shifts, the committee should consider such requests.
Committee’s Attitude Toward Market Timing and Short Term Allocation Shifts
The committee should allow its investment counselors and mutual fund managers the opportunity to practice their art without undue influence from the committee. However, it is hereby made clear that this policy statement was the product of the committee’s study of proven performance patterns in capital markets. The committee has reviewed considerable evidence that the passage of time causes the greatest rewards to accrue in favor of consistent investing approaches, and that the Foundation’s risk exposure could become an uncontrolled adventure, without reasonably careful adherence to the asset allocation guidelines in this policy. It is not, therefore, the general intention of this policy to allow short term judgments to introduce significant unplanned risk. The committee shall recognize that adherence to this policy will occasionally appear too risky or too conservative for current market conditions. But the committee should also recognize that experts rarely agree about the near term direction of the capital markets, and that such opinions have generally proven to be a poor guide for action.
Re-Balancing of Assets and Allocation of Net New Contributions
Because different asset classes will perform at different rates, the committee shall keep close watch on the asset allocation shifts caused by performance. Accordingly:
The committee will review the relative market values of the asset segments, and will generally place new money under investment in the category(ies) which are furthest below their target allocations in this policy, and
Rebalancing will typically occur as of any fiscal year-end, when the allocations do not agree with those allocations specified by the committee.
Committee’s Role as Advisor and Portfolio Expenses
Any member of the committee can advise the portfolio’s managers regarding this policy’s long term objectives, but will not interfere with the day to day activities of managing this portfolio, take profit in or domicile those assets at their place of employment. The committee should use the prudent rule statutes in regard to all financial dealings with any financial advisor as pertaining to proper money management and expenses. The committee should always be keenly aware of the costs of managing money and seek to minimize those costs where necessary.
Frequency of Measurement
The Board expects the committee to measure investment performance quarterly.
Frequency of Policy Review
The committee shall use each of its periodic investment performance evaluations as occasions to also consider whether any elements of existing policy are either insufficient or inappropriate. Key environmental or operational occurrences which could result in a policy modification include:
impractical time horizons,
change in Foundation’s priorities
convincing arguments for change presented by donors or investment managers, and
areas found to be important but not covered by policy.
Committee’s Philosophy Toward Policy Modification
The committee shall review this policy annually. The committee must be mindful that major changes to investment policy can produce potentially damaging inconsistency. Changes, particularly the type which can be characterized as reversals of direction, or “responses” to current market conditions from time to time, are viewed as particularly undesirable. Modifications to this policy shall be proposed through the Economic Advisory Committee and must be approved by a ninety percent (90%) favorable vote of a Board of Directors meeting, at which a minimum of seventy-five percent (75%) of the members of the Board of Directors are present.