VIII-5.30 - POLICY ON ENDOWMENT FUND SPENDING RULE
 (Approved by the Board of Regents, June 21, 1990; Amended by the 
   Board of Regents, April 12, 1996, Amended by the Board of Regents, 
   June 27, 2003. Amended by the Board of Regents, Amended by the 
            Board of Regents, December 7, 2012)
     
General

Expenditures from the University System of Maryland Endowment Fund shall not 
generally be made for ordinary operating expenses. The Endowment Fund shall 
be used, instead, for designated purposes, such as scholarships, special 
grants, and research projects. Since costs of these activities can be
expected to be affected by increases in the cost of living, 
the following guidelines are established:

1.    The Endowment Fund spending policy is framed with a view to preserve 
  purchasing power of the fund assets over time; to protectagainst erosion 
  of nominal principal; and to promote stability and predictability of 
  annual budgeting.
  
2.   In calculating the distributions as detailed below, a general 
  constraint or limitation will be that distributions will be made only to 
  the extent that the individual gift or fund will not be reduced below its 
  original value.
  
3. The implementation of the Endowment Fund spending policy will span two
 phases: a transitional phase comprising fiscal years 2014 through 2018, 
 and a permanent phase beginning in fiscal year 2018 and extending into the 
 indefinite future.
  
  The procedures for determining the annual per share (or unit) distributions 
  in each phase are as follows:
  
  
                 TRANSITION PHASE (FY 2014 through 2018)
                 
  a)  The target long-term spending rate is 4.65%, a target rate that is to 
     be reduced by .10% each year until it reaches a target rate of 4.25%
     for FY 2018, applied to the endowment market value basis. The endowment 
     market value basis is the simple average of the per share market values
     of the 12 quartersrunning through the fiscal year immediately 
     preceding the year of distribution.
     
  b)  Each year, the per share distribution is the prior year's distribution 
    increased by an inflation rate of 2%, subject to the following 
    limitations:
    
          I. If this calculation, upon substantial decline in the market
           value, produces a per share distribution exceeding 5.0% in 
           fiscal year 2014, a ceiling which is to reduced by .10% each 
           year until it reaches a level of 4.5% of the endowment market
           value basis, the current per share distribution is the lesser of 
           the ceiling rate applied against the market value basis or the 
           previous Year's amount.
           
          II.  If this calculation, upon substantial increase in the market 
           value, produces a per share distribution less than a floor or 
           minimum of 4.50% in fiscal year 2014, and reduced by .10% each 
           year until it reaches a level of 4.0% % of the endowment market 
           value basis, the current per share distribution is to be that 
           fiscal year's floor or minimum rate of the market value basis.
           
           
 c)  The per share distribution determined under subsection b)above, shall 
   be increased to reimburse institutions for the costs, including 
   indirect costs, of administering endowments at the representative 
   institutions and the System Office. The reimbursement of costs of 
   administering endowments will be limited to 0.90% of the market value 
   basis in fiscal year 2014, and in each successive year, by reduced by 
   .10% until the reimbursement rate is 0.50% of market value basis in 
   fiscal year 2018.
   
   
   
An additional distribution shall be made to reimburse the System Office 
costs, including indirect costs, of administering the Common Trust Fund, 
limited to the lesser of the previous year's distribution, increased by the 
inflation rate of 2%, or .15% of the market value basis.

                 PERMANENT PHASE (FY 2018 AND THEREAFTER)
 d) The target long-term spending rate is 4.25% applied to the endowment 
 market value basis. The endowment market value basis is the simple 
 average of the per share market values of the 12 quarters running 
 through the fiscal year immediately preceding the year of distribution.
 
 e)  Each year, the per share distribution is the prior year's distribution 
increased by the University's projected long-term inflation rate of 2%, 
subject to the following limitations:

          III. If this calculation, upon substantial decline in the market
           value, produces a per share distribution exceeding 4.50% of the 
           endowment market value basis, the current per share distribution 
           is the lesser of 4.5% of the market value basis or the previous 
           year's amount.
           
          IV. If this calculation, upon substantial increase in the market
           value, produces a per share distribution less than 4.0% of the 
           endowment market value basis, the current per share distribution 
           is 4.0% of the market value basis.
           
 f)  The per share distribution determined under subsection d)above, shall 
 be increased to reimburse institutions for the costs, including 
 indirect costs, of administering endowments at the representative 
 institutions and the System Office at a rate of 0.50% of market value 
 basis.
 
 
An additional distribution shall be made to reimburse the System Office 
costs, including indirect costs, of administering the Common Trust Fund, 
limited to the lesser of the previous year's distribution, increased by the 
inflation rate of 2%, or .15% of the market value basis.


 g)  The distributions under subsections c) and f) above shall be reviewed 
 annually by the Finance Committee to ensure consistency with the target 
 spending rate and the spending objectives stipulated in section 1 
 above. 
 
 
4.  In the event of a protracted market decline leading to a loss of 20% 
or more of the portfolio in a one year period, the Finance Committee will 
cause this spending policy to be reviewed, giving consideration to actual 
reduction in the amount of annual distribution.


Replacement for: BOR V - 1.01