Endowment Policy of the Harker School
I. Purpose
Endowments are essential assets which are a significant source of continual support for The Harker School (hereafter "School") and its mission. Separate and distinct from other funds, the School's endowments are invested, the annual investment return is added to the principal, and only a portion of the resulting amounts may be spent annually.
It is the intent of the School to establish and maintain both Quasi-Endowments (also called "Board designated" or "Unrestricted" Endowments) and Pure Endowments (also called "True" or "Restricted" Endowments). All endowments shall be administered in accordance with applicable law.
II. Quasi-Endowments
A Quasi-Endowment, such as The Harker School's General Endowment, is designated by the board of trustees and is funded from unrestricted funds or gifts. A Quasi-Endowment has no donor-imposed spending restrictions and is not subject to the provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA).
The School's most critical and fundamental endowment is The Harker School General Endowment. Established by the board of trustees to provide a major source of support for the school, the General Endowment comprises unrestricted funds and ensures the School's ability to sustain itself, evolve and grow, hire and retain outstanding faculty and staff, attract and nurture gifted students and meet unanticipated demands. The Harker School General Endowment is overseen by the audit committee of The Harker School Board of Trustees to provide a perpetual stream of income to the school.
Donors to the General Endowment are assured that only the income from their gifts may be distributed, allowing the principal to remain intact.
III. Pure Endowments
A Pure Endowment is a donor-restricted fund which, under the terms of a Gift Instrument, is not wholly expendable on a current basis. Pure Endowments, and the management, investment and appropriation of expenditures from Pure Endowments shall be in accordance with the provisions of California's adopted version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) (Prob.C. §18501 et seq.). Pure Endowments may fund faculty chairs, student financial assistance, curricular innovation, faculty development, academic initiatives or other special uses. They may be named for individuals, families or other honorees.
It is the policy of the School that each Pure Endowment shall have a minimum initial principal of $100,000.
A. Financial Management of Pure Endowments
Unless stated otherwise in the Gift Instrument, the assets in each endowment are donor-restricted assets until appropriated for expenditure. Subject to the intent of a donor expressed in a Gift Instrument, each person responsible for managing and investing the fund shall consider the School's mission and the purpose of the fund, shall comply with his/her and the School's duty of loyalty, shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and shall consider, if relevant: the general economic conditions; the possible effect of inflation or deflation, the expected tax consequences of investment decisions on strategies; the role that every investment or course of action plays within the overall investment portfolio of the fund; the expected total return from income and appreciation of investments; the other resources of the School; the needs of the School and the fund to make distributions and to preserve capital; and an asset's special relationship or special value, if any, to the mission of the School. Management and investment decisions about an individual asset will be made not in isolation but rather in the context of the fund's portfolio of investments as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fund and the School. In managing and investing the fund, the School may incur only costs that are appropriate and reasonable in relation to the assets, the School's mission and the skills available to the School and shall make a reasonable effort to verify facts relevant to the management and investment of the fund. The School may pool two or more Pure Endowment funds for purposes of management or investment, but the amounts belonging to each shall be separately entered and maintained in the School's books and records.
The School shall diversify the investments of Pure Endowments unless it reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification.
Subject to any specific limitations set forth in a Gift Instrument and under the law, and to the extent it can prudently do so, the School may delegate to an external agent the management and investment of an endowment fund. In such cases the School shall act in good faith, exercising due care and ordinary prudence in: selecting an agent; establishing the scope and terms of the delegation, consistent with the purposes of the institution and the institutional fund; and periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the scope and terms of the delegation.
B. Expenditure Appropriations for Pure Endowments
Subject to the intent of a donor expressed in the gift instrument, the School may appropriate for expenditure or accumulation so much of an endowment fund as the School determines is prudent for the uses, benefits, purposes and duration for which the endowment fund is established. In making a determination to appropriate or accumulate, the School shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise in similar circumstances, and shall consider, if relevant, all of the following factors: duration and preservation of the endowment fund; purposes of the School and endowment fund; general economic conditions; possible effect of inflation or deflation; expected total return from income and appreciation of investments; other resources of the School; and the School's investment policy.
In keeping with California's UPMIFA provisions, the School shall not, in any year, appropriate for expenditure an amount greater than six percent of the fair market value of each Pure Endowment fund, calculated on the basis of market values determined at least quarterly and averaged over a period of not less than three years immediately preceding the year in which the appropriation for expenditure is made or, in the case of a fund in existence for fewer than three years, the fair market value of the endowment calculated for the period the endowment fund has been in existence.
IV. Accepting a Gift That Establishes an Endowment Fund
Prior to soliciting or accepting any gift that establishes an endowment fund, the executive director of advancement, the head of school and a designated member of The Harker School Board of Trustees must understand the proposed terms of the endowment fund and any restrictions on spending and use, and have confidence that the School will be able to administer and spend the endowment income in accordance with those terms and restrictions.
Prior to acceptance, all Gift Instruments and agreements must be approved by these authorized individuals.
It is the policy of the School to enhance its endowments by promoting practices that permit the most flexibility in long-term planning, utilization and investment. Therefore, the School seeks endowment gifts that least restrict the purpose, administration and investment. The School encourages unrestricted endowment gifts because they provide the School with the most flexibility in its financial planning. Should a donor wish to restrict the purpose of an endowment, development staff should encourage a description in the gift instrument that is as broad as possible.
To establish an endowment fund, the School requires a Gift Instrument to be signed by the donor. A Gift Instrument is a writing which effectuates the gift. The Gift Instrument must clearly indicate which individual has the authority to define the endowment fund terms and contain the following necessary elements:
- donor name and signature
- date of donor's signature
- official fund's name
- fund purpose
- alternative use clause (if restricted)
- amount of gift
Depending on the fund terms, the Gift Instrument may require additional elements. If the fund terms include a restriction, an alternative use clause should be included. The alternative use clause language is designed to allow the Board complete discretion to determine alternate purposes in the event the funds cannot be usefully applied for the original purpose.
Exhibit "A" is an example of a Gift Instrument establishing a Pure Endowment.
When an alternative use clause is employed, some donors may wish to be involved in decisions regarding any future changes in the fund's purpose. Donors may not require such control in the agreement, but they may express a preference that the School make reasonable efforts to consult with them during their lifetimes, in the event the fund cannot be usefully applied to the original purpose.
Adopted by
The Harker School Board of Trustees
Jan. 22, 2010
Example Gift Instrument for Pure (Restricted) Endowment
The [Official Fund Name] Endowed Scholarship Fund
The [Official Fund Name] Endowed Scholarship Fund creates a permanent legacy at The Harker School to provide financial aid for [preschool, lower, middle, upper] school students with proven financial need. It is hoped that the Harker experience will empower the recipients to explore and expand their interests, reach their fullest potential, develop the skills necessary for success in college, and become ethical, responsible and engaged members of ever-wider communities.
An initial gift of [amount] was received from [Name of Donor] to establish this fund in honor of [honoree] who has given [time, talent and dedication] to The Harker School. It is [Name of Donor's] hope that the fund will grow in future years.
It is the desire of the donor that the [Official Fund Name] Endowed Scholarship Fund always be used for financial aid support. If the precise description of the fund cannot be followed, it is assumed that The Harker School Board of Trustees will determine a use for the income that is consistent with the interests and intentions of the original donor.
Gifts in support of the fund may, for investment purposes, be merged with other investment assets of The Harker School, but they shall be entered in the School's books and records as belonging to an endowed fund known as [Official Fund Name] Endowed Scholarship Fund.
