Unitization question (endowments)?

Endowments - are donated for a specific purpose to be held in perpetuity with only the income earned to be spent.

Managers invest Endowments. The asset example may be a mix of 35% fixed income and 65% equity. A Committee may meet quarterly to review the investment policy and performance.

A unitized accounting system is used for the long-term endowment investment pool.

A unitized accounting system accounts for a participant's interest in an investment pool on the basis of units or shares. Each individual endowment receives units representing its proportionate share of their investment in the pool. New units are issued based on the unit value of the existing units at the time an addition is made. Funds withdrawn are redeemed based on the unit value at the time the withdrawal is made.

A unitized investment pool enables the company to:

■Accurately distribute income earned between the participating funds in the pool.

■Accurately distribute the changes in investment market values (both realized and unrealized) between the participating funds in the pool.

The company may calculates the unit value quarterly.

Distribution of income - changes the # of Units

New contributions - change the # of Units

The distribution of income is based on the number of units held by the endowment (proportional share of the total). The market value of the endowment is determined by the number of units held at the time the unit value is calculated at quarter end.

New contributions, income, and expenditures change the number of units held, therefore the timing of these transactions will affect the number of units.

Income and realized capital gains may be distributed quarterly as income on a unitized basis. The original unit price was = $100 (book value).

Unit values may be calculated quarterly based on the market value of the investments at the end of each quarter (June, September, December, and March). Donations received during the quarter purchase units based on the new unit value.

In order to preserve the capital a 5% expenditure allocation may be implemented. The expenditure allocation is calculated using a sixteen quarter rolling market value average. The formula used is the number of units held at September 30 multiplied by the average unit value in order to obtain the average market value of the endowment. This figure is then multiplied by 5% in order to calculate the allocation.

Hope this helps

Unitized Accounting