2.02 – Preservation of Capital
1. Policy Intention:
The Red Deer & District Community Foundation has adopted the principle of Stewardship as a core principle of the Foundation operation. The goal of the foundation is to build a community legacy through the perpetuity principle of endowment building. Also the Foundation is committed to the protection of the capital assets by guarding against erosion due to inflation, market fluctuation or cost of living increases.
Historically, the Foundation has calculated its actual expenses, subtracted them from the income and disbursed the balance of the funds on a prorated basis. This practice limited the Foundation in a variety of ways:
1. Since the Foundation operated on a cost recovery basis there was no opportunity to accrue funds for the operational endowment.
2. Capital assets of the Foundation were not protected.
3. The Foundation was never certain of the amount of granting funds it would have to work with.
4. Operational costs charged to designated funds fluctuated with the expenses of the Foundation.
In the effort to establish operating procedures that reflected the Stewardship principle, three policies are required by the Foundation.
Preservation of Capital Policy
Designated Fund Policy
Managed Fund Policy.
2. Policy Considerations:
Canada Revenue Agency regulations require that the Foundation as a public foundation must disburse the equivalent of 3.5% of its capital assets each year.
The assets of the Red Deer & District Community Foundation are actively managed by an investment manager. Income earned therefore responds to the current market situation and can fluctuate on a monthly and an annual basis.
The community and fund owners or recipients expect operating fees to be minimal.
3. Policy Statement:
The Red Deer & District Community Foundation is committed to protecting the capital assets of the Foundation which have been entrusted by community members. Preservation of capital will be secured by reinvesting a portion of the earned income into the capital pool on an annual basis.
This shall be accomplished by establishing an annual granting limit, or Foundation Disbursement Quota, with the balance of the income earned, net of administrative, investment and custodian fees, reinvested into the capital pool.
4. General Guidelines:
4.1 The Annual Red Deer & District Community Foundation Disbursement Quota will be determined annually, based upon the previous year’s Investment Income, by the Board of Directors (In accordance with Canada Customs & Revenue Agency Regulations, the quote will meet or exceed 3.5%).
4.2 The amount re-invested for the purpose of Preservation of Capital shall be the balance of funds after the Red Deer & District Community Foundation Disbursement Quota, net of administrative expenses (as per the Managed Fund and Designated Fund policies), investment management and custodian fees.
4.3 The Preservation of Capital Policy will automatically apply to all new funds held by the Foundation.
4.4 Managed fund holders may opt out of the policy by written notice to the Foundation.
4.5 The Disbursement Quota will be held in effect even if the Foundation earnings do not exceed the amount required to meet the quota. Funds accumulated through the Preservation of Capital Policy will be used for granting in those years.
4.6 This policy will be reviewed on an annual basis.
Date Approved: February 17, 1997
Date Revised: June 26, 2001