The Episcopal Church Foundation in West Texas
Preferred Accounting Approach

Total Return

The Foundation prefers to account for funds on a “Total Return” basis.  Total Return is the aggregate return from capital appreciation, dividends and interest.  Distributions from the Fund can be made from accumulated Total Return in accordance with policies and procedures adopted by the endowment governing body from time to time.  The original corpus and subsequent gifts to the Fund will not be distributed.

Discussion

The old method of accounting for endowment assets provided for treating interest and dividends as “income” and treating both realized and unrealized appreciation (or depreciation) in the value of the assets as “corpus”.  Since most endowments provide that distributions be made only from income, in order to meet distribution needs investment managers had to construct portfolios that had high weightings to fixed income instruments.  The effect of this was to favor near-term distributions over longer-term growth.

The new method of total return accounting treats all increases in asset values as “income” and, therefore, available for distribution.  This arrangement facilitates the dual goals of maximizing current distributions and preserving the purchasing power of the endowment’s assets.  The total return approach allows the investment manager to focus on the longer-term, while making it easier to provide a stable and predictable pattern of distributions.