2020 Dividend Rates for the DFMS Trust Fund Portfolios
Resolved, That the dividend rate for 2020 for the DFMS Trust Fund portfolios available to support the operating budget of DFMS be set at $1.11 per share based on 5.0% of the average yearend market values of the portfolio for the five years ending 2017; and be it further
Resolved, That the dividend rate for 2020 for Trust Funds in the DFMS Endowment Portfolio that are not available to support the operating budget of DFMS be set at $1.11 per share based on 5.0% of the average yearend market values of the portfolio for the five years ending 2017.
This appropriation from the endowment honors the budget adopted by the General Convention for the 2019-2021 triennium which reflects a dividend rate of 5.0%.
The formula is consistent with standards of prudent fiduciary conduct in the management of endowment funds and with general practice among university, foundation and other non-profit endowment funds.
$ Market Value
In making this appropriation, the following factors were considered in accordance with the New York Prudent Management of Institutional Funds Act.
- FIN noted that the endowment is of perpetual duration and that the current need to support operations must be balanced against the need for funds in the future.
- FIN notes that the applicable gift instruments allow this endowment to be used for operations.
- FIN discussed revenue expectations and general economic conditions that led to the recommendation that the funds be appropriated from the endowment. FIN also discussed the current investment market conditions and believes that its policy of using past market values is prudent. In February 2011, it was agreed that future dividends would be calculated based on the market average of the endowment using the five years ending on December 31st of the year preceding the adoption of any subsequent budget. This would eliminate the uncertainty of forecasting portfolio values prior to the completion of a year.
- FIN discussed the effect of inflation and deflation on the purchasing power of the endowment. FIN observed that inflation in the past decade has been very modest and that most forecasts for the next year suggest that economies around the world will continue to show only modest, if any, growth; thus price inflation will remain modest.
- FIN particularly noted that the trust funds have returned 8.0% annually since 1993; and inflation has averaged 2.3% annually. This relationship confirms that the purchasing power of the portfolio has been maintained while using annual dividends of approximately 5.0%.
- FIN discussed the Treasurer’s report on the performance of the endowment. The endowment has recovered significantly since 2008; and also during 2019. The Investment Committee has not reacted in fear but has maintained its focus on an asset mix that it considers prudent to ensure long-term returns.
- FIN discussed the possibility of using other sources to fund current operations. The Executive Council made extensive used of the Society’s short-term reserves between 2004 and 2012. The Treasurer regularly reports on the limited availability of other funds.
- FIN discussed how costs have been curtailed during the 2016-2018 triennium.
- FIN has reviewed and approved an investment statement policy (IPS) at its meeting in October 2018. It will seek to reduce the payout over time but has determined that the proposed appropriation is consistent with recent returns.
- FIN finally noted that the budget for the 2019-2021 triennium adopted by General Convention reflects a dividend payout rate at 5.0% annually.