Investments and operating reserves

Investments

Q. What has been RI’s historical return on investments? How has this return compared to its benchmark return?

A. RI has earned an average annual return of 4.9 percent for the 10-year period ending 30 June 2008, which is comparable to the benchmark average of 5.3 percent.

Q. How much does RI pay in investment fees?

A. Investment fees are primarily a function of the asset classes in which the funds are invested and the amount of funds under management. In fiscal 2008, RI paid US$518,000 in investment fees, or less than one half of one percent of the market value of Rotary International’s investments.

Q. Why do the Trustees invest the Foundation’s assets in the equity markets and what have the results been?

A. Based on advice from independent investment consultants and qualified investment advisors, the Trustees have approved and follow a long-term investment policy to maximize the Foundation's investment returns. Over the long-term, the return on equities has significantly exceeded the return on bonds. The Foundation's investment policies are developed to participate in this long-term favorable return.

Q. What has been the Foundation's historical return on investments?

A. The Foundation has three separate funds with different investment strategies depending on the needs and uses for the funds. The Foundation reports investment returns by fund and not for the Foundation as a whole.

The Annual Programs Fund  and the Permanent Fund  have earned an average annual return of 4.9 percent and 4.7 percent, respectively, for the 10-year period ending 30 June 2008, while their respective benchmarks returned 5.7 percent and 5.4 percent for the same period.

The PolioPlus Fund  has earned an average annual return of 5.0 percent for the 10-year period ending 30 June 2008, in line with the benchmark return of 5.0 percent for the same period.  The lower return is attributable to the asset class in which the funds are invested. The fund invests 100 percent of its assets in fixed income securities because of the short time horizon of the fund and the importance of preserving existing assets.

Q. How much does The Rotary Foundation pay in investment fees?

A. Investment fees are primarily a function of the asset classes in which the funds are invested and the funds under management. In fiscal 2008, The Rotary Foundation paid US$4.1 million in investment fees, or approximately one half of one percent of the market value of the Foundation’s investments. The investment fees are competitive with the fees paid by other foundations and endowments.

The investment fees are reviewed and monitored by the Investment Advisory Committee.

Q. What are unrealized gains and losses on investments?

A. Unrealized gains and losses are those that result from changes in the market value of investments and have not resulted from a transaction.  For example, an unrealized gain occurs when a security increases after an investor buys it, but has yet to sell it.  An unrealized loss occurs when a security decreases after an investor buys it, but has yet to sell it. Gains or losses are said to be "realized" when a security is sold.

Operating reserves/funds

Q. What is the purpose of RI’s General Surplus Fund?

A. The purpose of the General Surplus Fund is to provide for the long-term financial security of RI and is intended to be used in the event of emergencies and unforeseen circumstances. The fund includes RI’s unrestricted cash, plus marketable securities, plus (or minus) any receivable (or payable) from (or to) The Rotary Foundation.

Q. What is the purpose of RI’s Operating Reserve?

A. The purpose of the Operating Reserve is to provide for Rotary International’s long-term financial security by requiring the retention of funds at a level to support the annual expenses of RI less those associated with the convention  and the Council on Legislation . The operating reserve consists of the General Surplus Fund less Board-designated funds (convention expense reserve and investment earnings reserve fund).

Q. What is the purpose of the Foundation's Operating Reserve?

A. The purpose of the Foundation’s Operating Reserve is to ensure that funds are available to pay the organization’s estimated operating expenses (excluding PolioPlus expenses) for the current and the next two fiscal years. In addition, the fund is maintained to support 50 percent of the budgeted Annual Programs Fund awards (excluding PolioPlus) for the current year.

The operating reserve pays 100 percent of general administration and fund development expenses and program operating expenses if the operating reserve ratio is 50 percent or higher.

Q. What is the purpose of the Permanent Fund?

A. The primary purpose of the Permanent Fund is to support the programs of The Rotary Foundation  in perpetuity. A portion of the fund’s investment earnings will be used to finance the Foundation’s programs. The amount spent is based on the spending policy of the fund. The spending policy is predicated on the principles of preservation of capital, intergenerational equity (needs of today versus the needs of tomorrow), and stability. Read more .