2013-013 EDC-Arts - Botanical Garden Foundation Inc for Fall 2012 Art Grant Agreement $1.345

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3 i 16 THE BOTANICAL GARDEN FOUNDATION, INC. NOTES TO FINANCIAL STATEMENTS Page 10 of 13 ENDOWMENTS(CONTINUED) Interpretation of Relevant Law The Board of Directors of the Foundation has interpreted the State Prudent Management of Institutional Funds Act (SPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donor- restricted endowment funds: 1. The duration and preservation of the fund. 2. The purposes of the Foundation and the donor-restricted endowment fund. 3. General economic conditions. 4. The possible effect of inflation and deflation. 5. The expected total return from income and the appreciation of investments. 6. Other resources of the Foundation. 7. The investment policies of the Foundation. Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period. The Foundation expects its endowment funds, over time, to provide an average rate of return of approximately 5.5% in perpetuity. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives The Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation makes investments in the UNC Investment Fund, LLC.