Distribution of Investment Income

In general, investment earnings are credited to the funds generating the income. External investment management, custody, bank, and internal fees reduce the amount of investment income returned to a given fund. Individual University of Illinois System funds which are combined to form an investment pool have income distributed back to the funds based on each fund's participation in the pool. University Accounting and Financial Reporting (UAFR) ensures the proper recording of all investment income and related expenses and the allocation of net investment income to the appropriate funds.

Operating Funds

A portion of the income generated by the share of the operating pool invested as a quasi-endowment is reserved to fund a system-wide opportunity fund (SWOF). The SWOF is distributed to the three universities, the hospital, and the system office in proportion to each entity’s share of the operating pool.

Net investment income is then allocated to each university based upon its total quarterly average end-of-month cash balances. Income is then allocated to the following fund types based on quarterly average end-of month cash balances:

• Income fund deposits
• Self insurance
• Auxiliary enterprises under indenture
• Auxiliary enterprises not under indenture
• Federal grants
• Federal loan funds
• Non-federal loan funds
• Renewal and replacement
• Unrestricted and restricted gifts (net of gift management fee)
• Departmental activities
• Patents/royalties/copyrights
• Service plans

Individual funds with a deficit balance reduce the total cash balance for a given campus, fund type, or entity. Any university, fund type, or entity with a total deficit balance does not receive an income distribution, except to the extent required by federal, state or System regulations or policies.

Funds Set Aside to pay a Debt (Debt Service Funds)

Interest is earned on debt service funds and is recorded in its Banner fund. The specific debt document (covenant) determines the type of funds that must be held by the System and any limitations on the income earned on those funds. All investment income earned on debt service reserve, bond and interest sinking funds, and acquisition funds are used to pay debts. Debt service funds include:

• Project funds (funds borrowed to complete a construction project)
  Project funds are invested during construction and the income is distributed back to the project funds.
• Debt service reserves
  Debt service reserve funds are required by bond covenants to be set aside in the event the System defaults on a bond payment.
• Bond and interest sinking funds and acquisition funds
  These funds are used to make periodic debt payments.

Endowment Pool

The amount of income returned to the Banner endowment income/spending fund is determined by multiplying the spending rate times the moving average market value of the endowment. Additions and withdrawals from the individual endowment fund after June 30 increase or decrease the income distribution on a pro rata basis. The full amount of the income distribution is recorded as a budget entry in the endowment income/spending fund at the beginning of the fiscal year, so units can plan their budget.

Separately Invested Funds

Funds required by federal, state, or System regulations/policy to earn investment income are separately invested (not commingled in the operating pool). Income earned by these investments is recorded in the fund which holds the investment.

Last Updated: April 11, 2022 | Approved: Senior Associate Vice President for Business and Finance | Effective: November 2010