MEMORANDUM

TO:	Michael W. Grebe

cc: Michael W. Senske

FROM:	Cynthia K. Friauf

DATE:	July 24, 2003

RE:	NCRP Report

The NCRP report on the effect of H.R.7 on Foundations provides bench marking information for the Bradley Foundation going back to the 1980s through the year 2001. The long term data analyzed sheds a favorable light on the Foundation's giving with a long term payout ratio of 5.9%. Over the short term the Foundation does not look favorable with respect to expenses due to an anomaly in the payout expenses of 2001. In 2001 a one time retirement payment of $2,606,903 was made that skews the data reported. The five year period beginning in 1998 represents a fair picture of the Foundation's payout expenses compared to the NCRP report. See the recap of the Bradley Foundation Grant, Payout and Overhead Expenses attached.

Overhead Expenses in Grant Payouts

The NCRP report measures the top 100 foundations overhead expenses included in grant payouts (Attachment A) which shows an increasing allocation of overhead expenses to grant payouts. For 2001 the report shows the overhead expenses allocated to payout expenses have increased to 62% from 44% in previous years. The Foundation, for the five year period, allocates overhead expenses to payout of between 40.86% and 47.21% with the exception of year 2001 where the allocated portion was 58%.

Compensation in relation to Overhead Expenses

NCRP reported that annual total compensation accounted for 44.1% of total overhead that was allocated to the minimum charitable spending requirement (Attachment B). The Foundation allocated proportionately more in compensation to overhead included in minimum charitable spending over the five year period with figures of 62.28% to 74.91% and 81.75% for 2001. The Foundation's proportionately higher overhead cannot be quantified without further data however factors such as allocating less in salaries to net investment income than other foundations, a higher ratio of professional to administrative staff or high occupancy expenses for other foundations have an effect on this ratio. The different mix in expenses that comprise overhead appears to be a reasonable explanation since the Foundation's overall overhead expense ratios reported below are not out of line with other foundations.

Overhead Expenses and Grant Data Ratios

The NCRP report shows that the Foundation's payout to grant ratio is 19.01% for 2001 which was effected by the retirement payment (Attachment D). With out the retirement payment, the ratio would be 11.5%. The same ratio reported for the previous years are; 1998 - 9.69%, 1999 - 9.34% and 2000 - 9.37%. The estimated ratio for 2002 is 12.84%. The increase in the estimated ratio to 12.84% in 2003 does not reflect an increase in overhead payout expenses. The increase is due to the declining FMV of assets and contributions. The actual expenses have decreased from the two previous years. The payout expenses represent costs that are fairly stable over a long time period. As the FMV of the total portfolio rises, these expenses will drop as a percent of contributions and assets improving the ratio.

The key data that should be focused on is contributions as a percent of the FMV of assets since it will be directly impacted by H.R. 7. In the last five years the Foundation has made contributions in excess of the 5% mandated in the legislation. The contributions were 5.63% in 1998, 5.69% in 1999, 6.58% in 2000, 6.01% in 2001 and 5.32% in 2002. Payout expenses for overhead were in addition to the contribution percentages boosting the total payout percentages to 6.18%, 6.22%, 7.2%, 7.16% and 6.0% respectively.

Contact me if you have any questions or comments with regard to this memo and attachments.