THE LYNDE AND HARRY BRADLEY FOUNDATION, INC.

EXCISE TAX REVIEW AND UPDATE

PROJECTIONS FOR YEAR ENDED DECEMBER 31, 2000

At the August, 2000 Investment Committee meeting the financial staff addressed the anticipated increase in the excise tax rate for the Foundation in 2000. This review and update is part of the continuing effort to monitor taxable income and propose alternatives to take advantage of the 1% tax rate.

Projections based on the September 30, 2000 financial statements estimate a $5 million shortfall in qualifying distributions to be eligible for the 1% rate. This estimate did not change substantially from the August projection. Accelerating grant payments approximating $5 million will save approximately $1 million in taxes now that could later be distributed to grantees. The financial staff analyzed two alternatives for accelerating payments. The first is to accelerate all of the January, 2001 payments and two other large payments. The second alternative selected only large payments scheduled throughout the year. Both alternatives discount the payments using the short term US Treasury rate. The second alternative appears preferable since it is easier to administer and less disruptive to smaller grantees.

The financial staff will monitor income and grants awarded for the next few months. Unexpected realized gains from alternative investments and gains triggered by a change in investment managers may influence the final recommendations.

In October, John Edie, Senior Vice President and General Counsel for the Council on Foundations (Council), reported that there will be a push for a flat tax in 2001. This year a 1.25% tax was proposed but failed. The Council is considering efforts to promote legislation with a 1% rate. This will continue to be an issue for the staff to watch in 2001.