The Council have noted the remarks made at the Discussion on 18 January 2005 (*Reporter*, p. 404) of their Report on distributions from the Amalgamated Fund. They are pleased that the speakers welcomed the proposed change to a total return distribution policy.

Dr J. R. F. Fairbrother commented on the formula proposed to determine distributions made by the Amalgamated Fund. The Council consider that the recommended formula has been determined with proper analysis and advice and, as the Director of Finance said in his remarks, it has been properly tested against past performance and analysed against future scenarios. The formula is intended to dampen volatility of distribution thus allowing those relying on the income from the Amalgamated Funds to plan ahead with confidence. Publishing the formula in *Statutes and Ordinances* with any recommendation to change it requiring the approval of the Regent House is a further safeguard for stability*.*

Dr Fairbrother also commented on the proposed distribution rate of 4.25% and the recommended distribution for 2004-05 of 110.5p per unit. As the Council stated in their Report (*Reporter*, p. 282), a consistently applied total return distribution policy, with rates in the range 4.25%-5%, would have given long-term results equally satisfactory to or better than the income-only distribution policy. However, the working party thought it right to err on the side of caution in proposing a distribution rate for use by the University in a total return distribution policy for the Amalgamated Fund and thus recommended a rate of 4.25% to be incorporated in the distribution formula. The distribution for 2004-05 of 110.5p per unit in the Amalgamated Fund recommended by the Investments Sub-committee equates to such a distribution rate applied to the value of a unit as at 31 July 2004. The Sub-committee considered that this was a prudent figure in the light of the probable income of the Amalgamated Fund this year.

The Council acknowledge that the use of a three-year moving average will mean that the distribution will move only gradually in response to movements in valuations in either direction. The formulae in use by the major US and UK endowments and foundations vary considerably and there is no single 'right' approach. They agree that the adaptation to the formula suggested by Dr Fairbrother would be an alternative, but believe that the proposed formula will give a smooth, predictable, and conservative distribution. The Council accept that setting the initial distribution and the formula involve a degree of judgement as well as theory and analysis, and will review the formula formally after two years of operation.

They agree, however, with Dr Fairbrother's recommendation that the distribution to be made in 2005-06 should be determined with reference to the intended distribution for 2004-05 of 110.5p per unit in the Amalgamated Fund, and not to the actual distribution for 2004-05 which may be limited by income.

The Council accordingly propose an amendment to the definition of PYD (previous year distribution) in Regulation 2 of the regulations proposed in the Annex to their Report so that it reads:

where

(i) | PYD for 2005-06 is 110.5p uplifted by an inflation factor taken as the retail prices index of June 2005 plus one per cent and, for the year 2006-07 and subsequent years, is the previous year's distribution per unit in the Amalgamated Fund uplifted by an inflation factor taken as the retail prices index of June of the previous financial year plus one per cent or such other inflation factor as the Council may from time to time determine. |

The Council are submitting a Grace (Grace 2, p. 449) for the approval of the recommendations in their Report as amended above.

7 February 2005 | ALISON RICHARD, Vice-Chancellor | MIKE CLARK | MARTIN REES |

R. J. ANDERSON | DAVID S. INGRAM | G. A. REID | |

A. J. BADGER | RUTH KEELING | DAVID SIMON | |

Z. BARANSKI | D. LOWTHER | LIBA TAUB | |

RICHARD BARNES | D. W. B. MACDONALD | JOAN M. WHITEHEAD | |

WILLIAM BROWN | JAMES MATHESON | RICHARD WILSON |