September 26, 1990
TO: BOARD OF GOVERNORS NO. 71-90
RE: FY 1990-1991 BUDGET
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In preparing the budget proposal for the next fiscal year,
the following factors have influenced our thinking:
-- Assets of open-end and closed-end fund members have grown
substantially over the last year which will result in an increase
in dues revenue at the current 29% forgiveness rate of
approximately $1.2 million in the next fiscal year.
-- Many securities firms are experiencing a squeeze on profits
and the prospects for the immediate future are uncertain. This
has led us to be conservative in estimating revenue from non-dues
sources next year.
-- Member, governmental, media and public demand on the
Institute has grown over the past year and is expected to remain
heavy.
-- Legislative and regulatory matters of substantial concern
to the industry and fund shareholders, e.g. the stock transfer
excise tax and other tax initiatives, a new investment company
act, financial planners legislation, and restructuring of
financial services regulation, will continue to require a high
level of expenditure for outside legal and legislative counsel.
-- Initiation of substantial new programs or significant
reallocation of the Institutes's resources should await the
Executive Committee's recommendations regarding the Institute's
mandate for the 1990's.
These factors have led us to propose a conservative budget
which continues most of the Institute's activities at their
current levels. The exceptions are modest funding to carry
forward the new centralized data collection and dissemination
project, reallocation of some funds from outside legislative
counsel fees to a new congressional liaison position, and one
professional slot to enhance our media relations capabilities.
The following is a summary of the major income and expense
categories of the proposed budget, a comparison with the expected
results for the current fiscal year and the percentage change
from this year to the next. A copy of a more detailed budget
breakdown is attached.
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Estimated % Change
Actual Proposed Actual 89-90
Income FY 89-90 FY 90-91 FY 90-91
(Thousands of Dollars)
Dues: Open-End 12,650 13,800 9.1%
Closed-End 696 750 7.8%
UIT 639 600 -6.1%
Assoc. Member 260 255 -1.9%
Investments 649 630 -6.0%
ICI Mutual 252 240 -4.8%
Conferences 1,636 1,275 -22.1%
Publications 524 527 .6%
Other 583 770 37.0%
TOTAL 17,889 18,847 5.4%
Expenses
Administration 10,201 11,687 16.5%
Legal 2,377 2,340 -1.6%
Legislative Affairs 1,166 1,200 -14.2%
1990's Project 333 0 -
Foundation Grant 150 0 -
Research 265 408 54.0%
Operations 385 485 26.0%
Public Information 785 903 15.0%
Industry Conferences 1,151 1,112 -3.4%
Depreciation/Amort 260 270 3.8%
TOTAL 17,073 18,405 7.8%
NET INCOME 816 442 -45.8%
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FY 1989 - 1990 Results
We are estimating that FY 89-90 income will exceed the
budget by more than $1 million. Major contributions to the
surplus income came from new open-end fund members, good results
from industry conferences, and profits from surveys. Non-dues
income for the year will equal about 20.4% of total income.
Expenses will also exceed the budget -- by about $950,000 -
-with personnel and various other administrative categories
accounting for most of the overrun.
The expected surplus of $800,000 will be carried forward as
reserves, bringing total reserves to about $5.6 million or 30% of
the FY 90-91 budget, still short of the eventual goal of having
reserves equal to 50% of the annual budget. Last year we set
aside $250,000 from surplus to fund the new ICI Foundation and
agreed to consider another contribution from surplus this year.
We have projected a contribution of $150,000 in computing this
year's results.
Highlights of the FY 1990 - 1991 Budget Proposal
Personnel. This budget calls for the addition of four
positions now and two late in the fiscal year. One of the new
positions is for another media relations specialist to augment
the two full time and two part time professionals currently
allocated to this function. This addition was supported in
principle by the Marketing Committee when it reviewed the public
information and marketing activities of the Institute this
summer. The second new position is for a computer programmer to
aid in the development of the software for the new statistical
data collection and dissemination activity. Funds are included
for two additional support staff who will be needed for this
project before the end of the next fiscal year. The third
position is for a new tax legislative specialist which will allow
reduction in expenditures for outside counsel in this area. The
fourth addition will be a support staff person to aid with the
"New Funds in Registration" project in the Operations Department.
The budget contains a salary increase averaging
approximately 7%.
No additional fringe benefits are planned but large
increases in the cost of medical insurance due to unfavorable
experience in these plans in the past year account for most of
the growth in this category. We will be examining the
possibilities for containing costs through changes in policy
provisions in the next year.
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Rent. With the expansion of ICI Mutual and the addition
over the past several years of new staff, the Institute has
nearly exhausted its expansion space. The over-built conditions
in the real estate market in Washington and economic problems of
the National Geographic Society combine to create an opportunity
to sub-lease space at favorable terms contiguous to that we
already have on the 5th floor. We have received informal
assurances from National Geographic Society management that we
would not be forced to vacate this sub-leased space if the prime
tenant, ITT, does not renew its lease in 1994. Therefore, we are
including funding for adding up to 5,000 sq. Ft. of sub-leased
space in the budget.
Printing, Mailing and Postage. Moving most of our printing
and mailing activities in-house has resulted in holding down
costs but a major postal rate increase early in 1991 will drive
total expenditures in this area higher.
Legal. Outside counsel fees will remain at about their
current level with emphasis on tax (capital gains indexation,
short-short, foreign shareholders' adjustments), securities (1940
Act revision, financial planners regulation), and Glass-Steagall
(legislative restructuring, OCC ruling) matters. Investment
adviser and blue sky matters are expected to continue at their
present level.
Legislative Affairs. Tax matters, Glass-Steagall, the
SEC's investment adviser SRO proposal, and consideration of major
revisions to the Investment Company Act will again require a high
level of resources in this area, but some savings are expected as
a result of adding a new staff position.
Operations. The custodian survey planned for the current
year has been significantly expanded and both the expenses and
income associated with it have been allocated to the new fiscal
year. A new telephone equipment and usage survey, taking off
from the information generated by this year's quality of service
survey, will be undertaken. Also, an EDGAR training program will
be undertaken next year if the SEC EDGAR timetable for bringing
investment company reporters onto the system proceeds on
schedule. Recently a person with substantial industry experience
was added to the staff, enhancing our capability to undertake
surveys and training programs.
Research. The budget contains funding for three new
research projects recommended by the Research Committee: a study
of redeemers, a study of the aging affluent market, and a repeat
of the shareholder survey last done in 1986. In addition, funds
for publishing several studies completed in the current fiscal
year are included.
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Public Information and Marketing. Most activities are
projected to continue at their present levels. The addition of
another media relations specialist will enhance the possibilities
for more proactive effort with the press and other media. We are
planning at least two new brochures, one on pricing and tax
ramifications of mutual fund ownership and another on retirement
plans.
Conferences. During the fiscal year the Institute will
sponsor the General Membership Meeting, the SEC Procedures
Conference, the Tax & Accounting Conference, the Operations
Conference, a new conference for investment advisers, an
orientation conference for new and potential members, and
regional meetings for FUNDS users. We will continue to offer a
full range of regional workshops/seminars at the same level as
the current year.
Capital Expenditures. Again this year, the principal
expenditures will be for leasehold improvements on the 5th floor
of our offices and for major enhancements to our computer system.
We plan to add two new super mini-computers to take over most
office automation tasks, leaving our main computer to handle our
growing databases and the new statistical data collection and
dissemination system. We will also be making another payment on
our ICDI perpetual database license. Total capital expenditures
are projected at $328,000.
Planned Surplus. In keeping with the Executive Committee's
decision three years ago, we are continuing to build reserves
towards the goal of 50% of annual budget. Expected reserves at
the conclusion of FY 1989-1990 will be about $5.8 million, or
approximately 31.5% of next year's budget.
Dues. The dues forgiveness rate will remain at 29% for
groups with greater than $100 million in assets and 34% for
smaller groups. Dues rates for Closed-end investment company and
UIT members will remain at their present levels.
David Silver
President