General Expenditures from the University System of Maryland Endowment Fund shall not generally be made for ordinary operating expenses. The Endowment Fund shall be used, instead, for designated purposes, such as scholarships, special grants, and research projects. Since costs of these activities can be expected to be affected by increases in the cost of living, the following guidelines are established: 1. The Endowment Fund spending policy is framed with a view to preserve purchasing power of the fund assets over time; to protect against erosion of nominal principal; and to promote stability and predictability of annual budgeting. 2. In calculating the distributions as detailed below, a general constraint or limitation will be that distributions will be made only to the extent that the individual gift or fund will not be reduced below its original value. 3. The implementation of the Endowment Fund spending policy will span two phases: a transitional phase comprising fiscal years 2014 through 2018, and a permanent phase beginning in fiscal year 2018 and extending into the indefinite future. The procedures for determining the annual per share (or unit) distributions in each phase are as follows: TRANSITION PHASE (FY 2014 through 2018) a) The target long-term spending rate is 4.65%, a target rate that is to be reduced by .10% each year until it reaches a target rate of 4.25% for FY 2018, applied to the endowment market value basis. The endowment market value basis is the simple average of the per share market values of the 12 quarters running through the fiscal year immediately preceding the year of distribution. b) Each year, the per share distribution is the prior year's distribution increased by an inflation rate of 2%, subject to the following limitations: I. If this calculation, upon substantial decline in the market value, produces a per share distribution exceeding 5.0% in fiscal year 2014, a ceiling which is to reduced by .10% each year until it reaches a level of 4.5% of the endowment market value basis, the current per share distribution is the lesser of the ceiling rate applied against the market value basis or the previous Year's amount.