ENDOWMENT HIGHLIGHTS

As of June 30, 2007, the market value of all endowments held by the Virginia Tech Foundation Inc., including pledges to endowments, totaled $524,731,181, an amount that was held in 2,915 individual funds. Of the total endowment, $500,109,536 is invested in the foundation´s pooled consolidated endowment fund, while $24,621,645 is held separately in real estate partnerships, notes, deeds of trust, and contributions receivable, as well as other corporate securities. Endowment value per FTE student was $18,972.

The June 30 allocation of the foundation´s pooled endowment fund consisted of 31.5 percent domestic equity, 15.9 percent foreign equity, 6.2 percent real assets, 25.5 percent marketable alternative assets, 9.5 percent non-marketable alternative assets, 11.3 percent U.S. bonds, and 0.1 percent cash and cash equivalents. The fund achieved a preliminary return of 18.9 percent for the year ending June 30, and an annualized return of 11.9 percent over the trailing five-year period.

The overriding principle of the foundation´s consolidated endowment program is simple: funds should be managed so that a gift today will fund a donor´s objective in perpetuity. For example, if a benefactor wants to endow a scholarship, the money is managed to maintain the real value of the endowment and keep pace with inflation.

Each gift entering the consolidated endowment fund purchases units analogous to shares in a mutual fund, and a payout-per- unit (or dividend) is paid quarterly. In an effort to maintain the endowment´s purchasing power, the payout rate is adjusted annually to reflect the change in the Consumer Price Index over the preceding calendar year. Historical investment return data is used to determine upper and lower boundaries for total spending. A three-year average is used to smooth out the unit values when determining if spending falls between the upper and lower boundaries. Without this moving average, funding might dramatically rise in one year, then fall drastically the next, leaving the beneficiaries of the endowments vulnerable to increased volatility in the capital markets.

Decisions on how to manage the foundation´s consolidated endowment pool are made by its investment committee, whose main focus is the asset allocation of the fund. Over 80 percent of a fund´s return is determined by its asset allocation versus individual money managers. An endowment consultant is retained to assist the investment committee and VTF staff with asset allocation decisions, the selection and retention of managers, performance monitoring, and related endowment policy issues. To completely diversify its portfolio, management of the fund is allocated among more than 70 management firms, partnerships, and direct equity investments offering a wide variety of asset classes and investment styles.

* Data from the Virginia Tech Foundation 2007 Annual Report.