UNCW Endowment Report

E N D O W M E N T

J U LY 1, 2 0 0 9 JUN E 3 0, 2 0 1 0

A C T I V I T Y

R E P O R T

A letter from Chancellor Rosemary DePaolo Thank you does not begin to express my appreciation for the generous support you provide to the University of North Carolina Wilmington. By providing endowed funds to the university, you are enhancing UNCW’s ability to give our students the most powerful learning experience possible.

UNCW continues to rise to national prominence as a result of our academic programs, research endeavors, artistic achievements, regional engagement activities, and global outreach initiatives. U.S.News & World Report recently ranked UNCW as one of the top five master’s universities in the South, following several years of including us among the top 10. Forbes magazine ranked UNCW 17th in the nation on its 2010 list of “America’s Best College Buys.” For the second consecutive year, UNCW is included in The Fiske Guide to Colleges, a highly respected review of the 300 best and most interesting colleges and universities in the United States and Canada; and the Princeton Review named UNCW “Best in the Southeast” for the 7th consecutive year.

As we continue soaring to greatness, UNCW must remain focused on building our endowment. In these tough economic times, with extensive cuts in our state appropriations, support from our endowment is crucial to preserving the academic mission of the university. Fortunately, the majority of our endowed programs provided income for use in the current academic year.

However, for the second year in a row, a number of our newer endowed funds have a market value less than their original value. These “underwater” funds didn’t provide the income we expected, but dozens of generous donors again made special contributions in the spring to support the scholarships and other programs that depend on those endowment awards. I am especially grateful to every donor who took this extraordinary step to benefit our students, faculty and staff.

THANK YOU FOR INVESTING IN THE FUTURE of

As the economy slowly improves, so does our investment portfolio. For the period July 1, 2009, through June 30, 2010, the overall rate of return for the UNCW endowment was 6.53 percent. While this is less than the one-year rate of return posted by the S&P, the three-, five-, and ten-year rate of return of the UNCW endowment has outperformed the S&P. We are very appreciative of the guidance provided by our volunteer Endowment Board, comprised of highly-experienced financial professionals. These individuals work closely with UNCW staff and our fund managers to maintain the delicate balance of maximizing the university’s investments while minimizing our risks.

Thank you again for displaying your commitment to UNCW by providing an endowed gift. You have made a significant impact on our campus community now and for years to come. The confidence you place in our students, faculty and staff is empowering. We deeply appreciate your philanthropic support.

Sincerely,

Rosemary DePaolo Chancellor

THE UNCW ENDOWMENT The University of North Carolina Wilmington and the UNCW Foundation, Inc. solicit endowment gifts from alumni, parents, students and friends of the university to ensure that support for UNCW students, faculty and programs will thrive in perpetuity. The principal of these gifts cannot be spent without written donor consent; however the earnings as approved by the appropriate governing board must be spent according to the provisions outlined in donor agreements. When a donor makes a gift to an endowment, the university agrees to manage and maintain that gift.

The endowment that supports the university has grown since its inception, with a market value as of June 30, 2010, of $52.4 million; those funds provide support for students, faculty, academic research and athletic endeavors. The benefits of these lasting gifts have been felt across the campus. Every dollar of endowment income helps finance vital activities, including: undergraduate student scholarships, professorships, graduate student fellowships and our athletics program. The endowment shapes the character of the university and ensures permanent support for the many endeavors of UNCW’s students and faculty.

This document provides background information and answers to frequently asked questions about UNCW’s endowments. Additional information about UNCW’s endowment, including definition of terms, can be found online at www.uncw.edu/endowmentreport.

HOW LARGE IS UNCW’S ENDOWMENT, AND HOW DOES IT COMPARE TO THOSE OF PEER INSTITUTIONS? As of June 30, 2010, UNCW’s endowment was worth $ 52,441,634. Since July 1, 2005, 122 endowments have been created, bringing the total number of endowed funds to 348. While the market value of the university endowment experienced a decline during 2008-09, the losses were much less severe than those experienced by other universities.

As the economy has improved during 2009-10, the university endowment has experienced a modest rebound as well.

accounting principles. Upon the recommendation of the Endowment Board, the university invested the endowment in UNC Management Corporation (www.uncmc.unc.edu ), GMO (www.gmo.com), the Investment Fund for Foundations (www.tiff.org), the North Carolina Short-Term Investment Fund (STIF), and Evergreen Money Market (EMM). The Foundation is invested in UNC Management Corporation, the North Carolina ShortTerm Investment Fund (STIF), and holds a note to the university. The goals are to provide stable and increasing support for future generations at UNCW. See graph A.

WHAT ARE THE UNIVERSITY’S INVESTMENT POLICIES? HOW DOES UNCW MANAGE THE ENDOWMENT? UNCW takes its fiduciary responsibility to current and future donors and recipients very seriously.

The Chancellor, Vice Chancellor for Business Affairs and Endowment Board are responsible for the management of and accounting for endowment funds under guidelines set by the Endowment Board and in accordance with generally accepted

The university and Foundation investment policies and decisions are based on maximizing long-term returns at an acceptable level of risk. The endowment is primarily invested in five funds: UNC Management Corporation (56%), GMO (13%), TIFF (12%), NC STIF (10%), and Evergreen Money Market (5%), with 4% in other miscellaneous investments. These funds are broadly diversified to provide long-term protection against the volatility inherent in equities and bonds.

Graph A UNCW Endowment Pool Asset Allocation HOW HAS THE ENDOWMENT PERFORMED?

as of June 30, 2010

During fiscal year 2010, the rate of return for the UNCW endowment was 6.53%. While this is considerably less than the 14.40% one-year rate of return produced by the S&P, the UNCW endowment 3-, 5-, and 10-year rate of return has been consistently better than that of the S&P as shown in the graph below.

Investment Property .64% Commodities .65% Real Estate Investment Trust .51% Energy & Natural Resources 4.35%

Due to the economic downturn of the previous years, a number of endowment funds established more recently have a market value which is less than the original gift value. These endowments are considered “underwater” and do not produce income for an award. As the market recovers and the market value of these endowments grows beyond the historical gift value, the endowments will begin producing income.

A number of donors to scholarship endowments in this situation generously gave an annual gift in spring 2010 so that students depending upon these scholarships would continue to receive funding.

Private Equity 8.02%

International Stock 9.72%

WHAT IS UNC WILMINGTON’S PAYOUT POLICY?

Global Stock 11.66%

Annually, the UNCW Board of Trustees or Foundation Board reviews and establishes the payout rate for the upcoming fiscal year (July 1 through June 30). The payout is a percentage of the endowment’s average market value for the 12 quarters of the three prior calendar years.

For 2009-10, the Boards approved a spending rate of 4.5%. This payout percentage is applicable to all endowments in the absence of another rate made explicit by the endowment agreement.

In establishing the spending policy, the Boards are required to consider the university’s longand short- term needs, present and anticipated financial requirements, expected total return on its investments, price-level trends and general economic conditions. The spending policy strives to maximize total return while minimizing risk, in order to provide a steady stream of income to present and future generations and protect the purchasing power of the endowments from erosion by inflation. Please note that as a result of recent economic conditions, the spending rate for the 2010-11 academic year was lowered to 3.5% in an effort to preserve the endowment and allow for future growth.

Fixed Income 41.17%

Domestic Stock 23.28%

Graph B UNCW Endowment Comparison to the S&P UNCW

S&P -1.59% 4.88%

10 YRS -.80%

5.62%

5 YRS -9.80% -1.47%

3 YRS

14.40% 6.53%

1 YR -20% -15% -10%

-5%

0%

5%

10%

15%

20%

Graph C Example Endowment Fund Growth and Payout Amounts The following example shows endowment fund growth and payouts for an endowment established in May 2005.

The first award distribution occurred in fiscal year 2007.

Market Value Based on the Calculations: Spending

2005

2006

2007

2008

2009

2010

$25,000

$28,863

$32,997

$32,205

$26,703

$27,694

n/a

n/a

$1,056

$1,183

$1,288

$1,298

* Note: The first award for endowed scholarships is available the first fall semester coming 12 months from the date of fulfilling the $25,000 minimum. The above example is based on a 4.5% spending rate using the approved formula.

HOW IS THE PAYOUT CALCULATED FOR MY NAMED ENDOWED FUND? Named endowed funds own shares in the investment pool. The number of shares each fund owns depends on the amount of the gift and the market value of the endowment at the time of the gift. The actual mechanics of endowment investment and management are very similar to that of a mutual fund.

An endowment is accounted for using a unitized investment pool. Each individual endowment owns units in the pool, revalued at the end of each month.

Only at month-end periods, using a month-end value of a unit, may new endowments enter the pool. New endowments “buy into” and receive a certain number of units in the pool given the amount being invested and the value of a unit on the buy-in date. As the value of a unit in the pool grows, new endowments purchase fewer units in the pool.

Each month the university receives statements from each of the investment funds. Using these statements, the university calculates the current market value per share by dividing the total market value of the investment pool by the total number of shares. During the succeeding month, new gifts to the endowment buy shares in the consolidated pool at this share price.

Every endowed fund owns shares in the investment pool. Once an endowed fund reaches maturity – usually 12 months after being funded at the minimum endowment level -- it receives an annual payout. Using the payout approved by the UNCW Board of Trustees for each fiscal year, the university calculates a distribution per share and applies this payout per share to each fund’s average number of shares over the preceding 12 months. This distribution is made to a corresponding “spendable account” in July of each year.

As part of UNCW’s cost-saving and sustainability efforts, University Advancement now sends numerous documents, including this report, to donors electronically. If you would like to receive reports via e-mail in the future, please send your preferred e-address to uncwedr@uncw.edu.

Additional information, including answers to Frequently Asked Questions (FAQ’s) and term definitions, can be found online at www.uncw.edu/ endowmentreport.

UNCW is an equal opportunity/affirmative action employer. 500 copies of this public document were printed at a cost of $606.70 or $1.21 per copy (G.S. 143-170.1). Produced by UNCW Marketing and Communications. Data provided by UNCW Division for Business Affairs.

UNIVERSITY of NORTH CAROLINA WILMINGTON