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Meeting Information

Friday, March 27, 1998
11:00 a.m. - 12:30 p.m.
East Oval Room, The Rotunda

Committee Members:

William H. Goodwin, Jr., Chair
Henry L. Valentine, II
Franklin K. Birckhead
Walter F. Walker
C. Wilson McNeely, III
James C. Wheat, III
Elizabeth A. Twohy



A. Report on Market Value and Performance as of January 31, 1998

B. Venture Capital Investment

C. Establishment of Criteria to Create the University of Virginia Investment Management Company

II. CONSENT AGENDA (Mr. Sandridge)

A. Contract Rates for Dining Services, 1998-99
  • Academic Division
  • Clinch Valley College

B. Faculty and Staff Housing Rates, 1998-99
  • Academic Division
  • Clinch Valley College

C. Application Fees for Law, Graduate Business Administration and Medicine

III. ACTION ITEMS (Mr. Sandridge)

Tuition and Required Fees, 1998-99 Academic Year and Summer Session
  1. Academic Division
  2. Clinch Valley College


A. Vice President's Remarks (Mr. Sandridge to introduce Ms. Capone, Ms. Colette Capone to report)
  • 1998 General Assembly Session

B. Miscellaneous Financial Reports
  1. Academic Division Accounts and Loans Receivable as of December 31, 1997
  2. Capital Campaign Gift Report
  3. Disinvestment of Unrestricted Quasi-Endowment to Fund Capital Campaign Expenses
  4. Internal Loans to University Departments and Activities
  5. Medical Center Write-Off of Bad Debts and Indigent Care

I. A. Market Value and Performance as of January 31, 1998


BACKGROUND: The Rector and Visitors of the University, particularly the Investment Subcommittee of the Finance Committee, oversee the major component of the endowment that benefits the University. External managers oversee a large portion of the University's endowment, and the University Treasurer manages selected components. The Investment Subcommittee meets quarterly to review performance and to make asset allocation decisions. Reports on market value, asset allocation and endowment performance are made to the Finance Committee at each regular meeting of the Board.

DISCUSSION: As of January 31, 1998, the endowment under the control of the Rector and Visitors totaled $1.033 billion, compared with $1.037 billion on September 30, 1997 and $962 million in June 1997. The fund continues to be postured defensively, away from the seemingly fully valued domestic stock market, with positions in bonds and cash, held by our equity managers, and diversification into alternative investments and real estate. As of January 31, 1998, the asset allocation of the fund was 32 percent in domestic equities, 10 percent in international equities, 20 percent in alternative partnerships, 10 percent in real estate, 20 percent in bonds and 7 percent in cash. The most significant deviations from target benchmark are an underweighting in international stocks of 6 percent and overweighting of cash of 7 percent.

The domestic equity managers have underperformed their S&P benchmark because they have taken significant positions in cash and bonds and have shown a bias toward smaller capitalization stocks, which underperformed the larger capitalization stocks over the past year by nearly 10 percent. The small capitalization bias has paid dividends in the past, as the managers have exceeded their benchmark over the long term. However, we are in a painful period because any diversification away from domestic stocks hurts performance. The additional defensiveness into cash has resulted in an underperformance of the total fund relative to its long-term benchmark (75 percent stocks and 25 percent bonds) and our National Association of College and University Business Officers (NACUBO) peer group.

The Finance Committee will review our position at its next meeting and will meet with the equity managers to discuss concerns about the market and the appropriate position for the entire portfolio. Details of the individual managers' performance and the fund are included as an attachment. (270K)

I. B. Venture Capital Investments

BACKGROUND: The venture capital program began in earnest in 1988. At present we have $60 million committed to eight different partnership groups. (This does not account for distributions.) Since the program began, we have continued to invest with proven partnership groups and occasionally added new managers when they offered an opportunity not covered by our other funds or when they enhanced the overall quality of the portfolio.

DISCUSSION: We committed $3 million to Polaris Venture Partners I in June 1996. Polaris, an early stage investor in information technology and medical technology and life sciences, is an experienced team that has invested through a range of technology and market conditions since the early 1980s. (Jonathan Flint and Terry McGuire worked at Burr Eagan, a leading Boston-based venture fund, before they formed Polaris. The third partner, Steve Arnold, is located in Seattle and is closely aligned with the Pacific Northwest information technology network dominated by Microsoft.) The Polaris venture capital fund is not yet fully invested, but we anticipate that it will be (with some reserve for add-on investments) sometime during the third quarter of this year.

Polaris is in the process of raising a second fund totaling $150 million. Although most of the Fund I portfolio companies are in the early stage of maturity, there already has been one liquidity event which had an internal rate of return of 308 percent. The entire return so far for the fund is 16.6 percent, placing it in the upper quartile for 1996 funds. In addition, a number of portfolio companies have had significant events in the last month, which should increase their market valuations. For example, one company announced a corporate alliance in excess of $200 million with a major pharmaceutical company, and a number of portfolio companies have term sheets for follow-on financing or corporate partnerships that are likely to close within the next 90 days. While it is too early to make meaningful quantitative return projections for Fund I, the General Partners believe that the Fund is off to an excellent start. There are several companies that are potential 1998 initial public offerings. A commitment of up to $6 million to Fund II would be consistent with our strategy of identifying partnerships with which we can establish long-term relationships.

Also in the venture area, an opportunity exists to invest with Sequoia Capital, one of the premier venture capital firms. Sequoia began in 1972 and has backed more than 350 companies since that time, including Cisco Systems, Apple Computer, Oracle and Yahoo. The firm has disciplined itself to remain small (it is raising a $250 million fund), so it can operate effectively in the start up and early stage area. The firm's willingness to consider an investment from us is attributable to Henry Valentine and John Glynn (a venture capitalist who also serves as a part-time instructor at Darden). We have asked for $5 million but most likely will be offered $2 to $3 million.

ACTION REQUIRED: Approval by the Finance Committee


RESOLVED by the Investment Subcommittee of the Finance Committee of the University of Virginia's Board of Visitors that the Executive Vice President and Chief Financial Officer is authorized to commit up to $6 million of the Endowment for the following Venture Capital Fund: POLARIS VENTURE PARTNERS II; and up to $5 million for the following Venture Capital Fund: SEQUOIA CAPITAL VIII.

I. C. Establishment of Criteria to Create the University of Virginia Investment Management Company

BACKGROUND: With the endowment crossing the $1 billion threshold and investment options becoming more varied and complex, the Finance Committee and Cambridge Associates reviewed the governance structure and staff of the Treasurers Office to ensure the University has the talent and resources necessary to meet the challenges of the future. The Finance Committee heard a report detailing the recommendations for reorganization at its January 1998 meeting and concurred with the reports recommendation to create a subcommittee of the Finance Committee to be known as the University of Virginia Investment Management Company.

Section 3.21 of the Board Manual states:

The Board may delegate responsibility for management of the University's endowment and non-state investments to a subcommittee of the Finance Committee, to be known as the University of Virginia Investment Management Company. The subcommittee shall consist of the Rector, the chair of the Finance Committee who shall also be chair of the subcommittee, three members of the Finance Committee appointed by the Rector, the President or his/her designee, and a minority representation of not more than four members appointed by the Board from the general public for their investment experience and expertise.

DISCUSSION: The Manual allows the creation of the Investment Management Company as a subcommittee of the Finance Committee. An action of the Finance Committee and Board is needed to establish the structure and more detailed scope of the Company. If this action is approved, the Rector will name four members of the Finance Committee to the subcommittee. The President intends to name the Executive Vice President and Chief Financial Officer to serve as his designee on the subcommittee. The Treasurer of the University is not proposed to be a member of the subcommittee but would assume an additional administrative title as president of the company. At a subsequent meeting, the Board of Visitors will name up to four public, non-voting, alumni members to the subcommittee.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors


WHEREAS, the Finance Committee has conducted a study of the University's investment operations and governance in light of the growing responsibility of managing the University's endowment; and

WHEREAS, the Manual of the Board of Visitors authorizes the establishment of a subcommittee of the Finance Committee, to be known as the University of Virginia Investment Management Company;

RESOLVED, upon the Rector's appointment of four members of the Finance Committee to the aforesaid subcommittee, the Board hereby delegates responsibility for investment and management of the University's endowment and non-state investments, including the retention of investment managers and services, to the subcommittee to be known as the University of Virginia Investment Management Company; and

RESOLVED FURTHER, the Board may appoint no more than four public members who shall be alumni of the University, to serve, without compensation save reimbursement of expenses as permitted by University policy, as non-voting members to initial terms not to exceed four years, with eligibility of reappointment for one consecutive four-year term, such that no member shall be eligible to serve more than two successive terms; and

RESOLVED FURTHER that the Treasurer of the University of Virginia shall serve as the President of said company; and

RESOLVED FURTHER, the said company shall invest and manage the University's endowment and non-state investments in accordance with applicable Board policy, as shall be in effect from time to time, and shall report its actions to the Finance Committee at its next meeting; and

RESOLVED FURTHER that appropriate officials of the University are authorized to take all actions necessary to carry out this resolution; and

RESOLVED FURTHER that this authorization shall continue in effect until repealed or otherwise modified by the Board of Visitors.


A. CONTRACT RATES FOR DINING SERVICES, 1998-99: Approves rates for contract dining services for 1998-99

The University provides a variety of contract student meal plans, ranging from unlimited dining to 6 meals per semester. The University's pricing policy calls for room and board rates to be lower than the average of the rates charged by all public colleges and universities in Virginia. The University charged $227 less than the statewide average for room and board in 1997-98. During the same time period, Clinch Valley College charged $99 less than the statewide average for room and board. Revenues received from contract dining, retail operations, vending, concessions and catering must cover all operating costs, including food, labor, capital and indirect costs. Both the University and Clinch Valley College contract with private firms to deliver meal plans.

Proposed University meal plan rate increases for 1998-99 range from 0.0 percent to 3.6 percent, with an average increase of 3.2 percent. One new plan for Lawn residents has been added to those presented last year. In 1997-98, approximately 6,900 University students purchased contract meal plans.

Clinch Valley College meal plans are proposed to increase by 4.0 percent to cover cost increases passed along by the vendor and renovation costs incurred in the dining hall. Clinch Valley College serves approximately 400 students on contract meal plans.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors


RESOLVED that the student contract rates for dining services be approved, effective beginning with the 1998-99 session.

B. FACULTY AND STAFF HOUSING RATES, 1998-99: Approves rates for faculty and staff residences for 1998-99

The University operates 130 faculty and staff housing units, including individual houses, cottages, Lawn Pavilions, townhouses and apartments. Clinch Valley College operates eleven units, consisting of seven individual houses and four apartments. State policy requires that rents charged by the University for faculty and staff housing reflect the market rate for similarly sized and equipped properties.

University faculty and staff housing rates are proposed to increase by an average of 3.7 percent, and an average increase of 1.5 percent is proposed for Clinch Valley College.

At the January 1998 Board of Visitors meeting, the Board approved housing rates for the University and Clinch Valley College student residences.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors


RESOLVED that the faculty and staff housing rates be approved , effective July 1, 1998. The Executive Vice President and Chief Financial Officer is authorized to increase the rates to market level when a property is vacated.

C. APPLICATION FEES FOR LAW, GRADUATE BUSINESS ADMINISTRATION AND MEDICINE: Approves application fee increases for Schools of Law, Graduate Business Administration and Medicine

At this time, it is necessary to increase application fee rates to the Schools of Law, Graduate Business Administration and Medicine to bring them in line with the market rates reflected by the average application fees of peer institutions. The School of Law proposes to increase its application fee by 37.5 percent to $65. Laws peer institutions charged application fees averaging $61 in 1996-97. The Graduate School of Business Administration proposes to increase its domestic application fee by 33 percent, to $100, to a level equal to its international application fee. Both fees would remain below Darden's current year peer averages of $115 (domestic) and $122 (international). The School of Medicine proposes to increase its application fee by 20 percent, to $60, which remains below its current year peer average of $64.

RESOLVED that the following schedule of application fees be approved, effective July 1, 1998:

Fees Collected Percent
Present July 1, 1998
Undergraduate $40 $40 0.0%
(except Law and Darden)
$40 $40 0.0%
(including Graduate Law)
$40 $65 37.5%
Darden (including DBA)
Domestic Students
$75 $100 33.3%
International Students
$100 $100 0.0%
Medicine $50 $60 20.0%

III. Tuition and Required Fees, 1998-99 Academic Year and Summer Session

BACKGROUND: At its March meeting, the Board of Visitors sets regular and summer session tuition and fee schedules for the following year for the Academic Division and Clinch Valley College. The resolution covers full- and part-time tuition rates for undergraduate, graduate and first professional students; a required comprehensive fee; continuing education tuition rates; and various school- and activity-specific fees.

The 1998 Appropriations Act continues the prohibition against increases in tuition and required educational and general (E&G) fees for undergraduate Virginians, with one exception. The 1998 General Assembly has recommended a nongeneral fund appropriation increase that will allow for the implementation of an E&G fee to support student-related technology. This fee may be assessed to both Virginians and non-Virginians. The House of Delegates also has introduced language that would limit increases in mandatory non-E&G fees to no more than the rate of inflation on non-personal services and no more than the increase in salaries and wages on personal services. Fees required for debt service on auxiliary capital projects approved by the General Assembly are exempt from these limitations. The Board of Visitors retains authority to set graduate, professional and out-of-state undergraduate tuition and fees.

DISCUSSION: In accordance with the tuition policy approved by the 1998 General Assembly, we recommend no increase in tuition and a $45 increase in required E&G fees for in-state, undergraduate students. We propose a five-percent increase in out-of-state tuition and a $45 increase in E&G fees for out-of-state undergraduate and graduate students. Funds generated by these increases will cover the institution's share of faculty salary increases authorized in 1997 and 1998, increases in fringe benefit costs, Year 2000 expenses, operating costs for maintaining new and renovated facilities and student related technology support.

Entering in-state Law and Darden students will pay a $4,500 surcharge. This is a continuation of the surcharge approved by the Board last year. These figures are consistent with the long-term plan for the financial self-sufficiency of these schools, as reported originally to the Board in November 1995. By 1999-2000, all three classes of in-state Law students will pay the same tuition. We propose tuition and fee increases that average 5.3 percent for in-state Law students, 4.2 for out-of-state Law students, 5.5 percent for in-state Darden students, and 5.1 percent for out-of-state Darden students. Incremental revenue generated by the tuition increases will be used first to meet salary increase requirements and operation and maintenance costs of new facilities, with any residual amount used to strengthen academic programs.

As discussed with the Board in April 1997, the School of Medicine proposes a new tuition structure for in-state students. The plan, similar in nature to the plans at the Law and Darden Schools, would start a five-year phase-in of a $2,000 surcharge for in-state students that will raise in-state tuition to a level comparable with the other state-supported medical schools. Currently, the Medical College of Virginia charges resident students $10,833 in tuition and fees, compared with the Universitys $10,174. Tuition and fees at the Medical College of Hampton Roads are substantially higher at $15,275. The tuition and fee increase for in-state Medical School students is recommended at 5.3 percent, with the addition of a $1,000 surcharge for entering students. An increase of 5.1 percent is proposed for out-of-state medical students.

The University maintains one of the lowest required fee schedules among Virginia colleges and universities. The following resolution proposes two required fee changes for 1998-99. The first is the implementation of a $45 technology fee for both in-state and out-of-state students that will help support student-related technology needs. The second is a $28 increase for both in-state and out-of-state students to address commitments in Athletics, Student Health, University Transit and University Union. These two required fee proposals result in a total fee increase of $73, or 7.9 percent, for all students. When the required fees are combined with tuition, room and board increases, the cost of education for in-state students will rise by 2.5 percent in 1998-99 and by 4.8 percent for out-of-state students.

One new fee, a $100 annual fee for residents of Mosaic House, is proposed for the 1998-99 regular session. Mosaic House is a student-initiated program that reflects the University's commitment to cross-cultural understanding and respect. Students currently living in Mosaic House support this request for a student programming fee to fund social and cultural events and activities.

In keeping with state policy, Clinch Valley College proposes no increase in its in-state tuition and a $45 increase in E&G fees to fund student-related technology support. Out-of-state tuition and E&G fees are recommended to rise by 5.6 percent. This adjustment is required to move the College toward the States expectation that out-of-state students pay at least 100 percent of the state educational and general costs and also includes the $45 technology fee. The required auxiliary fees at the College will increase by $127, or 13.0 percent. The incremental revenue will be reserved for the construction of a new student center.

For the 1999 summer session, the University recommends no tuition increase for in-state students and a 5.1 percent increase for non-resident students. An increase of $22, or 20.0 percent, in the summer session comprehensive fee is proposed. The comprehensive fee includes increases for University Union ($2), Student Health ($5), University Transit ($2), Technology ($5), and Recreational Facilities ($8). The first four of these increases are similar to those recommended for regular session students. The fifth (Recreational Facilities) is a new addition to the summer session comprehensive fee. This is the first year of a proposed two-year implementation of a Recreational Facilities fee. This fee will help offset the costs associated with the summer operation of the recreational facilities.

ACTION REQUIRED: Approval by the Finance Committee and the Board of Visitors


RESOLVED that the tuition and required fees and other charges applicable to the Academic Division be approved as shown below, effective July 1, 1998:




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