Committee Members:

William H. Goodwin, Jr., Chair
Henry L. Valentine, II
Walter F. Walker
James C. Wheat, III
Elizabeth A. Twohy
Timothy B. Robertson
John P. Ackerly III, Ex Officio

AGENDA

I. CONSENT AGENDA

A. MEDICAL CENTER RETIREMENT PLAN - Allows University officials to make appropriate changes to plan documents to conform to previously approved Board policies

In May 1998 the Board approved new compensation and benefit policies for the Medical Center. Included in the new benefit plan is the expansion of the Defined Contribution Plan for Health Care Professionals (the "HCP Plan") to include all full-time salaried employees of the Medical Center effective January 1, 1999. With the expansion of coverage, the HCP Plan will be renamed the Defined Contribution Plan for Employees of the University of Virginia Medical Center (the "MC Plan").

This action is a technical item that allows the Executive Vice President and Chief Financial Officer to execute the necessary changes to the legal documents that define the Medical Center Retirement Plan. Duties related to administration of the plan and the trust will be assigned in the same manner as for the Faculty Retirement Plan. The options available in the Medical Center Retirement Plan are identical to those of the Faculty Retirement Plan.

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

APPROVAL OF AMENDMENT TO MEDICAL CENTER RETIREMENT PLAN

WHEREAS, the University offers its Medical Center employees the opportunity to save for retirement through a University-sponsored defined contribution plan; and

WHEREAS, under the terms of the University's Defined Contribution Plan, the Board of Visitors has the sole authority to amend the Plan; and

WHEREAS, the Board of Visitors finds that the Plan document reflects Internal Revenue Code requirements and state law to create a trust to hold funds in the Plan, to appoint a trustee to monitor the funds investment, and to reflect accurately: (1) current practice regarding Medical Center employees' right to elect the Plan, and (2) the formula used to calculate the Plan's contributions; and

WHEREAS, the Executive Vice President and Chief Financial Officer, with the assistance of appropriate University officers and appointed counsel, has prepared a plan document incorporating the above-described provisions; and

WHEREAS, the Board of Visitors finds it desirable to engage corporate trustees for the retirement plan trust with responsibilities of custodianship and safeguarding investment assets; and

WHEREAS, the Board of Visitors finds that its own Board of the University of Virginia Investment Management Company is the appropriate body to serve as the monitor of the Plans administration; and

WHEREAS, the Board of Visitors delegates authority to administer the Plan to the appropriate University officials who, because of their various duties and responsibilities, are in the best position to oversee and administer the Plans operations;

RESOLVED that the Executive Vice President and Chief Financial Officer is authorized and directed to execute the amended and restated defined contribution plan;

RESOLVED FURTHER that the Executive Vice President and Chief Financial Officer is authorized and directed to take such actions as may be necessary to secure from the Internal Revenue Service a favorable letter of determination that the amended and restated plan providing for the trust satisfies the requirements of the Internal Revenue Code, and to make such further amendments as may be necessary to secure such approval from the Internal Revenue Service;

RESOLVED FURTHER that the Board of the University of Virginia Investment Management Company is delegated authority to monitor the administration of the Plan on behalf of the Board of Visitors, including reviewing the funds included in the Plan;

RESOLVED FURTHER that the Executive Vice President and Chief Financial Officer is authorized and directed to contract for the services of a corporate trustee or trustees in accordance with the provisions of this resolution;

RESOLVED FURTHER that the Executive Vice President and Chief Financial Officer is authorized to (1) form an administrative committee to assist the Board of the University of Virginia Investment Management Company in carrying out the duties above and (2) engage outside consultants as needed to assist with the Universitys responsibilities as Plan Administrator and Named Fiduciary;

RESOLVED FURTHER, subject to the Presidents continuing administrative powers and authority, the Chief Human Resource Officer is delegated the authority and responsibility to oversee and administer the Plan.

B. AMENDMENT TO THE FACULTY RETIREMENT PLAN - Approves a technical amendment to the Faculty Retirement Plan to include participation of Clinch Valley College faculty and continued participation by certain University Medical Center faculty

The eligibility provisions of the Faculty Retirement Plan will be amended to clarify the eligibility of Clinch Valley College faculty. Inclusion will provide CVC faculty the opportunity to enroll in other University-sponsored faculty benefits. The clarification was applied effective September 1, 1998, to coincide with the beginning of the academic year.

Effective January 1, 1999, personnel policies of the Medical Center will no longer contain an employment classification of "faculty" thereby precluding continued participation in the Faculty Retirement Plan. The proposed technical change to the definition of eligible employee will permit continued membership for any Medical Center employees who were participants on December 31, 1998, in the Faculty Retirement Plan.

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

APPROVAL OF AMENDMENT TO THE FACULTY RETIREMENT PLAN

WHEREAS, under the terms of the Universitys Faculty Retirement Plan, the Board of Visitors has the sole authority to amend the Plan; and

WHEREAS the Board of Visitors finds that the Plan document should be amended to include the restatement of the eligibility rules to reflect inclusion of Clinch Valley College faculty, as well as continued participation by Medical Center employees currently enrolled in the Plan;

RESOLVED that the Executive Vice President and Chief Financial Officer is authorized and directed to execute and amend the Plan.

C. SPECIAL TUITION AND FEE APPROVALS- STUDENT ORIENTATION FEE AND MCINTIRE SCHOOLS MASTER OF SCIENCE IN MANAGEMENT INFORMATION SYSTEMS EXECUTIVE FORMAT - Approves student orientation fee and tuition and fees for a new executive format for the McIntire Schools Master of Science in Management Information Systems

At the October 1998 meeting of the Student Affairs and Athletics Committee, the Board heard a detailed report of the Orientation Task Force recommendations for improvement of the University's new student orientation program. The Board concurred with the Task Forces key recommendation of adding an optional summer component to orientation.

The new orientation program has been designed. The Board is requested to approve a fee in the amount of $175 for the 1999 program.

The McIntire School of Commerce is introducing a new executive format for its Master of Science in Management Information Systems (MIS) degree. The new format is a direct response to changing market conditions. School representatives believe the new format will position McIntire as a preeminent provider of graduate MIS education.

As reported at the October 1998 Finance Committee meeting of the Board of Visitors, the Board is asked to approve a "bundled price" that includes tuition, fees, room, board, technology costs, computer lease, books, local transportation and miscellaneous expenses. The proposed bundled price for Virginia residents is $27,000, with tuition accounting for $17,000 of that price. The proposed bundled price for non-Virginian students is $31,500, with tuition accounting for $21,500. The tuition and fees are consistent with similar programs and with current Darden tuition levels.

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

APPROVAL OF STUDENT ORIENTATION FEE AND TUITION AND FEES FOR MCINTIRE SCHOOL'S MASTER OF SCIENCE IN MANAGEMENT INFORMATION SYSTEMS EXECUTIVE FORMAT

RESOLVED that the special tuition and fee actions, be approved as specified below, effective February 1, 1999:

Student Orientation Program: Summer 1999 Fee		$175
Executive Master of Science in Management Information Systems1:*	Virginian	$27,000
	Non-Virginian	$31,500

*Price to include tuition, fees, room, board, technology costs, computer lease, books, local transportation and miscellaneous expenses.

D. BOND ISSUANCE FOR CLINCH VALLEY COLLEGE RESIDENCE HALL - Approves the issuance of bonds to finance the Clinch Valley College Residence Hall in an amount not to exceed $4.5 million

E. CONTRACT FOR DINING SERVICES - Delegates authority to the Executive Vice President and Chief Financial Officer to approve and execute a contract with ARAMARK, Inc., to continue to provide contract dining, catering, retail, vending and concessions services.

ARAMARK has provided contract dining, catering, retail, vending, and concessions services to the University for the past nine and one-half years. The existing contract allowed no additional renewals without a competitive procurement. The required competitive procurement of dining services was recently completed.

ARAMARK, Inc., is the selected vendor subject to Board approval. The new contract calls for the vendor to provide dining services with guaranteed revenue of $3.0 million per year to the University in return for the use of its facilities and equipment. The term of the contract is five years effective July 1, 1999, with two five-year renewal options.

Action by the Finance Committee is required because the value of the contract over the five-year term exceeds the approval authority delegated to the Executive Vice President and Chief Financial Officer.

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

APPROVAL OF DELEGATION OF AUTHORITY TO EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER TO APPROVE AND EXECUTE A CONTRACT WITH ARAMARK, INC.

RESOLVED by the Finance Committee and the Board of Visitors that the Executive Vice President and Chief Financial Officer be authorized to approve and execute a contract with ARAMARK, Inc., for the period July 1, 1999 - June 30, 2004, to provide contract dining, catering, retail, vending and concessions services.

II. 1999-2000 Student Housing Rates

BACKGROUND: Student housing rates are considered by the Board at this time each year. The University's student housing rates were increased 3.8 percent in 1998-99 and 2.0 percent in 1997-98. Clinch Valley College's student housing rates were increased by 3.0 percent in each of the last two years.

The average double room rate at Virginia public colleges and universities in 1998-99 is $2,636. The comparable charge at the University is $1,997. Clinch Valley College charges $2,458. The Universitys pricing policy requires that both the Universitys and the Colleges charges for room and board not exceed the average of amounts charged at other Virginia public institutions. Both institutions meet this expectation.

DISCUSSION: Housing rates are proposed to increase approximately three percent for the University in 1999-2000. This increase covers rising University operating costs, most notably for the 4.0- to 6.25-percent salary increases authorized by the state and fringe benefit increases. The proposed rates allow the Housing Division to meet reserve requirements related to new housing projects, including 400/402 Monroe Lane Apartments renovation and the construction of a new 140-bed first-year dormitory, and maintenance/renovation needs.

Clinch Valley College proposes a three-percent room rate increase for 1999-2000. Its operating costs for a proposed new dormitory will be subsidized by the University consistent with prior Board action.

The proposed resolution also addresses summer 1999 housing rates for several units located at the Mountain Lake Biological Station at Pembroke in Giles County.

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

APPROVAL OF STUDENT HOUSING RATES FOR 1999-2000

Resolved that rental increases for student housing facilities be approved as shown below, effective beginning with the 1999-2000 session:

• Student Rates Page 1
• Student Rates Page 2
• Student Rates Page 3
• Mountain Lake Biological Station Proposed Rates
• Mt. Lake Housing Rates Adjusted to Now 4-Week Term

III.A. Vice President's Remarks

ACTION REQUIRED: None

State Budget and Legislation

Governor's Budget

BACKGROUND: On December 18, 1998, Governor Gilmore presented to the legislature his amendments to the 1998-2000 biennial budget. The General Assembly will consider the Governors amendments during its 46-day session, which began January 13, 1999. The University and Clinch Valley College submitted amendments for the Governor's consideration in September 1998.

DISCUSSION: Governor Gilmore's amendments to the 1998-2000 budget for higher education totaled a net increase of $4.8 million in additional state general fund support in 1998-99 for operating budgets and $101.6 million in 1999-2000. Approximately $75 million of the $101.6 million in additional operating budget support proposed for 1999-2000 will replace nongeneral fund revenue eliminated through the Governor's proposed 20-percent tuition and fee rollback. The amendments also provide $27.5 million in additional state general fund support for capital outlay projects.

The Governor's proposed amendments include a 20-percent rollback of tuition and mandatory educational and general fees for in-state undergraduate students at public colleges and universities, reducing the University's tuition and mandatory educational and general fees from the 1998-99 rate of $3,930 to $3,144. The Governors initiative would provide $6.7 million in state general funds in 1999-2000 and would reduce nongeneral funds by a similar amount.

The 1998-2000 budget includes estimates for nongeneral fund revenues that do not take into account the impact of programs that reduce gross tuition revenues, such as unfunded scholarships and tuition waivers. This results in an overstatement of potential nongeneral fund revenues and inadequate general fund support of $2.1 million at the University. The Governor proposes an amendment to provide $2.1 million in state general funds for the Academic Division to correct the overstatement of estimated nongeneral fund revenues.

The Governor's recommendations for the Academic Division include an additional $70,000 in 1998-99 and $280,000 in 1999-2000 for the Virginia Center for Governmental Studies, and $232,021 in 1998-99 and $1.1 million in 1999-2000 in general funds to support the University's sponsored health insurance plan at the same level as state-sponsored health plans.

The Governor has recommended that the base salary of full-time state employees be increased by four percent on November 25, 1999, if they have attained at least a "meets expectations" on their latest performance evaluation. In addition, the base salary of full-time employees shall be increased by 2.25 percent on June 25, 1999, if they have three or more years of service as of this date and have attained at least a "meets expectations" on their latest performance evaluation. Salary increases in the second year of the biennium for full-time instructional faculty (6.5 percent), professional and administrative faculty (3.3 percent), part-time instructional faculty (3.3 percent) and graduate teaching assistants (3.3 percent) remain unchanged.

Capital projects of $21.6 million ($4.2 million general funds, $17.3 million nongeneral funds) are recommended for the Academic Division as reflected in Attachment A.

The Medical Center division received its requested nongeneral fund adjustment to bring its appropriation in line with actual expenditures. The Governors budget also includes recommendations for $8.4 million in capital projects for the Medical Center. These initiatives are listed in detail on Attachment A.

The Governor recommended $743,000 in general fund operating support, offset by an equal reduction in nongeneral funds, for Clinch Valley College and $103,000 general funds for capital projects. Attachment A itemizes the composition of these recommendations.

1999 Legislative and Budget Amendments

BACKGROUND: As part of the 1998-2000 biennial budget development process, the University submitted requests for operating budget increases and for capital projects for inclusion in the Governor's budget. These were reported to the Board at its October 1998 meeting. With the concurrence of the Rector, the University submitted its high priority capital and operating budget amendments to the General Assembly before the final day for submission, January 21, 1999. This action was taken with the understanding that the Board would review the proposed budget amendments at its January meeting and any amendment not supported by the Board would be withdrawn.

At the Board's October meeting, we also discussed two legislative proposals related to employee benefits that we submitted for the Governors consideration.

DISCUSSION: The presidents of Virginia's colleges and universities plan to submit a higher education budget request that conforms to the total resource package endorsed by the Virginia Business Higher Education Council. Totaling approximately $162.6 million, the amendment will address high-priority needs, such as financial assistance, maintenance reserve, institutional specific requests and capital outlay projects that remain unaddressed in the Governor's budget.

The operating and capital budget requests submitted to the legislature are summarized in Attachment B. The University is also requesting authorization for competitive negotiation as a possible construction delivery system for the Clark Hall renovation and the Biomedical Engineering and Medical Science Building construction.

The Secretary of Education has referred both legislative proposals to the Joint Commission to Reform the Classified Compensation Plan and the Joint Commission on Management of the Commonwealths Workforce for further study.

Preliminary 1999-2000 Budget Assumptions

BACKGROUND: Each year at this time, we develop preliminary budget assumptions used to formulate the Universitys target budget for the 1999-2000 fiscal year.

DISCUSSION: The following budget assumptions will be used to develop the 1999-2000 educational and general (E&G) budget, which will be presented to the Board of Visitors for action in May 1999:

1. The 1999-2000 internal budget target is derived from the baseline budget for the Academic Division as approved in the Revised 1998-2000 Appropriation Act. Any partial year amounts are annualized, and the targets are adjusted accordingly.

2. Vice presidents may reallocate existing positions among units within their areas of responsibility.

3. Tuition increases will be driven by several factors:
   • The Governor's budget recommendations will impact the extent to which the University will need to decrease or increase tuition (e.g., in-state tuition rollbacks or out-of-state inflationary adjustments).

   • Implementation of a financial self-sufficiency model for the Darden School and the School of Law will continue in 1999-2000. The tuition surcharges at both schools will continue.

   • The School of Medicine plans to enter the second year of a multi-year plan to raise its tuition rates for in-state and out-of-state students.

   • The current tuition surcharges used for financial aid will continue in 1999-2000.

4. The 1998-99 base budget (permanent budget as of December 31, 1998) will be adjusted in the 1999-2000 budget as follows:
   • Faculty salary, faculty wage, classified salary and graduate teaching assistant base budgets (including fringe benefits) will be increased to fund the annual cost of the salary increases granted November 25, 1998.

   • Base budgets will be adjusted to include funding for any classified and faculty salary increases effective in 1999-2000. These adjustments will be made after the Governor signs the Appropriation Act in 1999.

   • OTPS (other than personal services) base budgets will not increase.

   • Recoveries and transfer budgets will be adjusted by varying amounts, depending on the budget assumptions applied to the items being recovered or transferred.

Attachment A. Summary - Academic Division

Attachment A. Summary - Medical Center

Attachment B. 1999-2000 Legislative Amendments - Academic Division (Page 1)

Attachment B. 1999-2000 Legislative Amendments - Academic Division (Page 2)

Attachment B. 1999-2000 Legislative Amendments - Clinch Valley College

III.B. Investment Matters

ACTION REQUIRED: None

Market Value and Performance as of December 31, 1998

BACKGROUND: The Rector and Visitors of the University, particularly the University of Virginia Investment Management Company (UVIMCO), oversees the major component of the endowment that benefits the University. The UVIMCO Board meets at least quarterly to review performance and to make asset allocation decisions.

DISCUSSION: As of December 31, 1998, the endowment under the control of the Rector and Visitors totaled $1.098 billion, compared with $1.087 billion as of June 30, 1998. Reversing the correction of the prior quarter, strong fourth quarter returns in the domestic stock market, up 21.4 percent as measured by the Russell 3000, propelled the market to its fourth straight year of annual returns higher than 20 percent. As in 1997, large capitalization stocks significantly outperformed other equity strategies. Developed country foreign equity markets performed similarly, up 20.7 percent for the quarter and 20.3 percent for the year as measured by the Morgan Stanley Capital International Europe, Australia, and Far East Index. Emerging markets also rallied in the fourth quarter, up 18.0 percent, but still closed the year down 25.3 percent.

The Pooled Endowment Fund under performed its benchmark for the fourth quarter and for the calendar year. Our equity managers carried both bond and cash positions, as well as a short position in the S&P 500. Poorly performing oil & gas markets and the spillover effects of the well-publicized collapse in hedge funds resulted in lower than expected returns in our satellite equity program. Our holding in a publicly traded real estate company, also affected by significant adverse sentiment in that market, greatly reversed gains in our real estate program. Our fixed income area fared best compared with its benchmark.

Responding to these difficulties in performance, the UVIMCO Board and staff are reviewing asset allocation strategies and moving toward significant changes in external manager relationships.

Report on Actions of the Investment Management Company

BACKGROUND: The University of Virginia Investment Management Company (UVIMCO) meets quarterly and reports all of its activities at the following meeting of the Finance Committee.

DISCUSSION: The UVIMCO Board will have met three times in Richmond since the last meeting of the Board of Visitors. The first two meetings were focused on understanding the current program and developing an investment plan for the endowment. The third will be structured to make decisions about the overall asset allocation of the fund.

The Board's November 2 meeting involved discussion of various aspects of an investment policy program, including performance objectives, benchmarks, investment beliefs (e.g., active vs. passive or value vs. growth), investment office structure and governance. A long-term performance benchmark of top quartile performance among our peer group was established. The UVIMCO Board authorized the Executive Vice President and Chief Financial Officer to enter into a contract to invest funds on behalf of the Virginia Semiconductor Educational Endowment.

The Board met with two of our domestic equity managers, Charles Mott of John W. Bristol and Dick Mayo of Grantham, Mayo, Van Otterloo at its December 17 meeting. Because of the underperformance of these managers relative to the market and because they manage such a significant piece of the endowment, the Board wanted to become more familiar with them and evaluate the merits of a continuing relationship. The Board did not reach a conclusion on the latter but did instruct staff to change the guidelines for these managers to prohibit the use of cash, bonds or derivative products (i.e., direct them to stay 100 percent invested in equities). The Board also discussed asset allocation with Ian Kennedy, the endowment consultant from Cambridge Associates, who set forth recommendations and rationale for allocations for the various asset classes.

At the January 21 meeting, the Board plans again to discuss asset allocation and come to a conclusion regarding the types of investments that will be held in the endowment, the allocation to each asset class, and the benchmark for each. In addition, the Board plans to discuss the structure of the domestic equity portfolio with an eye toward making a decision about domestic equity fund managers at the next meeting scheduled for February 22.

MISCELLANEOUS FINANCIAL REPORTS

Academic Division Financial Report (Summary of Accounts Receivable)

Academic Division Financial Report (Summary of Loans Receivable)

Capital Campaign Gift Report

Disinvestment of Unrestricted Quasi-Endowment to Fund Capital Campaign Expenses

Internal Loans to University Departments and Activities

Medical Center Report on Write-Off of Bad Debts and Indigent Care

Medical Center Accounts Committee Report

Academic Division 1998-99 Revenue Budget Summary

Academic Division 1998-99 Expenditure Budget Summary

Quasi-Endowment Actions (Page 1)

Quasi-Endowment Actions (Page 2)

Quasi-Endowment Actions (Page 3)