The University's total invested funds had a market value at year end of $1,032 million, held primarily in the Endowment Investment Pool. The Pool is made up of more than 1,500 individual endowment accounts that are invested jointly, but accounted for separately to assure compliance with donor restrictions. Specialized outside managers are employed to provide the portfolio balance established by the University Board of Trustees.

The investment objectives of the Pool are to:

• Earn a rate of return 4 percent above inflation.
  
• Earn a return that over a market cycle places the Pool in the top quartile of performance of a selected group of comparable portfolios.
  
• Avoid undue risk.
  

For the three years ended June 30, 1994, the Endowment Investment Pool earned an average annual return of 11.8 percent. That ranked the Pool in the top 4 percent of a peer group of like-structured portfolios on which data is maintained by Callan Associates. Using the Consumer Price Index to discount for inflation, the Pool's real annual rate of return for the three-year period was 9.1 percent, far exceeding the University's 4 percent real return target.

The one-year returns for 1994 were less gratifying on an absolute basis. After strong performances in the latter half of calendar 1993, the prices of both equities and fixed income securities experienced major declines, due to market fears of rising inflation and the corresponding increases in the term structure of interest rates. Operating in this environment, the University's investment managers achieved a composite total return of 4.6 percent compared to the 14.9 percent return of the previous year. However, the 1994 return was better than those of both the Standard & Poor's 500 Index and the Lehman Brothers Government/Corporate Index, which returned 1.2 percent and -1.5 percent, respectively. The University's 1994 return ranked in the top 8 percent of the Callan Associates database.

The good performance for the year relative to the indices is due primarily to the University's two international equity managers who produced returns of 29.1 percent and 14.7 percent. Two domestic equity managers also turned in top quartile performances, and the University's special investments continued to perform well with a 13.0 percent return.

During 1994, two new growth equity managers were engaged to increase the asset allocation for domestic equities. One of the managers invests in stocks of mid-sized to large domestic companies, and the other invests solely in stocks of smaller domestic companies. Additional funds also were allocated to both international equity managers. The asset allocation at June 30, 1994, is shown in the table below.

Asset Allocation	June 30, 1994	June 30, 1993
Equities / Domestic	27.6%	22.7%
Equities / International	13.5	9.8
Fixed Income	38.8	*48.6
Special Investments	12.6	12.1
Cash and Equivalents	5.3	4.5
Miscellaneous	2.2	2.3
Total	100.0%	100.0%

* The fixed income allocation at June 30, 1993, included funds temporarily invested in intermediate term fixed income securities pending the appointment of a new domestic equity portfolio manager. The new manager was funded in November 1994. The intermediate term fixed income portfolio accounted for 7.4 percent of the fixed income allocation.

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