NEWS RELEASE

11/21/02

Kate Chesley, University Communications: (650) 725-3697

Stanford University endowment report issued by Stanford Management Company

The Stanford Merged Endowment Pool (MEP) generated a -2.6 percent investment return for the 12 months ended June 30, 2002, according to a report to the Stanford University Board of Trustees by the Stanford Management Company.

In an extremely difficult period for the financial markets -- the S&P 500 U.S. stock index was down 18 percent for this period -- the MEP's well-diversified mix of assets cushioned the impact on the university. The one-year return placed Stanford in the top quartile of college and university endowments, according to the consulting firm Cambridge Associates. Over the past 10 years, the MEP has achieved an annualized return of 14.6 percent, growing from $2.1 billion to $7.6 billion. This investment performance places Stanford in the top 5 percent of all college and university endowments over the same period, according to Cambridge.

The MEP is Stanford's investment pool for about 86 percent of the university's total endowment and 50 percent of expendable funds. Total MEP assets stood at $7.6 billion as of June 30, 2002. The Stanford University endowment, which is managed by the Stanford Management Company, supports the operating budget of Stanford University and allows the institution to pursue its teaching and research mission.

"Although we are disappointed to show negative performance under any circumstances, we feel our diversified portfolio structure has demonstrated excellent relative performance over the last 12 months," said Michael G. McCaffery, chief executive officer of the Stanford Management Company. "Our long-term investment horizon and diversification has demonstrated good capital preservation in a negative environment for global financial markets. We also believe we are well positioned to make a strong contribution to the university long term."

Spending from the endowment in support of the university's operating budget is expected to be $403.6 million in the current fiscal year. This payout contribution represents 18.9 percent of the university's operating budget. The university employs a smoothing formula to calculate endowment payout to mute the effect of short-term investment returns. The formula is calculated using 60 percent of the prior-year actual payout and 40 percent of the target payout rate. As a result, this year's payout on individual MEP funds is expected to increase 2.8 percent over the previous year, even during this period of financial market downturn.

The MEP invests in a diversified set of assets as defined by Stanford's long-term strategic asset allocation. The strategic asset allocation targets and 12-month investment returns by asset class were as follows:

*10-year return not available

Investment performance across asset classes varied during this period, demonstrating the positive impact of diversification in a difficult period. Stanford evaluates performance within asset classes by comparing returns to benchmarks that are appropriate for each individual asset class. The overall portfolio is evaluated by comparison to a composite benchmark that represents a blending of the benchmark returns for each asset class weighted by the strategic allocations above. The portfolio has outperformed its composite benchmark each year for the past 10 years and by 3.2 percent over the last 12 months.

More detailed information can be found on the Stanford bondholder information website at http://bondholder-information.stanford.edu/.

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