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Usnavy Fund2007

  1. 1. Alma Mater Serving the and its Alumni United StateS naval academy alUmni aSSociation & FoUndation 2007 annUal RepoRt
  2. 2. A Message from the Chairmen The U.S. Naval Academy Alumni Association & Foundation had a strong 2007. We continued to serve alumni, parents and friends through a growing variety of venues, and our support for the U.S. Naval Academy and its mission continues to grow. In Fiscal Year 2007 new commitments of $38.9 million were tallied, and gift receipts totaled $31.1 million. Honoring our legacy, we named four alumni as Distinguished Graduates, adding to the recipient list of Naval Academy graduates who, through their lifetimes of service, are role models for our future leaders. We faithfully serve the alma mater and its alumni in ways both new and tried and true. A generous offering of benefits, products and services are available to the ever-growing population of alumni. At any stage of life, alumni can find something appropriate, whether it is a Battalion Reception, Class Reunion or career services, to name a few. Alumni Association offerings and scope continue to grow year after year, serving alumni and members wherever they live and serve. We continue to connect alumni through Shipmate magazine, a regularly updated web site and other communication tools. Alumni Association membership now exceeds 52,000 members with an additional 79 corporate members. The Naval Academy also enjoys the support and recruiting efforts of 2,300 Blue & Gold Officers; 75 active graduated class organizations; 100 affiliated and sanctioned chapters worldwide; and 84 national parents clubs. Thank you for enabling us to offer more services, provide greater support and reach more people. Thank you for all you have done for the U.S. Naval Academy Alumni Association & Foundation, this year and every year. Admiral Carlisle A.H. Trost ’53, USN (Ret.) Admiral Charles R. Larson ’58, USN (Ret.) Chairman, Board of Trustees Chairman, Board of Directors United States Naval Academy Alumni Association, Inc. United States Naval Academy Foundation, Inc. • 2007 AnnuA l Repo Rt
  3. 3. The Message from the President and CEO The U.S. Naval Academy Alumni Association Foundation continues to stay the course in Serving the Alma Mater and its Alumni. Our success is measured in how well we accomplish that task day in and day out, year after year. In fiscal year 2007, we have done exceedingly well. We have marked our strongest year in financial performance since the amalgamation (31 December 1999). And, we remain on mission to grow in import, impact and relevance to our entire constituency: the Naval Academy and its alumni, parents and friends. It is our privilege to serve our growing membership with an expanded array of value-added services. Among the offerings there is something for every member whether it is the “Another Link in the Chain” program, career services, Shipmate, the new WaveTops electronic newsletter, Go Navy! Radio, travel or other programs. The Alumni Association Foundation’s financial performance and condition continue to strengthen. In fact, we are far exceeding our goal to grow in financial prowess, while also growing our financial capacity and capability—for whatever may come our way. The consolidated assets of our two organizations were $214.8 million at 30 June 2007, an increase of $30.8 million from the previous year. Total revenue, which includes contributions, exceeded $60 million, and support to the Naval Academy was $21.2 million. Through the joint efforts of the senior leadership team, staff and volunteer guidance and oversight, for the sixth consecutive year we have finished the year with an operating surplus. • 2 u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  4. 4. Continuing our service to our alma mater, this fiscal year we raised net new commitments of almost $38.9 million and accounted for $31.1 million in gift receipts. Going forward, our vision includes growing the Annual Fund, expanding the planned giving program, establishing an even more effective corporate and foundation giving program, and placing a renewed effort on stewardship of all donors. These strategies are part of our commitment to advancing excellence at the Naval Academy. To that end, in partnership with individual donors, class organizations and corporations we have provided more than $145 million in direct and indirect support since amalgamation. That is more private support to more programs, projects and initiatives in the past seven years than in the previous 154 years combined. We can justifiably take pride in providing significant and necessary financial support to the Naval Academy, advancing the “margin of excellence,” while also exceeding all of our other financial goals and objectives. By any measure, the Alumni Association Foundation is realizing continued success and, with the support of dedicated volunteers, executing our mission with excellence. We are committed to Serving the Alma Mater and its Alumni so the Naval Academy of the future and the Brigade of the future will be able to benefit from our moral, mental, physical and, when asked, fiscal support. I thank our volunteer leaders for their tireless commitment and our many alumni, parents and friends for their generous gifts. Together we make sure the Naval Academy will always be a special place, focused on providing leaders of great character for the nation. As you review this annual report you will find evidence that we are a fiscally conscious, responsible and professional management team. I have reviewed the annual statements, and to the best of my knowledge, the statements contain no untrue material or misstatements, nor do they omit any material facts. George P. Watt Jr. ’73 President and Chief Executive Officer • 2007 AnnuA l Repo Rt
  5. 5. Serving the Alma Mater and its Alumni The Naval Academy Alumni Association was founded with a guiding vision to Serve the Alma Mater and its Alumni. While we have consistently served our alumni over the years, the ways in which we have done so have evolved and expanded, as have we. Now an organization of more than 52,000 members comprising alumni, parents, friends and corporations, the Alumni Association Foundation offers services and support covering the gamut of communications from print to electronic; opportunities for socializing and networking, from sharing Sea Stories online to finding jobs; and for preserving and building, whether it is locations on the Yard or our own historic Ogle Hall. Fiscal year 2007 has been a year of growth in all areas of service. The Foundation put into print its service to the alma mater by launching From the Bridge, a semi- annual newsletter informing donors and friends about the strategic use of gifts. The generosity of alumni, parents and friends has enabled us to aid the Superintendent in attaining a margin of excellence in academics, athletics and other strategic areas that make the Naval Academy the superb institution it is today. Another communication tool, Go Navy! Radio, continues to reach alumni around the world with news of alumni, the Brigade of Midshipmen and happenings in and around the Yard. In the recently completed fiscal year, the radio program hosted nine broadcasts featuring I-Day; interviews with the four Distinguished Graduate awardees; a call-in from the International Space Station; discussions and interviews on academic excellence; and the 30th anniversary of women at the Naval Academy. From print to airwaves to the Internet, we constantly strive to enhance our communications and serve our alumni in new ways. This year has The Alumni Association had major upgrades and updates, including the addition of a more robust online Foundation web site, giving function. This capability allows those who are inclined to participate in making, is your possible a “margin of excellence” at the Naval Academy to do so at any time from connection to the Naval any location to a variety of funds. Academy community. With Private support meets the growing need for enhanced and new programs, facilities up-to-date news on the and faculty beyond the basic sufficiency afforded by federal funding. Donations trans- Academy and its alumni, form the Naval Academy from good to great and support the Brigade of Midshipmen. resources for classes, Some of the greatness for which the Naval Academy is known is exemplified in chapters, clubs and careers, the annually recognized Distinguished Graduates. A tradition less than 10 years old, and much, much more, the Distinguished Graduate Awards honor Naval Academy alumni who have provided a web site allows visitors lifetime of service to the nation or armed forces, have made significant distinguished to be in touch wherever they contributions to the nation via public service and have demonstrated a strong interest are. Visit us the next time in supporting the Navy or Marine Corps, the Naval Academy and the nation. you’re online. Again this year, we honored four alumni in a ceremony before the Brigade of Midshipmen in Alumni Hall. Rear Admiral Maurice H. Rindskopf ’38, USN (Ret.); Admiral Thomas B. Hayward ’48, USN (Ret.); Mr. Ralph Hooper ’51; and Admiral Leighton W. Smith Jr. ’62, USN (Ret.) were added to the ranks of Distinguished Graduates. After the official ceremony, in a unique social opportunity, the award recipients mingled with midshipmen at a special reception. There the midshipmen spoke with the honorees about their careers and experiences. • u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  6. 6. Private support meets the growing need for enhanced and new programs, facilities and faculty beyond the basic sufficiency afforded by federal funding. Generous gifts from alumni and friends help the Foundation fulfill our mission of serving the alma mater. One example is support for the renovation of Preble Hall, home to the Naval Academy Museum since 1939. The museum collects, preserves and exhibits artifacts and art that are the physical heritage of the U.S. Navy and the Naval Academy. The renovated facility will provide better care for and enhance the interpretation of the collections and improve visitor circulation and accommodations. The improvements also will bring the museum up to accreditation standards and will serve as the catalyst for the museum to realize its full potential as a teaching facility. The government is funding the facility renovation at $15.8 million, and private gifts are making possible the design and installation of new and existing exhibits. A consortium of 12 classes has raised more than $6.8 million to fully fund the museum project. The work has begun, and a grand re-opening is scheduled for early 2009. Private funding also supports many academic achievements, including the Class of 1963 Center for Academic Excellence. Jointly funded by federal appropriations and private contributions from alumni, parents and friends, the center can achieve the margin of excellence that is required to Another Link in the Chain Program meet the growing need for academic support and Fifty years separate the Classes of 1959 and 2009, but thanks to the Another enhancement programs for the Brigade. Link in the Chain program, they will now be eternally linked. In a ceremony at Each year, the Academic Center staff provides Memorial Hall in April, members of the Class of 1959 presented four class more than 13,000 hours of support to midshipmen, rings and three miniatures to representatives of the Class of 2009. These rings, teaching them to become effective learners and time donated by Captain Jon “Gordy” James, John Kanuch, Dr. Robert Nash, managers to be successful at the Academy. Captain Paul Guay, Captain Robert Larson and Captain Daniel Branch, will be Since the establishment of the center in 1989, melted in with the gold used to cast the Class of 2009 rings. Representatives the average annual rate of academic attrition for from the Class of 1959 will also be present at the Ring Dance to witness the the entire Brigade has dropped from 6.5 percent rings’ baptism in the water from the Seven Seas. to 4.3 percent. The average academic attrition for All men were proud to donate their rings and feel that it is important to African-American midshipmen has been reduced participate in the Another Link in the Chain program and forge a bond with the from 20 percent to 12 percent. Class of 2009 throughout their time at the Academy and beyond. • 2007 AnnuA l Repo Rt
  7. 7. The margin of excellence in moral development comes through the private support of the Vice Admiral James B. Stockdale Center for Ethical Leadership. Formerly the Center for the Study of Professional Military Ethics, established in 1999, the center has been expanded into the broader realm of leadership. The Center seeks to provide direction, programs and instruction that continue the 161-year tradition of producing leaders of uncompromising character for the nation. The Stockdale Center will redouble efforts to strengthen the individual and collective moral fiber of the Brigade of Midshipmen and offer programs for midshipmen, Naval Academy faculty and staff, and Navy and Marine Corps leaders. A new addition to Naval Academy programs, the International Programs Office (IPO) has been established as an umbrella entity for regional study centers geared to expand and enhance the academy’s curriculum in history, language, culture and religion. IPO aims to provide all midshipmen with a broader global perspective and an expanded set of capabilities for today’s complex and dynamic world. Federally appropriated funds are designated for faculty, infrastructure and enhancements to the language curriculum; however, private funds can add the margin of excellence necessary to produce superb leaders. The first of the regional centers, the Center for Middle Eastern and Islamic Studies (CMEIS), is operational, making educational opportunities available to midshipmen, faculty and staff by supporting international and regional study, curricular innovation, a visiting lecture series, teaching and research fellowships, community outreach, and serving as a resource center for learning about a broad menu of Shipmate topics associated with the study The official Alumni magazine of the Naval Academy, of the Middle East and Islam. Shipmate is published 10 times a year. The publication Additional regional centers keeps readers in touch with the Naval Academy and the are planned, including the focus Alumni Association Foundation as well as classmates. areas of the Far East and India. You can read each issue online or in print with its Private support underwrites features and regular columns such as Over the Wall, An the director of CMEIS and other Ocean Away, Class and Chapter News, and Last Call. initiatives of the center. With moral, mental and physical development standing as the pillars of midshipmen training, the margin of excellence in athletics is also supported by private giving through the Naval Academy Foundation. One of the larger projects of the past year, the Thornton D. and Elizabeth S. Hooper Brigade Sports Complex consolidates hockey, tennis, golf and rugby from locations around the Yard and the Annapolis area. • u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  8. 8. Dedicated in October 2007, the 170,000-square foot, $16.5 million Complex features an Olympic-size hockey rink; six indoor and six outdoor tennis courts; a new golf pro shop; video-equipped golf instruction stations; a 40-foot-by-60-foot putting green; and more. As a result of parallel fundraising efforts for the Rugby Excellence Fund, three new rugby pitches will be located adjacent to the Complex. The Complex will serve midshipmen as well as the community and fans by Career Services providing space for youth hockey and The Career Center can help in all tennis, camps and tournament play. aspects of career development. With Another example of service to the our resources, tools and advice, alumni alma mater is the renovation of Terwilliger transitioning from military to civilian Brothers Field at Max Bishop Stadium. careers can find guidance, and perhaps Open in early 2006, it is just the third even employment. Our popular services NCAA baseball facility to have a Field- include the Service Academy Career Turf field. The multi-million-dollar, 1,500- Conferences (SACC) held throughout seat facility is named for longtime Navy the year and around the country; and baseball coach Max Bishop (1937–61) and JSAJE, Joint Service Academy Jobs the Terwilliger family for their generous Electronically, a job web site designed support of the Naval Academy and the for service academy alumni. Naval Academy Athletic Association. Another highlight of the 2007 fiscal year is the start of the enhancement project at historic Ogle Hall. Home to all alumni and the Alumni Association, Ogle Hall, best known as Alumni House, is in need of preservation work and an update to make the facility accessible to all. Built more than 200 years ago, Alumni House is receiving its largest renovation yet while preserving the integrity of the Colonial architecture and surrounding grounds. Restroom facilities throughout the building are being updated, bringing them in compliance with the Americans with Disabilities Act (ADA). The heating, ventilation and air conditioning system will be consolidated, and an elevator is being added at the rear of the building. The project will enhance our services to all our constituents and improve the conditions for those who work at and visit Alumni House every day. Equally important are the services that we continue to provide year after year. Our flagship publication, Shipmate, mails 10 times a year to all members, carrying Naval Academy news, Alumni Association Foundation news, as well as the ever- popular class and chapter notes. We continue to offer classmail, a lifetime e-mail forwarding service, for all alumni; a regularly updated website,; Online Community; affinity programs; career programs; Another Link in the Chain programs where midshipmen and classes 50 years their senior create special bonds; and the growing Corporate Membership, which creates partnerships with local and national companies to support alumni and the U.S. Naval Academy. The highlighted items are just some of the ways the Alumni Association Foundation Serve the Alma Mater and its Alumni. Thank you for allowing us and enabling us to complete our mission as the ways in which to serve grow and the venues for accomplishing them multiply. • 2007 AnnuA l Repo Rt 7
  9. 9. Message from the Chief Financial Officer Financial integrity is at the core of our commitment to our members. As the Chief Financial Officer and Treasurer, I am committed to the financial integrity of this organization. That is why I am pleased to present this annual report on behalf of the senior management team and to attest to its utmost integrity and objectivity. The consolidated financial statements, as financial information included in this report, were prepared by the organization in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. The financial information contained in this annual report fairly represents the organization’s financial position, results of operations and workflows. The financial statements in this document are the complete set presented to our auditors. I have reviewed the financial statements, and to the best of my knowledge, they contain no material misstatements or omit any material facts. The organization’s internal controls are designed to ensure that the Association’s and Foundation’s assets are safeguarded from unauthorized use or disposition and that our transactions are authorized, executed and recorded properly. We engaged McGladrey and Pullen, LLP, an independent auditor, to audit our financial statements and express an opinion thereon. McGladrey and Pullen’s audit considered our internal controls to the extent they believe necessary to determine and conduct the audit to render an opinion. The Joint Finance and Audit Committee of the respective boards consists of nine members who are not officers nor employees of the Alumni Association or Foundation. The Committee meets quarterly with management to ensure that the management team fulfills its responsibility for accounting controls and preparation of the financial statements and related data. Our commitment to our Alumni, parents and friends is absolute and begins with the integrity of our finances. As members, you have my commitment on behalf of the entire organization that your investment in the Alumni Association Foundation is a sound one. Henry J. Sanford Chief Financial Officer and Treasurer Financial Highlights Assets: Liabilities: Assets totaled $214.8 million as of June 30, 2007, an Liabilities totaled $37.2 million as of June 30, 2007, an increase of $30.8 million, compared to the prior year. increase of $3.3 million, compared to the prior year. Assets (in millions) Net Assets totaled $177.6 million as of June 30, 2007, an 2002 $129.3 increase of $27.5 million, compared to the prior year. 2003 $139.2 Liabilities/Net Assets (in millions) 2002 $21.5 $107.8 2004 $160.2 2003 $30.0 $109.2 2005 $172.8 2004 $36.3 $123.9 2006 $184.0 2005 $38.6 $134.2 2007 $214.8 2006 $33.9 $150.1 2007 $37.2 $177.6 • u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  10. 10. Financial Highlights for Fiscal year ending June 0, 2007 Revenue $M 2% Fund Administrative Fee Contributions $34.47 1% Membership Investment Income 22.42 Merchandise Sales 37% Fund Administration Fee 1.31 1% Royalties Investment Income Membership and Merchandise Sales 0.67 3% Royalties 0.40 Other Other 1.70 56 % Total support and revenue $60.97 Contributions 2007 Revenue: $60.97 million Expenses $M Program Services: Support to Naval Academy $21.20 Alumni Publications 1.29 16% Member Support 2.05 Development Partnership Marketing 0.55 5% Alumni Communications 0.84 63% GA Career Transitions 0.64 Support to USNA Total Program Services $26.57 16% Support Services: Program Services Development $ 5.29 General Administrative 1.67 2007 Expenses: $33.53 million Total Support Services $ 6.96 Total Expenses $33.53 Support to USNA $M 2% Tuition Support AS Brigade Sports Complex $ 7.42 6% Lacrosse Hall 3% Bishop Baseball of Fame Support Services 1.56 Stadium Renovation 7 % Lacrosse Hall of Fame 1.34 2% Squash Court Support Services Renovations Tuition Support Athletic and Scholarship 0.36 3% Bishop Baseball Stadium Renovation 0.55 Support to Squash Court Renovations 0.39 NAAA Athletics 35% Support to NAAA Athletics 0.53 Brigade Sports USNA Restricted and Unrestricted Gifts 9.05 42% Complex Total Support to USNA $21.20 USNA restricted and Unrestricted Gifts 2007 Support to USNA: $21.20 million • 2007 AnnuA l Repo Rt
  11. 11. Total Support Since Fiscal Year 1999 is $145 million Financial Highlights Revenue $M 2002 2003 2004 2005 2006 2007 Contributions $36.98 $29.86 $41.14 $28.29 $29.71 $34.47 Investment Income (Loss) (2.82) 1.36 9.88 8.14 10.71 22.42 Fund Administration Fee 1.05 1.17 1.17 0.91 1.06 1.31 Membership and Merchandise Sales 0.68 0.68 0.58 0.59 0.60 0.67 Other 1.16 0.09 2.59 1.33 1.39 2.10 Total Revenue and Gains $37.05 $33.16 $55.36 $39.26 $43.47 $60.97 Expenses $M Programs: Support to Naval Academy $17.10 $20.99 $29.24 $17.89 $15.07 $21.20 Alumni Publications 0.98 1.05 1.52 1.31 1.27 1.29 Member Support 0.98 1.22 2.01 2.02 2.09 2.05 Partnership Marketing 0.53 0.42 0.46 0.43 0.47 0.55 Alumni Communications 0.44 0.57 0.42 0.75 0.74 0.84 Career Transitions 0.50 0.40 0.53 0.52 0.61 0.64 Total Program Expenses $20.53 $24.65 $34.18 $22.92 $20.25 $26.57 Support Services: Development $ 4.07 $ 4.99 $ 4.82 $ 4.60 $ 5.65 $ 5.29 General Administrative 2.60 2.19 1.66 1.39 1.65 1.67 Total Support Expenses $ 6.67 $ 7.18 $ 6.48 $ 5.99 $ 7.30 $ 6.96 Total Expenses $27.20 $31.83 $40.66 $28.91 $27.55 $33.53 • 0 u n i t ed StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  12. 12. Investment Portfolio Review 8% Overview Special Investments constituting the investment 11% assets as shown in Chart 2. We are pleased to report that the Associations’ core Planned Giving Portfolio portfolio, while still early in its development under its Core Portfolio new investment manager, achieved solid absolute and In previous years our core relative returns in fiscal year 2007 (July 2006–June portfolio was designated 2007). The core portfolio’s total investment return 81% as being made up of a net of all fees amounted to 19.5%, its best absolute “growth fund” and a return since the amalgamation of the Association Core Portfolio Chart 2 smaller “income fund.” and Foundation and substantially ahead of its own Last year we reported we had transitioned external benchmark return of 18.1%. management for the core portfolio to The Investment The core portfolio’s return also exceeded the Fund for Foundations (TIFF) and that we had devoted 17.5% median return for Foundations and significant effort to creating an investment plan for Endowments and the 18.1% median return of the growth fund which constituted 95% of the core Foundations and Endowments with assets greater portfolio assets, while the income fund representing than $1 billion as measured by Wilshire Associates less than 5% of the assets was invested entirely in Inc.’s Trust Universe Comparison Service (TUCS). short term treasury bonds. During the fiscal year the This was the second consecutive year the core Joint Investment Committee decided to take the next portfolio beat its benchmark return, and as a result, step and redefine the core portfolio to include only the the core portfolio’s three-year average annual portfolio previously defined as the growth fund. This return of 13.1% exceeds the TUCS reported median was done for a number of reasons: three-year average return of 12.8% for Foundations 1) The income fund’s value was decreasing due and Endowments. It also equals the median three- to distributions. year average annual return of 13.1% for Foundations 2) The objectives and strategy of investing for the and Endowments with assets greater than $1 billion. income fund are very different from those of the rest While we do not expect to outperform our of the core portfolio, and benchmark every year, we do endeavor to beat the 3) The resulting composition of the core portfolio is median results of measurement services such as more in line with the endowment and related accounts TUCS. We believe these results show good progress reported by other not-for-profit institutions. towards achieving superior long-term performance. The income fund assets are now included with the Reflecting the core portfolio’s solid performance, Associations’ special investment portfolio. and after taking into account distributions and new Table 1 on the next page shows the core portfolio gift receipts, the value of all investments grew from returns for the last eight years. For consistency, returns $130.7M to $158.4M, an increase of 21%. Shown for prior fiscal years are the predecessor core portfolio’s in Chart 1 is the value of all investments since the growth fund. amalgamation on December 31, 1999. During the course of the fiscal year the Associations The objective and structure of the investments continued to build out the core portfolio by increasing have remained the same as in fiscal year 2006 with the allocation to alternative investments. Specifically, the core, planned gifts, and special investments the Associations committed to and funded an absolute return hedge fund vehicle that brought the absolute Chart 1: Value of All Investments return allocation up to target and made new 160.0 150.0 commitments to private $ in Millions 140.0 equity and private realty 130.0 120.0 and resources vehicles 110.0 furthering the core 100.0 90.0 portfolio’s progress in 80.0 those two asset classes. 70.0 60.0 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 • 2007 AnnuA l Repo Rt
  13. 13. 6/30/06 6/30/07 Actual Actual Target Total Return Assets US Stocks 25.7% 23.7% 16% 20% Foreign Stocks 28.3% 23.9% 16% 19.47% 15.58% Private Equity 1.3% 2.5% 20% 15% Absolute Return 10.1% 24.0% 19% 11.71% 11.02% 10% High Yield Bonds 0.4% 1.8% 2% 9.14% 5% Inflation Hedges 2.24% Resource-Related Stocks 7.0% 7.8% 4% 0% Marketable Real Estate (REITs) 1.7% 0.5% 2% Commodities 3.2% 3.0% 2% -5% -4.47% -6.47% Private Realty and Resources 0.0% 0.0% 10% -10% 2000 2001 2002 2003 2004 2005 2006 2007 Deflation Hedges Conventional Bonds 3.5% 2.1% 3% Table 1: Annual Percentage Return for the Core Portfolio for Fiscal Years 2000–2007. All-Purpose Hedges Inflation-Linked Bonds 8.3% 9.8% 6% The core portfolio’s asset allocation as of June 30, Cash Equivalents 10.5% 0.9% 0% 2006 and June 30, 2007 as well as the target policy Total 100% 100% 100% portfolio are provided in Table 2. As indicated in our last report, it will take several years to become Table 2: Core Portfolio (Actuals) and Policy Portfolio (Target) fully invested in some alternative investments, which Asset Allocations. is why the actual allocations are different from the Investment Policy policy portfolio target allocation. Until the alternative investment allocations are fully implemented, the core As a continuation of the work the Associations did portfolio’s asset allocation will reflect an overweighting with TIFF to craft an asset allocation plan for the core to marketable investments and underweighting to portfolio, the staff and Joint Investment Committee1 alternative investments. performed a complete review and rewrite of the Associations’ Investment Policy Statement (IPS). It Planned Gift Portfolio was approved by both boards at their spring 2007 The planned gift portfolio consists of charitable trust meetings. The new policy includes more background, assets, charitable gift annuity investment accounts greater detail and enhanced controls. Additionally, and a pooled income fund. SunTrust Bank and its unlike most investment policy statements, which solely subsidiary Trusco Capital Management manage focus on the endowment, the Associations’ IPS covers this portfolio representing 11% of the investments. all investments. Reflecting good investment performance, and after Summary taking into account distributions and new gift receipts, the value of planned gift portfolio grew from $14M to Fiscal 2007 was a year of implementing the new $17.5M, an increase of 24%. Each of the individual strategic direction we undertook in 2006 when accounts in the portfolio has its own tailored asset we selected TIFF as the new external investment allocation established according to the parameters of manager for the core portfolio. TIFF has shown they the particular account, and distributions are made on a are very astute investors with very sophisticated risk regular basis to beneficiaries. management processes. They have enhanced our investment processes, delivered excellent investment Special investments results, provided highly informative and meticulous The special investment portfolio consists of seventeen presentations and reports, delivered outstanding investments that do not fit within the core or planned administrative support, and displayed uncompromising gift portfolios. At fiscal year end, this portfolio made professionalism and integrity. up 8% of all investments. There is a large variation in the types of investments and objectives of these various Joint Investment Committee: 1 Christian Poindexter ’60, Chair Frederick Sheehan ’78 accounts within the special investment program. William Moore ’61 Paul Prager ’80 Ronald Terwilliger ’63 Steven Young ’84 Thomas Brasco ’75 Charles McGill ’97 parent Peter Grieve ’77 • 2 u n i t ed StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  14. 14. The United States Naval Academy Alumni Association, Inc. and United States Naval Academy Foundation, Inc. Consolidated FinanCial RepoRt June 30, 2007 • 2007 AnnuA l Repo Rt 13
  15. 15. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. independent AuditoR’S RepoRt To the Board of Trustees The United States Naval Academy Alumni Association, Inc. To the Board of Directors United States Naval Academy Foundation, Inc. Annapolis, Maryland We have audited the accompanying consolidated statements of financial position of The United States Naval Academy Alumni Association, Inc. (the Alumni Association) and the United States Naval Academy Foundation, Inc. (the Foundation) as of June 30, 2007 and 2006, and the related consolidated statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Alumni Association’s and the Foundation’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Alumni Association and the Foundation as of June 30, 2007 and 2006, and the changes in their net assets and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Baltimore, Maryland October 4, 2007 • 14 u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  16. 16. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. conSolidAted StAtementS oF FinAnciAl poSition June 30, 2007 and 2006 2007 2006 Assets $ 3,336,758 Cash and cash equivalents $ 3,491,616 498,410 Accounts receivable and other current assets 458,391 45,135,409 Contributions receivable, net (Note 2) 42,277,064 158,404,556 Investments (Note 3) 130,735,738 4,423,731 Property and equipment, net (Notes 5, 12 and 13) 4,366,937 3,035,115 Interest in third party trusts (Note 1) 2,679,871 $ 214,833,979 Total assets $ 184,009,617 Liabilities and Net Assets Liabilities $ 2,272,743 Accounts payable and accrued expenses (Note 12) $ 1,502,073 590,310 Deposits on life memberships (Note 6) 562,840 2,103,107 Class savings accounts 1,808,537 943,095 Deferred income and deposits 829,463 2,500,000 Note payable (Note 7) 1,500,000 3,000,000 Loans payable (Note 7) 4,000,000 12,347,219 Split-interest agreements 10,835,607 1,044,413 Accrued key employees’ retirement (Note 9) 843,590 12,451,309 Unamortized life memberships deferred revenue (Note 6) 11,989,894 $ 37,252,196 Total liabilities $ 33,872,004 Net assets 12,721,106 Unrestricted 7,930,364 102,274,665 Temporarily restricted (Note 10) 85,553,973 62,586,012 Permanently restricted (Note 11) 56,653,276 $ 177,581,783 Total net assets $ 150,137,613 Commitments (Notes 12 and 13) $ 214,833,979 Total liabilities and net assets $ 184,009,617 See Notes to Consolidated Financial Statements. • 2007 AnnuA l Repo Rt 15
  17. 17. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. conSolidAted StAtement oF ActivitieS Year Ended June 30, 2007 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, gains and other support: $ 6,260,243 $ 34,466,137 Contributions (Note 4) $ 8,304,348 $ 19,901,546 296,418 Membership dues 296,418 — — 278,988 Life member amortization (Note 6) 278,988 — — 94,607 Merchandise sales 94,607 — — 22,420,259 Net investment income (Note 3) 5,666,570 16,398,445 355,244 199,884 Publications and advertising 199,884 — — 110,105 House activities 110,105 — — 520,073 Career transition services 520,073 — — 114,088 Homecoming and conference fees 114,088 — — 1,305,475 Fund administrative fee 1,305,475 — — 396,469 Royalties 396,469 — — 83,887 Travel income 83,887 — — 562,332 Other 562,332 — — Other support: 124,730 Change in value of split-interest agreements (95,944) 519,098 (298,424) Changes in donors’ intent (Note 8) 19,676 364,651 (384,327) — Net assets released from restrictions (Note 8) 20,463,048 (20,463,048) — — $ 5,932,736 $ 60,973,452 Total revenue and gains $ 38,320,024 $ 16,720,692 Expenses: Program services: 21,202,145 Support to the Naval Academy (Note 4) 21,202,145 — — 1,287,354 Alumni publications 1,287,354 — — 2,047,466 Membership support 2,047,466 — — 554,661 Partnership marketing 554,661 — — 841,145 Alumni communications 841,145 — — 644,278 Career transitions 644,278 — — $ 26,577,049 Total program services $ 26,577,049 — — Supporting services: 5,286,163 Development 5,286,163 — — 1,666,070 General and administrative 1,666,070 — — $ 6,952,233 Total supporting services $ 6,952,233 — — $ 33,529,282 Total expenses $ 33,529,282 — — 27,444,170 Change in net assets 4,790,742 16,720,692 5,932,736 1 50,137,613 Net assets at beginning of year 7,930,364 85,553,973 56,653,276 $ 62,586,012 $ 177,581,783 Net assets at end of year $ 12,721,106 $102,274,665 See Notes to Consolidated Financial Statements. • 16 u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  18. 18. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. conSolidAted StAtement oF ActivitieS Year Ended June 30, 2006 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, gains, and other support: $ 29,712,536 Contributions (Note 4) $ 6,679,090 $ 21,977,141 $ 1,056,305 274,163 Membership dues 274,163 — — 266,712 Life member amortization (Note 6) 266,712 — — 57,492 Merchandise sales 57,492 — — 10,710,428 Net investment income (Note 3) 2,830,866 7,733,294 146,268 229,798 Publications and advertising 229,798 — — 168,050 House activities 168,050 — — 622,042 Career transition services 622,042 — — 87,413 Homecoming and conference fees 87,413 — — 1,055,196 Fund administrative fee 1,055,196 — — 690,988 Royalties 690,988 — — 44,602 Travel income 44,602 — — 73,594 Other 73,594 — — Other support: Change in value of split-interest (526,935) agreements (315,164) 123,846 (335,617) Changes in donors’ intent (Note 8) (254,858) 2,701,858 (2,447,000) — Net assets released from restrictions (Note 8) 15,725,653 (15,725,653) — — $ 28,235,637 $ (1,580,044) $ 43,466,079 Total revenue and gains $ 16,810,486 Expenses: Program services: 15,066,589 Support to the Naval Academy (Note 4) 15,066,589 — — 1,272,846 Alumni publications 1,272,846 — — 2,085,390 Membership support 2,085,390 — — 470,546 Partnership marketing 470,546 — — 744,923 Alumni communications 744,923 — — 611,434 Career transitions 611,434 — — $ 20,251,728 $ 20,251,728 Total program services — — Supporting services: 5,646,548 Development 5,646,548 — — 1,646,586 General and administrative 1,646,586 — — $ 7,293,134 $ 7,293,134 Total supporting services — — $ 27,544,862 $ 27,544,862 Total expenses — — 15,921,217 Change in net assets 690,775 16,810,486 (1,580,044) 134,216,396 Net assets at beginning of year 7,239,589 68,743,487 58,233,320 $ 50,137,613 1 Net assets at end of year $ 7,930,364 $ 85,553,973 $ 56,653,276 See Notes to Consolidated Financial Statements. • 2007 AnnuA l Repo Rt 17
  19. 19. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. conSolidAted StAtementS oF cASh FlowS Years Ended June 30, 2007 and 2006 2007 2006 Cash Flows From Operating Activities $ 27,444,170 Change in net assets $ 15,921,217 Adjustments to reconcile change in net assets to net cash used in operating activities: 338,902 Depreciation and amortization 328,912 3,409,558 Change in discount and allowance on contributions receivable (2,676,967) (278,988) Amortization of life memberships (266,712) (18,836,607) Net realized and unrealized gains on investments (7,790,019) (355,244) Interest in third party trusts (146,268) (350,574) Net (gains) losses on sales of property and equipment 17,900 (6,111,612) Contributed securities (8,143,083) (8,625,806) Contributions restricted for long-term investment (11,044,714) Changes in assets and liabilities: (Increase) decrease in assets: (40,019) Accounts receivable and other current assets 6,859 (4,059,123) Contributions receivable 3,699,369 Increase (decrease) in liabilities: 625,009 Accounts payable and accrued expenses (119,382) 27,470 Deposits on life memberships 87,785 294,570 Class savings accounts 347,747 113,632 Deferred income and deposits 20,869 1,511,612 Split-interest agreements 775,942 200,823 Accrued key employees’ retirement 224,243 740,403 Unamortized life memberships deferred revenue 722,198 (3,951,824) Net cash used in operating activities $ $ (8,034,104) Cash Flows From Investing Activities (436,827) Purchases of property and equipment (740,329) 537,366 Proceeds from sales of property and equipment — (48,371,775) Purchase of investments (181,257,746) 45,651,176 Proceeds from sales or maturities of investments 182,090,653 $ (2,620,060) Net cash (used in) provided by investing activities $ 92,578 Cash Flows From Financing Activities 6,417,026 Contributions restricted for long-term investment 15,226,402 3,500,000 Proceeds from issuance of note payable — (1,000,000) Principal payments on loans payable — (2,500,000) Principal payments on note payable (6,500,000) 6,417,026 Net cash provided by financing activities 8,726,402 (154,858) Net increase (decrease) in cash and cash equivalents 784,876 3,491,616 Cash and cash equivalents at beginning of year 2,706,740 $ 3,336,758 Cash and cash equivalents at end of year $ 3,491,616 Supplemental Disclosure Of Cash Flow Information $ 226,743 Cash paid during year for interest $ 233,071 Supplemental Schedule Of Noncash Investing And Financing Activities $ 6,111,612 Contributed securities $ 8,143,083 Purchases of property and equipment included in accounts payable $ 145,661 and accrued expenses $ — See Notes to Consolidated Financial Statements. • 18 u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion
  20. 20. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. noteS to conSolidAted FinAnciAl StAtementS Note 1. Organizations And Summary Of Significant Accounting Policies The consolidated financial statements of The United States Naval Academy Alumni Association, Inc. (the Alumni Association) and the United States Naval Academy Foundation, Inc. (the Foundation) have been prepared on the accrual basis of accounting. The two entities are collectively referred to herein as the Associations. Significant intercompany amounts have been eliminated in consolidation. The significant accounting policies are described below. Organization: The Alumni Association is a not-for-profit, independent, self-supporting corporation of the Naval Academy alumni. First formed in 1886 as the United States Naval Academy Graduates Association, it was organized for educational and charitable purposes in 1931. It is dedicated to serve and support the nation, the naval service, the Naval Academy, and its alumni. The Foundation was established in 1944 as an organization to support Naval Academy athletics and candidates for admission to the Naval Academy. The private giving arm of the Foundation was established in 1968 under the name of the United States Academy Memorial Fund, Inc. (the Memorial Fund). During 1996, the name of the Memorial Fund was changed to the Naval Academy Associates, Inc. During 1997, the name of the Associates was changed to the Naval Academy Endowment Trust, Inc. (the Endowment Trust). As of December 31, 1999, the Endowment Trust amalgamated with the U.S. Naval Academy Foundation and changed its name to United States Naval Academy Foundation, Inc. The Foundation is a not-for-profit, independent organization created to raise private contributions to benefit the United States Naval Academy, the Brigade of Midshipmen (the Naval Academy), and the Alumni Association. The Alumni Association manages the investment and administrative functions of the Foundation. The Foundation records its share of actual expenses incurred by the Alumni Association for such services. Net assets classification: Net assets, revenues, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Associations and changes therein are classified and reported as follows: Unrestricted net assets – Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets – Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Associations and/or the passage of time. Permanently restricted net assets – Net assets subject to donor-imposed stipulations that the Associations maintain them permanently. Generally, the donors of these assets permit the Associations to use all or a part of the income earned on related investments for general or specific purposes. Revenue recognition: Contributions, including unconditional promises to give (pledges), are recognized as revenues in the year received. Promises to give are reported net of current year adjustments and discounts. Contributions for the benefit of the Naval Academy are recorded as contributions revenue when received and as support expenses when paid. The Alumni Association recognizes income from life membership dues over the life expectancy of the member at the time he or she becomes a member. Contributions and investment income: Contributions and investment income are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed purpose or time restrictions. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restrictions in the Consolidated Statements of Activities (see Note 8). • 2007 AnnuA l Repo Rt 19
  21. 21. The UniTed STaTeS naval academy alUmni aSSociaTion, inc. and UniTed STaTeS naval academy FoUndaTion, inc. noteS to conSolidAted FinAnciAl StAtementS Note 1. Organization and Summary of Significant Accounting Policies (Continued) Contributions with donor-imposed time restrictions are reported as unrestricted revenues when those restrictions are met in the same year as received. Functional expenses: The costs of providing various programs and other activities have been summarized on a functional basis in the Consolidated Statements of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Career program expenses relate to the Service Academies Career Conference and career transition programs. Membership support expenses are the costs to provide services to members of the Alumni Association for class and chapter support and for special alumni events. Partnership marketing expenses relate to affinity programs and the cost of sales on merchandise. Alumni publication expenses consist primarily of the cost to produce Shipmate magazine and the Service Academy Business Resource Directory (SABRD). Alumni communication expenses support all electronic and Web-site-based communications. Development expenses are the costs to raise funds for the Naval Academy and the Associations. Cash equivalents: For purposes of reporting cash flows, cash equivalents are short-term investments with remaining maturities at date of purchase of three months or less, except for those short-term investments managed by the Associations’ investment managers as part of their long-term investment strategies. Cash equivalents consisting of an overnight sweep investment account of approximately $2,754,877 and $2,491,000 at June 30, 2007 and 2006, respectively, are carried at fair value. Accounts receivable: Accounts receivable consists of current amounts due to the Alumni Association for life and corporate membership dues, advertising in Shipmate magazine, and events held at Alumni House. Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. An account receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days. Interest is not charged on receivables that are outstanding for more than 30 days. Management has determined that an allowance for doubtful accounts on accounts receivable was not necessary at June 30, 2007 and 2006. Investments: Investments are reported at fair value. Investments in debt and equity securities and mutual funds are based on quoted market prices. Investments in other investments are reported at fair value as determined and reported by the general partners or investment managers or the Associations’ staff. Certain alternative investments are carried at estimated fair value as of March 31, 2007 and 2006, as adjusted for cash receipts, cash distributions and security distributions through June 30, 2007 and 2006. The Associations believe that the carrying amount for these investments is a reasonable estimate of fair value as of June 30, 2007 and 2006. These investments consist of approximately 1% of total investments as of June 30, 2007 and 2006. For one minor interest in a limited partnership where a market value was not available, carrying value is used as an estimate of fair value. Investments are used for operations, class savings accounts, split-interest agreements, board-designated life membership funds, support for the Naval Academy, and the Associations’ endowments. Both entities initially record donated securities at the fair value on the date of the gift. As part of an investment manager change during the year ended June 30, 2006, the Associations liquidated all of their existing hedge fund investments and invested in a multi-asset mutual fund that provides exposure • 20 u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion