NEW YORK–(BUSINESS WIRE)–July 28, 2003–In the last two years colleges and universities have experienced declining endowments. According to a new report published by Fitch Ratings today, discussingcontracting endowments, Fitch emphasizes that market value declines are important as they relate to the income distributions each year for operating costs. The new report concludes it is appropriateto review payout policy and implement changes if such changes provide more stability in payout during more volatile markets.

‘Fitch is interested to know whether the investment staff, as well as the governing board, regularly schedule reviews of the distribution policy,’ said Pamela Clayton, senior director, Fitch Ratings. ‘These reviews should include evaluating the distribution methodology under different scenarios regarding asset allocation, expected investment returns, and inflation rates. In addition, in a market in which the amounts distributed from the endowment are declining, Fitch is also interested in the steps being taken by the school to identify alternate funding sources and to reduce expenses.’

‘Regarding asset allocations, which also affect the amount of income distributed each year, Fitch has observed a shift in allocations to a heavier weighting of less liquid non-traditional assets such as hedge funds and venture capital. Fitch views the illiquid alternative assets as concerns if proper controls are not implemented to ensure timely reporting and monitoring of investment performance. If proper controls are established, a more aggressive policy may be appropriate and allow the endowment fund to maximize growth,’ said Jason Dickerson, director at Fitch.

For a copy of ‘Expanding Our Understanding of Contracting Endowments,’ please visit Fitch Ratings’ web site at ‘www.fitchratings.com’.