Usnavy Fund2007

Alma Mater
Serving the
and its Alumni
United StateS

naval academy

alUmni aSSociation

& FoUndation

2007 annUal RepoRt

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

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.

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2 u n i t e d StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion

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

•

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
usna.com
communications and serve our alumni in new ways. This year www.usna.com 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
www.usna.com, 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

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.

•

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.

•

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, www.usna.com;
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

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

•

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

•

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

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0 u n i t ed StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion

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

•

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

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2 u n i t ed StAte S nAvA l AcA demy Alumni A SSociAtion FoundAtion

The United States Naval Academy Alumni Association, Inc.
and United States Naval Academy Foundation, Inc.

Consolidated FinanCial RepoRt
June 30, 2007

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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

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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.

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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


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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


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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 $ —


•


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).

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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

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