University of Virginia Library

SCOTT & STRINGFELLOW

You asked me last Friday to send you and each member of the Finance Committee of the
University of Virginia Board of Visitors a copy of a portion of a letter written by me last
August 18th to Mr. Fred W. Scott in which I summarized certain figures in regard to the handling
of the Endowment Funds of the University in past years. I am, therefore, quoting below all of
the letter which I read you that concerns the above matters omitting only certain personal matters
contained at the end of my letter.

"From time to time you seem to be worried over the shrinkage in value sustained by many
of the University's securities. While all funds of this kind have had a similar experience this
is a poor consolation. However, you may be interested in some of the following facts in this
connection.

"In 1930 Mr. Carruthers and I worked out a plan to consolidate many of the small
funds of the University. Some of these had increased in value and others had diminished from
their book values. In order to treat the funds equitably it was necessary to change our book
values to the then market. This resulted in a net write-up of the book values of the various funds
amounting to $235,928.14. Between 1930 and June 30, 1939 the sale and redemption of securities in
the Consolidated Funds has resulted in net profits of $56,823.68 over the book values as
established in 1930. Adding these profits to the above write-up makes a total of $292,752 which
has been added to the book value of the Consolidated Funds. So while the Consolidated Funds
together with the Seward Estate Fund showed an unrealized depreciation from book values on June 30,
1939 amounting to $446,210, there should be credited against this the above mentioned profits
and write-up of $292,752, leaving a net shrinkage of $153,458.

"I have been unable to secure the figures showing realized profits in the separate funds
from the time you became Chairman of the Finance Committee in 1921 up until 1930 but I am satisfied
that these profits were considerable as this was, generally speaking, a period of rising prices.
It was during this period, for instance, that you sold the stock of the Massachusetts Gas Companies
on which a profit of $57,444 was realized. I feel pretty safe in saying that the profits realized
prior to 1930 will more than take care of the loss in the unmarketable real estate loans which are
included at their book values in the assets of the Consolidated Funds because no market values
are obtainable.

"While the University will undoubtedly eventually sustain some severe losses in its
holdings of railroad securities, these are partially offset in the totals as indicated above
by several very handsome profits still unrealized - for instance, you will recall that the
1940 1400 shares of DuPont stock received from the Wills Johnson Estate and since multiplied
through stock split ups was originally taken over (after adjustment for sale of rights and
odd shares) at $18,146 and is now worth $224,000."

I enclose a summary of the investments of the University giving book values and present
market values indicating an unrealized depreciation in the securities held by the University of
$325,637 as of the close of the year 1939 as compared with an unrealized depreciation of $446,210
on June 30, 1939 as mentioned in my letter of August 18th, quoted above, so in other words, the
securities have increased in value approximately $120,000 during the last six months of 1939,
leaving an actual net loss in the funds of about $33,000 or a little over 1%.

Mr. Daniel asked how the University's investments had fared as between the different
security classifications. I am not able to give you this information in full and accurate detail
and a complete statement would require a considerable investigation in the records of the Bursar.
However, I think the following information will be sufficient for your present purposes. The
write-up in book value of securities in 1930 represented an increase in value entirely in the
stock groups, there being a slight decline at that time in the value of the bond groups. The
entry made on the Bursar's records at that time does not divide the write-up as between the common
stock group and the preferred and guaranteed stocks. However, I have looked up the principal items
of the write-up which are attached hereto in a separate memorandum. This does not include a large
number of small items but it is quite apparent from this memorandum that at least 90% of the
write-up occurred in the common stock group, the total of the eight items listed being over
$220,000. It therefore appears that the unrealized depreciation of $78,524. in the common stock
would show instead as an unrealized profit of approximately $140,000 if referred back to the
original prices at which the securities were bought or taken over. In the preferred and guaranteed
stock group the unrealized loss would be slightly reduced if referred to the original cost basis.

Most of the $56,823.68 profit realized on sale of securities between 1930 and 1939 was
made from the sale and redemption of bonds, principally from those in the industrial and
miscellaneous bond group. This group has, therefore, netted the University realized profits and
also shows an unrealized profit of a similar amount, the combined total being in the neighborhood
of $100,000. Profits realized in the past nine years in the railroad bond group would slightly
reduce the unrealized losses now indicated in this classification but the railroad bond group
would still show the largest depreciation of all, somewhere between $160,000 and $170,000.

It is rather interesting that the principal losses which have been sustained in the
University's Endowment Funds have been in the railroad bond group and to a lesser extent in the
railroad preferred and guaranteed stocks, most of which were considered very conservative
high-grade investments at the time they were acquired. While these losses have been offset in
part by profits on industrial and miscellaneous bonds, the larger profits have come from the
retention of common stocks received as legacies and held by the University over a long period.
Through this combination the Fund has been substantially kept intact through the recent difficult years.

I trust the above gives you the information desired.