The 1999 Legislature authorized the establishment of a trust investment account administered by the State Treasurer for purposes of investing restricted funds with non-expendable principal balances. As of June 30, 2007, the fund had a principal balance of approximately $55.4 million, of which $33.6 million was allocated to the Tobacco Trust Fund, $18.3 million to the Higher Education Endowment Trust Fund, and the remainder to various smaller trust funds. For FY'07, the fund had a total dollar weighted return of 12.0% versus the target return of 10.6%. For the same period, the S&P 500 Stock Index returned 20.6% and the Lehman Aggregate Bond Index returned 6.12%.

Vermont firms manage all funds. Sentinel Asset Management manages the fixed income portion of the fund, while Prentiss-Smith and Hanson Investments manage the equity portion. Chittenden Bank serves as the custodian bank.

Trust Investment Accounts Asset Allocation

As of June 30, 2007

Trust Investment Accounts Return

As of June 30, 2007

Higher Education Trust Fund

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            The 1999 Legislature established the Vermont Higher Education Endowment Trust Fund. Appropriated $6 million for the creation and management of the fund by the State Treasurer. An additional $1 million was appropriated for the fund in fiscal year 2001, $635,881 in FY'02, $2,363,355 in FY'05, and $5,823,449 in FY'06 (years of appropriations which precede years of contribution). On June 30, 2007, the fund had a market value of $18,269,599. In August of 2007, the State Treasurer authorized the distribution of 5% of the average market value of the assets over the prior 12 quarters equally among the University of Vermont, the Vermont State Colleges, and the Vermont Student Assistance Corporation. Each received $206,860 to be applied as non-loan financial aid to Vermont students attending Vermont postsecondary institutions.

            In addition to the above disbursements from the fund, the Vermont Commission on Higher Education Funding authorized the Treasurer to make available the additional 2% distribution of $168,663 to be divided equally between the University of Vermont and the Vermont State Colleges for application to their respective permanent endowments. In FY'07, the additional endowment allocation will be $124,116 for each institution, provided that it is matched on a two-to-one basis by external donations for endowment purposes by the end of the fiscal year.

Higher Education Trust Fund Annual Report

Tobacco Litigation Settlement Fund and the Tobacco Trust Fund

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In November 1998, Vermont was one of 46 states to enter into a settlement agreement with four major tobacco companies. The State’s estimated share of settlement payments at the time was expected to total $806 million over the first 25 years of payment, with an additional $156 million of strategic contribution payments to be paid between 2008 and 2017. Through fiscal year 2007, the State has received payments that total $220.4 million.
            Pursuant to the Agreement, the expected settlement amounts are adjusted for inflation and the effect of any decreases in the sale of tobacco products to the base year. To date, these have accounted for an 11.3 percent decrease. It remains difficult, therefore, to predict the amount of the future payments due from the tobacco settlement that will be received by the State.
            In fiscal year 2000, the Vermont Legislature established a Tobacco Litigation Settlement Fund (“Settlement Fund”) to be administered by the State Treasurer and to be subject to further appropriations. In fiscal year 2007, $19.8 million from the Settlement Fund was directed to healthcare services (Medicaid; includes funds redirected to the Medicaid Global Commitment Fund). A total of $4.4 million was spent on programs in various departments for tobacco enforcement, prevention, and education programs. Additionally, $3.1 million funded substance abuse and youth protection programs in the Agency of Human Services. In fiscal year 2008, the legislature has appropriated $29.6 million for Medicaid health services; $4.4 million for enforcement, prevention, and education; and $3.2 million for substance abuse and youth protection programs.
            Any remainder of the Settlement Fund receipts is earmarked for the separately established Tobacco Trust Fund, a trust established to eventually endow the education and prevention programs. In fiscal year 2007, there was a shortfall in funds received by the Settlement Fund due to an amount withheld by tobacco companies. This required a withdrawal from the Tobacco Trust Fund of $2.86 million. The balance of the Tobacco Trust Fund net of this withdrawal at June 30, 2007, was $30.9 million versus $30.2 million at the end of FY 2006. The increased net of the withdrawal in the Tobacco Trust Fund was due to much better- than-expected Trust Investment Account performance.  

Vermont Veterans' Home

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            By legislative act in fiscal year 2001, the Vermont Veterans’ Home was required to transfer its endowment fund to the State for administration by the State Treasurer. In the fall of 2001, the home transferred $455,441.85 into the trust to the State. The legislation allows the State Treasurer to invest these funds, if appropriate, with the long-term investments in the Investment Trust Account. The funds were invested with the State’s short-term investments, until a spending policy for these funds was established by the Board of Trustees for the Vermont Veterans’ Home. At the Board’s September 2002 meeting, a spending policy was adopted that allowed for transfer of the funds to a fund in the State’s Trust Investment Account (“TIA”). Of the amount transferred, $400,000 was deposited in the TIA fund as of October 1, 2002. In November and December of 2002, the Vermont Veterans’ Home received a bequest of $410,000 that was deposited into the TIA fund as a second, separately-named fund pursuant to the terms of the bequest. On July 1, 2004, an additional contribution of $75,000 was credited to this second fund.  
            During fiscal year 2007, withdrawals from the Vermont Veterans’ Home TIA Funds totaled $50,000. As of June 30, 2007, the balance of the fund first contributed to the TIA was $500,502.71, and the balance of the second (later) fund was $591,178.65, for a combined total of $1,091,681.36.

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