As a benchmark for the Portfolio’s performance, the Committee has established a composite measure of market indices that is weighted to approximate the allocation guideline for each asset category. The Portfolio benchmark is comprised of the Standard and Poor’s 500 (30%), Russell 2000 Index (6%), Standard & Poor’s MidCap 400 (6%), MSCI EAFE Index (20%), MSCI Emerging Markets Index (8%), Lehman U.S. Aggregate Index (12%), Salomon Non-U.S. WGBI Index (3%), and Hennessee Hedge Fund Index (15%). Starting in July 2007, this new composite benchmark was used to evaluate the Portfolio’s performance.

Market values of the Endowment and Trust Investment Pool, after withdrawals, for the years ended December 31, 2007 and 2006, are displayed in the following chart:

At the beginning of 2007, the NAS Endowment consisted of $405.6 million in assets. During the year, the Endowment received contributions of $15.3 million, withdrew funds for programs of $26.8 million, and earned investment income of $43.9 million, resulting in an ending asset balance of $438.0 million. For the year, the portfolio returned 11.2%, compared with a benchmark return of 10.6%. In 2006, the portfolio returned 19.0% versus 15.5% for the benchmark. For 2007, a significant portion of the returns for the year, both in absolute and relative terms, was due to the international markets, both equities and fixed income. NAS’ hedge funds and foreign equity holdings performed relatively well and the increased allocation of non-US fixed income investments added to the good performance. In addition, Berkshire Hathaway continued to perform well, returning over 17% for the year.

NAS’ portfolio has consistently outperformed the market benchmarks over a long period. For the five years ending December 31, 2007, the NAS return is 16.0% compared to the market composite benchmark of 14.6% and, for the ten years ending December 31, 2007, the NAS return is 8.6% compared with the market composite benchmark of 7.7%.

The next chart presents the investment structure adopted by the NAS Finance Committee in 2007 for its asset allocation strategy and compares this guideline to the portfolio allocation at December 31, 2007.

• See Schedule 2-A on page 21 for details of investments by asset class.

• Included in the $438.0 million total market value of the Endowment and Trust Investment Pool as of December 31, 2007, are $70.4 million for the Institute of Medicine (IOM), $11.8 million for The National Academies Corporation (TNAC), and $8.8 million for the Woods Hole Endowment Funds. TNAC, which is equally owned by the NAS and the National Academy of Engineering Fund (NAEF), owns and operates the Beckman Center (see note 1 to the financial statements on page 43).

• Withdrawals of $11.7 million were made to fund the President’s Committee, NAS General Fund’s activity, and prizes and awards for the current period. Additional withdrawals of $15.1 million were made to fund IOM, Woods Hole, and TNAC activity.