Kamehameha Schools' endowment grew by a record $1.4 billion during its latest fiscal year, paving the way for expansion of the trust's educational programs.

In its annual report for the year ending June 30, 2007, the charitable trust said its net assets grew from $7.7 billion to nearly $9.1 billion.

Kamehameha Schools, the state's largest private landowner and one of the nation's wealthiest charities, said it increased spending on its educational programs by about $30 million to more than $250 million in the year.

"The reality is the more we make, the more we spend (on education)," said Kirk Belsby, Kamehameha's vice president of endowment.

Kamehameha Schools, which was established by the 1884 will of Princess Bernice Pauahi Bishop and educates children of Hawaiian ancestry, said it served 36,000 students last year, a 27 percent increase from the year-earlier's 28,000 students.

Of those students, 5,354 were enrolled in the trust's K-12th grade programs at its three Kapalama Heights and Neighbor Island campuses.

The trust served another 30,000 children and adults through its various preschool and community outreach programs and support of 14 charter schools.

The school is bound by a Probate Court-approved policy that requires it to spend 2.5 percent to 6 percent of its average endowment value during the previous five years on educational programs.

Last year's $250 million in education spending was about 4.1 percent of Kamehameha's average endowment value for the past five years.

Estate officials would not comment yesterday on last year's legal settlement with an unnamed non-Hawaiian student who had challenged the estate's Hawaiians-first admissions policy.

The Advertiser reported yesterday that the trust paid $7 million to settle the suit out of court just as the U.S. Supreme Court was to decide whether to hear the case.

In its annual report, the estate said its investments generated a 22.3 percent return for the year, surpassing its goal and outperforming many of its peers in the nonprofit world.

The median return for large endowment funds in 2007 was about 20.2 percent, according to Cambridge Associates, a Boston-based investment firm that advises universities, foundations, and other large nonprofits.

The value of the trust's investments in foreign market funds soared 26.5 percent to nearly $1.5 billion while the value of its Hawai'i real estate holdings increased by 31.7 percent last year to nearly $2.5 billion.

The bulk of the trust's asset appreciation — or about $1 billion — came in the form of realized and unrealized gains on various stock market holdings and other investments.

According to Belsby, the estate's diverse portfolio will help it weather the current financial turmoil in the nation's markets.

According to the trust's annual report, investments in U.S. equities and Mainland real estate account for about 17 percent of the estate's $9 billion portfolio.

"I certainly expect our performance to be modified relative to the last few years," Belsby said.

"(But) the bad news you're seeing now in the equities markets and the Mainland real estate markets is not as magnified in our portfolio because we hold lots of assets elsewhere."

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.