The College's 2008/09 fiscal year coincided with the country's worst financial and economic crisis since the 1930s. During the period the College's net assets dropped by $28.8 million, to $96.5 million as of 5/31/2009, their lowest level in five years. Net assets are defined as the College's total assets less its liabilities and are equivalent to net worth or equity.

The decline in net assets was principally caused by a 24% drop in the College's longterm investment portfolio, in line with outcomes for our portfolio benchmarks. While these losses are regrettable, they must be seen in the context of extremely volatile market conditions. Indeed, as of mid-September, 2009 the College's long-term investment portfolio had recovered roughly $6 million or about 10% relative to May 31. The College's cash liquidity remained strong throughout the fiscal year.

Operations

The College posted a $217 thousand operating surplus in 2008/09 , about $1. 6 million better than the previous year and about $2 million better than the budget. More students were enrolled than ever before, and budget supporting gifts and grants rose by $653 thousand over the previous year. However, the main reason for the improved operating result was an excellent community wide effort to reduce expenditures during the external financial crisis. Operating expenses, excluding compensation, were cut by $1.2 million relative to 2007/08.

Investments

The College's long-term investment portfolio is managed by the Commonfund. It is a highly diversified portfolio from all perspectives. The fiscal 2008-09 year is likely to be remembered as one of the worst on record for higher education. Many of the measures taken by non-profits to protect against severe volatility failed to work in the context of virtually universal risk aversion. The investment performance of the College's portfolio has been quite consistent with its benchmarks. The portfolio hit bottom in March, 2009, and has appreciated significantly since then.

Endowment

In 2008/09, restricted and/or endowment gifts totaled $5.7 million. With a $20.6 million decline in value of the endowment (a subset of net assets) portfolio and a spending draw or "call" on the endowment of $3.9 million, the total endowment declined $18.9 million from the previous fiscal year to $59 million as of May 31, 2009.

Auction Rate Debt

During the early months of calendar 2008, the auction rate debt market, which contains virtually all the College's long term debt, collapsed. Starting in late February 2008, auctions of the College's debt, which take place every 28 days, have failed to match buyers and sellers. Consequently, the interest rates payable on the debt have been set by ceiling rate formulas embedded in the College's bond documentation. This, has not, to date, led to an increase in the College's debt service costs. However, the College is vulnerable in the event of a rise in interest rates, and therefore, the College is preparing for a possible conversion on the College's roughly $46 million of auction rate debt into another form of bonds. The conversion will take place when market conditions favor the transaction.

Challenges Ahead

The College continues to face medium term financial challenges, related to the College's unique but expensive pedagogical model, and upward pressure on financial aid. These factors, exacerbated by the external economic environment, require creative management as well as donor support, in order to protect our pedagogy, continue to support an increasingly needy student body, and fund new initiatives.

John Bernson
Vice President for Finance & Planning
October 7, 2009