REPORT OF FINANCIAL CONDITION

For the fiscal year ended June 30, 2001, New School University achieved a balanced budget for the 21st consecutive year. Growing enrollment and revenue provided sound financial underpinnings for a thriving academic program. Unrestricted net assets (net of investment in plant) have more than doubled in the last five years, increasing from $27 million in 1996 to $61 million in 2001. Over the five-year period, investment return designated for long-term investment has contributed $14 million, and operating, gift, grant and auxiliary activities have produced $20 million of the increase in unrestricted net assets. In 2001, investment return designated for long-term investment added $2.1 million, while operating, gift, grant and auxiliary activities added $5.4 million to unrestricted net assets.

New School University's budget depends heavily—nearly 75%—on tuition revenue. Board policy has encouraged enrollment and revenue growth through strategic planning and coordination of capital investments in dormitories, other facilities and technology. The University's divisions have been successful in meeting this objective. For example, from fall 1996 to fall 2000, degree program enrollment increased 12.4%. Growth has been particularly strong among undergraduates, with the most rapid expansion at The New School, Parsons and Lang College. Adult education enrollment has declined somewhat (7%) since 1996, but revenues have remained stable as students have enrolled for longer courses and more hours. Over the five-year period, net tuition revenues have increased 40%, while total operating revenues have grown 34%. (The attack on the World Trade Center and the recession softened enrollment growth in fall 2001, but both enrollment and revenues continued to rise.)

Because New School University's student body is extraordinarily diverse, enrollment risk spans several distinct markets. Students come from 49 of the 50 states and from over 100 countries throughout the world. One quarter of the student body is international, and almost one quarter of U.S. resident students are minorities. Like New York City itself, New School University welcomes immigrants, drawing intellectual and cultural vitality from their diversity.

Each year University management asks: What's working and what's not? While New School University must keep its central academic mission in mind, we are willing when necessary to close programs that are not cost effective. At the same time, we look to develop new programs that tap our intellectual and physical resources and to expand existing programs to meet new demand. At this time in its history, the University's growth and fiscal stability hinge on a continued steady effort in enrollment management. This program is geared to expand the pool of applicants, to recruit greater numbers of highly qualified students, to effectively support students during their time at the University and to extend outreach to former students as alumni.

The University is also engaged in a set of management activities designed to diversify its revenues by increasing fundraising, securing additional local, state and federal support and developing auxiliary programs and revenues. In the last year, the University has made considerable progress in each of these areas and expects positive results to be reflected in subsequent
financial statements.

Though the University's $100 million endowment is modest by comparison to some other institutions, it has grown to this level in the last 20 years from a few million dollars. Generous supporters together with careful management by our Trustee Investment Committee have produced steady growth. For example, endowment investments generated a total return of 8.0% during the year ended June 30, 2001 at the same time that the S&P 500 index fell 14.8%. Annualized total returns of 7.8% for the three-year and 11.4% for the five-year periods ended June 30, 2001 equalled or exceeded blended market indices that reflect the University's allocation to equity and fixed-income investments. Endowment returns have consistently exceeded the University's 5% spending rate, producing significant growth in endowment resources from investment return.

Last June, in independent assessments of the University's financial condition, Moody's increased the University's credit rating to A3 and Standard & Poors to A-. They did so citing recent financial performance, a diverse enrollment base, our desirable location and valuable real estate. At the A level, the University enjoys more options and lower costs when issuing long-term debt. The rating agencies recognized that by building its multi-source revenue base and setting aside reserves each year, the University endows itself and assures its future. In February 2002, Moody's confirmed this upgrade.

During the 2001-2002 academic year, the President and the Board of Trustees have introduced a management plan to further improve financial performance, bolster academic programs and administrative services and extend the University's liberal arts offerings. This initiative will extend to each academic and administrative division through a budget model that stimulates revenue growth and fosters quality in academic offerings and administrative services. New bud-get rules are an important management tool for the University. They will foster even greater transparency in the budget process and encourage each division to develop reserves. Ongoing close attention to financial matters makes it increasingly likely that the University's track record of superior financial performance will continue in the future.