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2004 Finance Committee Report
The Society’s financial condition remains strong
through sound management and investment practices. The Society’s income has
been growing slowly, but expenses are growing at a faster rate than
revenue. The three-year Financial Forecast is showing a steady trend from
$563,000 in Net Revenue in 2001, to a projected $379,000 Net Expenses in
2007. This is a significant improvement from a year ago, when the annual
deficit was projected to be approximately $1 million in 2006. Contributing
to the improvement was a concerted effort by the Society to hold down
expenses in 2003 without cutting programs. The Society finished the year
with net revenue of $311,373, $518,670 over a budgeted deficit of $207,297.
This was accomplished despite that fact that the Society had to absorb a bad
debt of approximately $280,000 due to the bankruptcy of RoweCom, one of its
largest subscription agents. The 2004 budget, approved by Council at its
spring meeting, is projecting net revenue of $312,662, very close to the
actual amount for 2003.
As directed by Council, the Society uses up to four
percent of the value of its investments annually as operating income. Only
that amount required to offset the cost of Society programs, other than the
Journals Program, is withdrawn and the remainder continues in actively
managed investment accounts. The Journals Program, by a 1995 Council
mandate, is expected to generate a return of 10% annually. In the early
1990’s, the reserves, which the Society depends on for approximately seven
and one half percent of its operating revenue, almost doubled due to
favorable market conditions. However, the down market of 2000-2002 caused
the Society’s reserves to decrease from $30 million at December 31, 1999, to
$26 million at December 31, 2002. With the 2003 market turnaround, the
Society’s reserves returned to its December 31, 1999 value of $30 million.
White Paper on the Financial State of the Society
The Finance Committee was asked by Council to develop a
white paper to be used as a planning document for the next APS strategic
planning meeting. The white paper written by the committee is designed to
give a “view from 35,000 feet” of the Society’s financial history, its
current financial status, and several challenges facing the Society.
Society Budget
The chair reviewed the 2003 budget versus actual income
and expenses and presented the modified 2004 budget based on the 2003
results, as reviewed and approved by the Finance Committee at its spring
meeting. The Society employs a consolidated operating budget to manage
overall operations. The consolidated budget is comprised of the individual
budgets for the various cost centers; these include Publications, Membership
and Meetings, Education, Public Affairs, Marketing, and the Executive,
Information Technology, and Business Offices. For 2003, the year ended with
income of $16,333,646 (including $1,242,933 allocated from the Society’s
reserves) and direct expenses of $14,361,754, plus general and
administrative (G&A) costs of $1,660,519, for total expenses of
$16,022,273. G&A costs (the sum of Executive, Information Technology, and
Business Office expenses) are allocated to other Society offices based on
each office’s share of total salary expenses. Including the $1,242,933
investment allocation, total operating revenue exceeded total operating
expenses, resulting in net revenue of $311,373.
The Council approved a 2004 budget of $16,984,550.
After applying the entire investment allocation of $1,245,065 and the net
revenue from Publications of $1,287,844, the budget shows net revenue of
$312,662.
Journal Subscription Pricing
Council reviewed the Publications and Finance
Committees’ recommendations for 2005 journal subscription prices. It should
be pointed out that journal publication is the major source of revenue for
the Society and is key to its financial well-being. In 1995, the Council
recommended that the journals’ prices be set so as to generate a margin of
approximately 10% to help defray the costs of the various Society programs.
The Finance Committee agrees with the Publications Committee who recommended
that 2005 subscription prices be raised by an overall rate of five percent,
with the exception of Physiology (formerly NIPS), and Physiological
Genomics, whose 2005 rates will be increased 10% to help offset the higher
costs incurred by those journals. A comparison of 2005 and 2004 domestic
institutional prices is shown in the table below.
Society Reserves
At its spring meeting, the Finance Committee reviewed
the performance of the Society’s investment managers. The investments are
administered by four managers under the direction of our investment
consultant, Smith Barney. As of December 31, 2003, the accounts had the
following market values: APS Reserves $30,157,277, APS General Endowment
Fund $3,086,485, Giles F. Filley Memorial Fund $802,104, Rife/Guyton Fund
$566,428, Caroline tum Suden Fund $557,418, Perkins Memorial Fund $312,417,
IUPS Fund $308,302, Shih-Chun Wang Fund $143,802, and the Lazaro Mandel Fund
$140,549. The return on the managed accounts was 19.17% for the year ended
December 31, 2003. The market value of the managed accounts at December 31,
2003 was $36,074,782.
Due to variable performance in the four managed
accounts, each manager held between 24% and 26% of all invested assets.
Based on a recommendation from the Finance Committee that was approved by
Council, the accounts were rebalanced so that each of the four fund managers
will be allocated approximately 25% of all assets as of March 31 in
accordance with the Society’s investment strategy.
2003 Audit
The Finance Committee received the annual audit
performed by Grant Thornton, LLP. In the opinion of the auditors, based on
generally accepted accounting principles, the financial statements that
follow present fairly the financial position of the Society as of December
31, 2003. No problems were found by the auditors.
Fundraising Guidelines for Distinguished
Lectureships
At the spring Council meeting, there was a discussion
of the lack of income from APS meetings, especially EB. Council requested
that the Finance Committee make a recommendation as to how much funding
should be requested to sponsor a distinguished lectureship. The Committee
is currently reviewing guidelines that will provide incentive to the
sections for raising money in support of distinguished lectureships at EB.
The Committee will present its recommendation to Council for consideration
in the fall.
Peter D. Wagner, Chair
Council Actions
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Council accepted the report of the Finance Committee.
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